Interim Results
Antofagasta PLC
29 August 2007
Antofagasta plc
Interim Results Announcement for the six months ended 30 June 2007
29 August 2007
HIGHLIGHTS
• Strong financial results with profit before tax up 8.4% to US$1,437
million (2006 half year - US$1,325 million), and cash flow from operations
up 29.1% to US$1,349.3 million (2006 half year - US$1,045.4 million). The
Group benefited from higher LME copper prices and market molybdenum prices
as well as increased molybdenum volumes, although pricing adjustments on
provisionally invoiced copper sales were lower than the comparable period in
2006. Operating costs (excluding by-product credits and tolling charges in
the case of Los Pelambres), though higher than the 2006 half year, remained
in line with forecasts at all three mines. The transport and water divisions
also continued to perform well. Total income tax expense in Chile (including
corporation, mining and withholding taxes) amounted to US$332 million (2006
half year - US$255 million) with an effective tax rate similar to the 2006
full year.
• Earnings per share up 11.6% to 73.9 cents (2006 half year - 66.2 cents).
The Group also benefited from the acquisition of Equatorial Mining Limited
in the second half of 2006, which increased its interest in the El Tesoro
mine to 100%. Consequently, attributable copper production also increased by
16.0% to 149,200 tonnes (2006 half year - 128,600 tonnes), compared with an
increase of 2.0% in total Group production.
• Total interim dividend up 19.2% to 6.2 cents per share (2006 half year
5.2 cents per share). The interim dividend comprises an ordinary dividend of
3.2 cents and a special dividend of 3.0 cents.
• Continued progress with capital projects at Los Pelambres. The 140,000
tpd expansion has been completed and completion of the Mauro dam is expected
by the end of the year; a feasibility study for a further repowering which
is within the scope of existing environmental approvals has been carried
out.
• Esperanza copper-gold project received board approval in June, with
environmental applications submitted on 21 August. Development costs are
expected to be US$1.5 billion, with first production scheduled for the end
of 2010. Average annual production in the first 10 years of operation is
forecast at 195,000 tonnes of payable copper, 229,000 ounces of payable gold
and 1,556,000 ounces of payable silver. This would represent an increase in
the Group's copper output of over 40% from current levels.
• Further progress with the exploration programme at the Tethyan Copper
Company Limited joint venture, developing the Reko Diq project in the
Balochistan province in Pakistan. An updated resource estimate and scoping
study are expected to be completed by the end of the year.
Marcelo Awad, Chief Executive Officer of Antofagasta Minerals S.A., commented:
'We are very pleased with the continued strong performance of the Group in the
first half of this year. Fundamentals in both the copper and molybdenum markets
remain solid, and despite recent uncertainty in the United States we expect
commodity prices to remain strong for the remainder of the year and well into
2008. Production levels and operating costs at the Group's mines remain in line
with forecast, although industry-wide cost pressures from labour, fuel and
energy persist. We continue to make further progress in the Group's strategy for
growth through new mines and exploration.'
Antofagasta is a Chilean-based mining group listed in the United Kingdom. In
addition to copper mining, its interests include rail and road transport
operations and water distribution.
+------------------------------------------------+------+---------+---------+--------+
|SIX MONTHS TO 30 JUNE | | 2007 | 2006 |% Change|
+------------------------------------------------+------+---------+---------+--------+
|Group turnover | US$'m|1,942.1 |1,846.9 | 5.2 |
+------------------------------------------------+------+---------+---------+--------+
|Cash flows from operations | US$'m|1,349.3 |1,045.4 | 29.1 |
+------------------------------------------------+------+---------+---------+--------+
|Profit before tax | US$'m|1,436.7 |1,325.3 | 8.4 |
+------------------------------------------------+------+---------+---------+--------+
|Earnings per share | cents| 73.9 | 66.2 | 11.6 |
+------------------------------------------------+------+---------+---------+--------+
|Dividend per share(1) | cents| 6.2 | 5.2 | 19.2 |
|(2007 interim - ordinary 3.2 cents; special 3.0 | | | | |
|cents) | | | | |
|(2006 interim - ordinary 3.2 cents; special 2.0 | | | | |
|cents) | | | | |
| | | | | |
+------------------------------------------------+------+---------+---------+--------+
|LME copper price (per pound) | cents| 307.0 | 275.3 | 11.5 |
+------------------------------------------------+------+---------+---------+--------+
|Group copper production | '000| 212.1 | 207.9 | 2.0 |
| |tonnes| | | |
+------------------------------------------------+------+---------+---------+--------+
|Group weighted average cash costs(2) (net of | cents| 30.3 | 46.9 | (35.4) |
|by-product credits) | | | | |
+------------------------------------------------+------+---------+---------+--------+
|Group weighted average cash costs(2) excluding | cents| 104.4 | 95.2 | 9.7 |
|by-product credits | | | | |
+------------------------------------------------+------+---------+---------+--------+
|Market molybdenum price (per pound) | US$ | 28.4 | 23.7 | 19.8 |
+------------------------------------------------+------+---------+---------+--------+
|Group molybdenum production | '000| 4.9 | 4.1 | 19.5 |
| |tonnes| | | |
+------------------------------------------------+------+---------+---------+--------+
1 Dividends are paid in either sterling or US dollars. The conversion rate for
dividends to be paid in sterling will be set on 25 September 2007.
2 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 28(b)
(iii) to the Interim Results Announcement.
+----------------------------------------+---------------------------------------+
|Enquiries | |
+----------------------------------------+---------------------------------------+
|London | Santiago|
+----------------------------------------+---------------------------------------+
|Investor relations - Antofagasta plc | Antofagasta Minerals S.A.|
+----------------------------------------+---------------------------------------+
|Tel: +44 20 7808 0988 | Tel: +562 377 5000|
+----------------------------------------+---------------------------------------+
|www.antofagasta.co.uk |Alejandro Rivera - arivera@aminerals.cl|
+----------------------------------------+---------------------------------------+
|Desmond O'Conor - | |
|doconor@antofagasta.co.uk | |
|Hussein Barma - | |
hbarma@antofagasta.co.uk | |
+----------------------------------------+---------------------------------------+
|Media enquiries - Bankside Consultants | |
+----------------------------------------+---------------------------------------+
|Tel: +44 20 7367 8873 | |
+----------------------------------------+---------------------------------------+
|Keith Irons - | |
keith@bankside.com | |
|Oliver Winters - | |
|oliver.winters@bankside.com | |
+----------------------------------------+---------------------------------------+
DIRECTORS' COMMENTS FOR THE HALF YEAR TO 30 JUNE 2007
Overview
The Group has achieved strong results for the 2007 half-year, with net earnings
up 11.6% to US$728.4 million and cash flow from operations up 29.1% to
US$1,349.3 million compared with the first six months of 2006. These results
reflect strong operational performances across the Group, in an environment of
continued high metal prices.
LME copper prices averaged 307.0 cents per pound this period (2006 half year -
275.3 cents), despite some weakness in the first quarter when prices fell to
approximately 240 cents. The Group believes market fundamentals remain sound
with strong demand in Asia and Europe. However with uncertainty over whether the
problems in financial markets in the United States will result in slower growth
in the real economy, the volatility that has characterised the copper market in
recent months may continue. The Group has benefited from these higher market
prices, although pricing adjustments on provisionally invoiced sales were lower
than the comparable period in 2006 resulting in an average realised copper price
of 338.9 cents per pound (2006 half year - 353.4 cents per pound). The copper
concentrate market is expected to remain in continued deficit with further
increases in smelting capacity coming on stream, and this should keep tolling
charges favourable to producers. Molybdenum prices strengthened in the period
with market prices averaging US$28.4 per pound (2006 half year - US$23.7 per
pound), and strong demand should support the market into 2008.
The Group's operations continued to perform well in the first half of 2007.
Group copper production was 212,100 tonnes, a 2.0% increase compared with
207,900 tonnes in the 2006 half year; however attributable copper production
increased by 16.0% to 149,200 tonnes (2006 half year - 128,600 tonnes) following
the acquisition of Equatorial Mining Limited in the second half of last year
which increased the Group's interest in El Tesoro to 100%. Molybdenum production
at Los Pelambres was 4,900 tonnes, compared with 4,100 tonnes in the first six
months of 2006. The transport and water divisions both achieved increased
volumes with new contracts coming on stream in the second half of last year.
Weighted average cash costs were 30.3 cents per pound compared with 46.9 cents
per pound in the first half of 2006 as a result of improved molybdenum
by-product credits and lower tolling charges. Excluding these, weighted average
on-site and shipping costs at the Group's mines increased in line with forecast
to 85.1 cents per pound (2006 half year - 68.1 cents per pound), due to higher
input costs such as energy, fuel and sulphuric acid prices, one-off costs of new
labour agreements and the impact of lower ore grades at Los Pelambres and higher
waste-to-ore ratios at Los Pelambres and El Tesoro.
Los Pelambres has advanced with its capital projects. The plant expansion to
140,000 tonnes of ore throughput per day was fully completed in the 2007 half
year. The Mauro tailings dam is on schedule for completion by the end of the
year, and the Group continues to believe that all permits granted have been
properly applied for and issued and is confident that this view will be upheld
by the courts. A feasibility study for a further repowering at Los Pelambres has
been carried out, and Los Pelambres expects to continue with preliminary
expenditures for this project, which is within the scope of existing
environmental approvals.
The Group has recently approved the development of the Esperanza copper-gold
project, located near its El Tesoro mine, at an estimated cost of US$1.5
billion. Production is scheduled to commence at the end of 2010 and in its first
ten years of operation Esperanza is expected to produce an annual average of
approximately 700,000 tonnes of concentrate containing 195,000 tonnes of payable
copper, 229,000 ounces of payable gold and 1,556,000 ounces of payable silver.
Tethyan Copper Company Limited ('Tethyan'), the Group's joint venture with
Barrick Gold Corporation, is continuing its 18 month exploration programme at
Reko Diq in South-west Pakistan with encouraging results to date, and an updated
resource estimate and a scoping study are expected to be completed by the end of
this year. A draft mineral agreement has also been submitted to the federal and
provincial governments for discussion to establish a framework for future
investment.
During July, the Group decided not to continue with the exploration agreements
with Ascendent Copper Corporation in respect of the Chaucha deposit in Ecuador
and with AngloGold Ashanti in the area of interest in southern Colombia,
following a review of drilling results achieved to date. The Group nevertheless
remains committed to its disciplined strategy of growth and will continue to
seek opportunities in mining both in Latin America and worldwide.
The Board has declared an interim ordinary dividend of 3.2 cents per share. In
view of the continued strong results this half year, the Board has also decided
to pay a special dividend of 3.0 cents per share, giving a total interim
dividend of 6.2 cents per share. This represents an increase of 19.2% over the
total interim dividend for 2006.
Review of Operations
Los Pelambres
Los Pelambres achieved another strong set of results, with operating profit of
US$1,087.0 million (2006 - half year - US$1,097.6 million) as higher molybdenum
volumes and prices and lower tolling charges offset the effects of lower
realised copper prices and higher on-site and shipping costs.
Realised copper prices at Los Pelambres were 348.6 cents per pound (2006 half
year - 376.8 cents per pound) despite the higher average LME price in the 2007
half year, as a result of lower provisional pricing credits compared with the
first six months of 2006 when the LME copper price had increased very
significantly within that period. Realised molybdenum prices increased to
US$30.9 per pound (2006 - US$22.7 per pound), mainly reflecting higher market
prices and tight market conditions in the 2007 half year and to a lesser extent
stronger pricing credits. Further details of pricing adjustments for both copper
and molybdenum are given in the Financial Commentary on page 11 and in Note 4(a)
to the interim financial statements.
Los Pelambres produced 141,800 tonnes of payable copper in the first six months
of 2007, marginally above the first six months of last year when 141,600 tonnes
were produced, as the benefits of the plant expansion which was largely
completed by the end of 2006 compensated for lower ore grades and a higher
proportion of harder primary ore. Ore throughput averaged 125,500 tonnes per day
(2006 half year - 120,000 tonnes per day) while recoveries also improved to
92.2% (2006 half year - 88.1%). The average ore grade in the first half of 2007
decreased as expected under the mine plan to 0.71% (2006 half year - 0.82%).
Production in the 2006 half year had also been affected by a build-up of
unfiltered copper concentrate at the plant due to repairs carried out to the
slurry pipeline in the second quarter of that year.
Molybdenum production was 4,900 tonnes, 19.5% above the 4,100 tonnes produced in
the first half of 2006. This increase was mainly due to better molybdenum ore
grades together with the higher plant throughput, partly offset by lower
recoveries in the first quarter of this year which have since improved.
Production in the 2006 half year had also been affected by changes in
work-in-progress levels.
Cash costs, which are stated net of by-product credits and include tolling
charges, were negative 8.6 cents per pound in the first six months of 2007
compared with 24.4 cents in the first half of 2006. The decrease of 33.0 cents
was due to higher by-product credits (which increased by 39.8 cents to 110.8
cents) and lower tolling charges for concentrates (which decreased by 11.0 cents
to 28.8 cents), partly offset by an increase in on-site and shipping costs,
which increased in line with forecast to 73.4 cents (2006 half year - 55.6
cents). Higher by-product credits resulted mainly from the increase in both
molybdenum production and realised prices. Tolling charges decreased principally
due to the more favourable terms achieved in the negotiations with smelters for
the 2007 calendar year, including both lower treatment and refining charges and
nil price participation, although the impact was partly mitigated by the 'brick
system' under which the terms agreed are often averaged over two years. The
increase in on-site and shipping costs was partly due to lower ore grades and
increased energy, fuel, lubricant and machinery hire costs. In addition, costs
were also higher due to a significant level of programmed plant maintenance in
the second quarter and the costs of the one-off bonus payment on the early
conclusion of the labour negotiation with the mine-port union in May 2007 as
explained below.
Labour relations remained excellent and Los Pelambres was able to reach a new 45
month labour agreement with its mine-port union in May 2007, in advance of the
due date for negotiations of September 2007. This included a one-off signing
bonus at a total cost of US$4.5 million. The next scheduled labour negotiation
is due to take place in mid-2008 when the current agreement with the plant union
expires.
During the 2007 half year, Los Pelambres continued to reduce its borrowings with
repayments totalling US$40.7 million. Total borrowings (net of deferred
financing costs) were US$274.3 million at 30 June 2007.
Continued progress was also achieved with Los Pelambres' capital expenditure
programmes, which are being financed out of its cash resources. Total capital
expenditure in the 2007 half year was US$156.1 million.
Expansion of plant throughput to a life-of-mine average of 140,000 tpd through
re-powering the grinding lines and installing a fifth ball mill and additional
flotation cells, which commenced in mid-2005, was fully completed with final
expenditures of US$40.4 million incurred in the first half of this year. The
total cost of the project was US$185 million, broadly in line with the original
budget of US$182 million.
Los Pelambres also advanced with the Mauro tailings dam, which is currently
approximately 95% complete. Cumulative expenditure on this project to 30 June
2007 was US$418 million, which included US$90.7 million incurred in the first
half of 2007. The project is expected to be completed at the end of this year,
and together with the existing Quillayes tailings dam, will provide Los
Pelambres with sufficient storage capacity for its 2.1 billion tonnes of
existing ore reserves, thereby supporting its current mine plan to 2047. As
previously explained, there are a number of claims currently in the Chilean
courts against third parties (governmental authorities or former land owners in
the El Mauro area) either at first instance or on appeal, including the case
against the Chilean Water Authority which is under appeal to the Supreme Court.
While these cases are not directly against Los Pelambres, the company has
intervened in some cases where an existing or eventual judgement affects or
could affect the project. There has also been one recent claim in August 2007
against Los Pelambres. The Group continues to believe that Los Pelambres has
received all the necessary technical and legal permits and land ownership for
the Mauro tailings dam and that these have been properly applied for and granted
in accordance with applicable regulations and the law. It is confident that this
view will eventually be upheld by the courts in the relevant cases, which have
so far rejected all applications for injunctions seeking that work on the Mauro
tailings dam should cease, except in the most recent claim where a first
instance court in Los Vilos ordered Los Pelambres to suspend only those works
which directly affect the Pupio stream in the vicinity of the tailings dam. As
the works affected by this order only form a part of the overall project, Los
Pelambres does not believe this action will affect the schedule for the
completion of the project by the end of this year. Los Pelambres' existing
operations also remain unaffected as the Quillayes dam is still in use.
During the first half of 2007, Los Pelambres spent a further US$10.5 million to
progress with the feasibility study initiated in July 2006 for a further upgrade
of the concentrator plant capacity, through additional infrastructure including
a third SAG mill and a sixth ball mill. The feasibility study is now
substantially complete, and Los Pelambres expects to continue with further
expenditure on preliminary works in the second half of this year. If fully
approved, which is not yet the case, this repowering would be within present
environmental permits and would enable the production of an additional 75,000
tonnes of payable copper per year on average over the first 10 years, and cost
approximately US$0.8 billion in total. Los Pelambres is also continuing with its
exploration programme, which commenced during 2006, to identify further
reserves. Further details are given under 'Projects, exploration and new
opportunities' below.
With improved ore grades and a lower proportion of primary ore resulting in
higher ore throughput expected in the second half of the year as compared with
the first six months, copper production at Los Pelambres for the full year is
expected to be approximately 312,000 tonnes. This is slightly below the original
forecast of 321,000 tonnes as grades in the final quarter of the year are not
expected to increase to the degree originally anticipated. Molybdenum production
for the full year is nevertheless expected to increase slightly from the
original forecast of 11,000 tonnes, due to higher recoveries and a higher
molybdenum ore grade expected in the second half of the year. Cash costs before
by-product credits are expected to remain in line with forecast at approximately
100 cents per pound, including on-site and shipping costs of approximately 70
cents. With molybdenum prices expected to remain strong, Los Pelambres should
continue to benefit from substantial by-product credits.
El Tesoro
Operating profit at El Tesoro rose by 25.9% from US$149.6 million in the 2006
half year to US$188.4 million, reflecting higher copper prices, improved
production volumes and no hedging effect on results this period, partly offset
by increased cash costs.
Realised copper prices were 321.8 cents per pound compared with 301.2 cents in
the 2006 half year, reflecting the higher average LME prices, cathode premiums
and to a lesser extent pricing adjustments on provisionally invoiced cathode
sales.
Production at El Tesoro was 46,800 tonnes, a 10.1% increase on the 2006 half
year production of 42,500 tonnes. The higher production was due to better ore
grades of 1.23% (2006 half year - 1.08%) and marginally higher metallurgical
recoveries of 77.4% (2006 half year - 75.7%). This was partly offset by lower
ore throughput which averaged 27,100 tonnes per day (2006 half year - 28,700
tonnes per day). Cash costs rose to 96.9 cents per pound in line with forecast
compared with 79.7 cents per pound in the 2006 half year, mainly due to a higher
waste-to-ore ratio, as well as higher acid consumption and prices and increased
energy costs. This included the effects of re-negotiating the power supply
contract (including one-off back settlements) in the second quarter of the year.
Negotiations with El Tesoro's union for a new labour agreement are not due until
the beginning of 2009.
El Tesoro's results were not affected by commodity hedging in the 2007 half
year; the 2006 half year included a charge against operating profit of US$43.5
million. Further details of the effects of commodity hedging and of instruments
in place at 30 June 2007 are given in the financial commentary under 'Derivative
Financial Instruments' and in Note 4(b) to the interim financial statements.
El Tesoro carried out a review of its mine plan and consequently no longer
expects to process some of the inventory of high carbonate ore accumulated in
the previous year, resulting in the recognition of a provision of US$18.8
million. This has resulted partly from higher sulphuric acid prices which
increase the cost of processing this ore but also partly because El Tesoro
expects eventually to start incorporating some of the surrounding higher grade
oxide deposits which it now controls in place of this inventory.
Borrowings were reduced by regular repayments of US$7.0 million, and amounted to
US$21.1 million at 30 June 2007.
Full-year production and cash costs are both expected to remain in line with
original forecast, at approximately 92,000 tonnes and 100 cents per pound
respectively.
Michilla
Operating profit in the 2007 half year increased to US$91.3 million (2006 half
year - US$44.3 million), reflecting continued strong copper prices and the
significantly lower impact of commodity hedging, partly offset by higher
expected cash costs.
Realised copper prices in the period were 315.3 cents per pound (2006 half year
- 306.6 cents per pound), reflecting strong LME prices, cathode premiums and to
a lesser extent positive pricing adjustments.
Production in the period reached 23,400 tonnes of copper cathodes, a marginal
decrease on the 23,800 tonnes produced in the 2006 half year. This reflected
lower ore grades, which averaged 1.04% (2006 half year - 1.10%), offset by
marginally higher ore throughput of 15,300 tonnes per day (2006 half year -
15,000 tonnes per day) and improved recoveries of 79.7% (2006 - 76.3%).
Cash costs of 132.3 cents per pound were below budget, but have increased
compared with the 122.0 cents per pound in the first half of 2006, reflecting
the one-off costs of the labour negotiation agreed in May 2007 as discussed
below, and higher energy, fuel and third-party service costs. The effect of
commodity hedging on results was significantly lower at US$3.3 million compared
with US$46.2 million in the first six months of 2006, and further details of the
effects of commodity hedging and of instruments in place at 30 June 2007 are
given in the financial commentary under 'Derivative Financial Instruments' and
in Note 4(b) to the interim financial statements.
Labour relations at Michilla also remain positive and a new 48 month agreement
was reached with its union in May 2007, in advance of the due date for
negotiations of November. The one-off bonus on conclusion of the new labour
agreement amounted to US$2.4 million.
Cathode production for the full year is expected to be approximately 45,600
tonnes, in line with the original estimate for the year at a similar cash cost
estimate of 136 cents per pound. Michilla's existing mine plan extends to 2009
and it has begun to examine options for a possible extension of mine life,
though any eventual decision will depend on the results of further development
expenditure and future copper prices.
Railway and other transport services
Rail and road transport volumes in the first half of 2007 were 2.6 million tons
(2006 half year - 2.1 million tons) and 0.7 million tons (2006 half year - 0.8
million tons) respectively, a combined increase of 11.6%. The increase in rail
tonnages was mainly due to the start-up of BHP Billiton's Spence mine, which
commenced shipments in the second half of 2006, along with increased volumes
from other customers including additional tonnages from Escondida's sulphide
leach operation. Turnover (net of sales to the mining division) increased by
12.1% to US$54.7 million in line with increased tonnages.
Operating profit (excluding income from associates) increased by 22.7% to
US$17.3 million (2006 half year - US$14.1 million), mainly as a result of
increased volumes. The 2006 half year was also affected by a number of factors
including costs resulting from adverse weather conditions and labour costs
following a new union agreement; 2007 did not have these exceptional factors.
Transport tonnages should continue to increase in the second half of the year
with shipments of concentrates from the San Cristobal mine in Bolivia, which has
now started production. The FCAB's medium to longer term prospects also continue
to be positive, with Codelco's Gaby project due to start production in early
2008. The rail network also remains well placed to benefit from any further
increases in mining activity in northern Chile.
Aguas de Antofagasta
Aguas de Antofagasta continued to perform well in the 2007 half year. Combined
industrial and domestic water sales increased by 7.0% from 18.5 million cu. m.
in the 2006 first half to 19.8 million cu. m. this period, mainly due to an
increase in sales to industrial customers with the Spence mine starting
operations in the second half of last year.
Turnover increased by 3.7% to US$33.4 million as increased volumes were partly
offset by lower domestic tariffs following the completion of the five-yearly
regulatory review in mid-2006. Operating profit was US$16.1 million, compared
with US$16.4 million in the first half of 2006, as increased operating costs
(including the costs of increasing production from the desalination plant at
Antofagasta to meet increased demand) offset the growth in volumes.
Projects, exploration and new opportunities
Esperanza
The Esperanza copper-gold project received board approval for its development at
the end of June 2007 following completion of the feasibility study initiated in
August 2006. Esperanza is a sulphide deposit located in Chile's II Region
approximately four kilometres south of the Group's El Tesoro mine. It will
produce copper concentrate containing gold and silver by-product credits through
a conventional milling and flotation process, with ore throughput expected to
average 97,000 tonnes per day.
Esperanza has a 15 year mine life based on proven, probable and possible ore
reserves of 535 million tonnes with an average copper grade of 0.55% and an
average gold grade of 0.23 g/tonne, based on a cut-off grade of 0.2% equivalent
copper. The total measured, indicated and inferred sulphide resource (including
reserves) based on a cut-off grade of 0.2% copper is 1,130 million tonnes with
an average copper grade of 0.45%, an average gold grade of 0.16 g/tonne and an
average molybdenum grade of 0.011%. In addition, there is an oxide ore resource
of 119 million tonnes with an average copper grade of 0.35%, which mainly forms
part of the 170 million tonnes of overburden to be removed through
pre-stripping. The Esperanza project is adjacent to the Group's Telegrafo
sulphide deposit which ultimately is expected to utilise the Esperanza plant and
facilities and extend the mine life well beyond the initial 15 year mine plan.
An environmental impact assessment was submitted in August 2007, with a view to
obtaining permission for starting early site works from the first quarter of
2008 and obtaining full approval for the project later that year. The project
envisages using seawater to supply all its water needs.
Capital costs are estimated at US$1.5 billion and first production is expected
at the end of 2010. In its first ten years of operation Esperanza is expected to
produce an annual average of approximately 700,000 tonnes of concentrate
containing 195,000 tonnes of payable copper, 229,000 ounces of payable gold and
1,556,000 ounces of payable silver.
Reko Diq (Tethyan Copper Company Limited)
The Group holds a 50% interest in the Tethyan Copper Company Limited
('Tethyan'), its joint venture with Barrick Gold Corporation established in
2006. 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 (in which the Government of Balochistan holds the remaining 25%)
including 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 resources at these properties of 2.4 billion
tonnes with a copper grade of 0.51% and a gold grade of 0.27g/t.
An initial 18-month budget of US$30.5 million (of which 50% is attributable to
the Group) principally for exploration (including a drilling programme of
approximately 94,000 metres) was established in June 2006; this was increased to
US$46.3 million in the first half of this year to include the costs of a scoping
study to analyse possible project scenarios and initial pre-feasibility work. By
the end of June 2007, cumulative expenditure amounted to US$22.5 million and
approximately 56,000 metres of drilling had been completed (including 31,000
metres in the 2007 half year). Preliminary exploration results remain
encouraging and a new resource estimate and the scoping study are expected to be
completed by the end of the year, with a view to conducting pre-feasibility work
during 2008.
A draft mineral agreement to establish the framework for future investment was
submitted in July to the Federal Government of Pakistan and the Government of
Balochistan for consideration and discussions are expected to take place in the
second half of this year. Support from both federal and regional governments
remains strong and the Group continues to believe that the long-term potential
of this investment remains positive.
Antucoya
The Group has continued its drilling programme at the Antucoya-Buey Muerto
properties, together with pre-feasibility work including initial engineering and
technical studies. The total budget is US$4.4 million and the studies will
examine the viability of on-site leaching of the deposits to provide enriched
solution to utilise any excess capacity at Michilla's plant. It is anticipated
that these studies, including analysis of the drill results, will be completed
by the end of 2007.
The Antucoya-Buey Muerto properties are sited approximately 40 kilometres from
Michilla. The existing estimate for the combined resource is 460 million tonnes
of oxide ore with an average grade of 0.41%.
Other exploration activities
The Group spent US$16.1 million on exploration activities in the first six
months of 2007 (2006 half year - US$8.1 million), including US$0.7 million at
Esperanza (2006 half year - US4.4 million, which related mainly to costs of the
pre-feasibility study which was then in progress) and US$5.7 million (2006 half
year - US$1.1 million) relating to its share of exploration costs at Reko Diq.
Los Pelambres has continued the second year of its exploration programme to
identify additional deposits beyond the existing 2.9 billion tonne resource,
both by drilling the areas surrounding the current mine plan as well as drilling
the existing open pit in greater depth. Expenditure of US$2.5 million was
incurred in the first half of 2007 (2006 half year - US$1.3 million) with a
further 8,000 metres of drilling. It is anticipated that the programme will be
completed by early 2008.
The Group also continued with expenditure on its other properties including
those in the Sierra Gorda district and its target generation programme in Chile.
Total costs incurred in the 2007 half year were US$4.2 million (2006 half year -
US$1.1 million).
Excluding Reko Diq, total expenditure outside Chile amounted to US$3.0 million
(2006 half year - US$0.2 million). In July, the Group decided not to continue
with the exploration agreements with Ascendent Copper Corporation in respect of
the Chaucha deposit in Ecuador and with AngloGold Ashanti in the area of
interest in southern Colombia, following a review of drilling results achieved
to date. In June, the Group also completed the disposal of its 50% interest in
Cordillera de Las Minas S.A., through which its joint-venture interests in Peru
with Companhia Vale Rio Doce were held, to Panoro Minerals Limited ('Panoro'), a
company listed on the TSX Venture Exchange. The Group's share of the
consideration comprised US$6 million plus 6 million shares in Panoro, valued at
US$3.7 million at the date of disposal, resulting in total consideration of
US$9.7 million. The Group nevertheless remains committed to its disciplined
strategy of growth and continues to seek opportunities in mining both in Latin
America and worldwide.
Dividends
The Board has declared an interim ordinary dividend of 3.2 cents per share (2006
half year - 3.2 cents per share). In view of the continued strong results this
half year, the Board has also decided to pay a special dividend of 3.0 cents per
share (2006 half year - 2.0 cents). Accordingly, a total interim dividend of 6.2
cents per share will be paid on 11 October 2007 to ordinary shareholders on the
register at the close of business on 21 September 2007. This represents an
increase of 19.2% over the total interim dividend for 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 25 September 2007.
Current Trading Prospects
The copper market remained volatile during the 2007 half year, with LME prices
increasing from 281 cents per pound at the beginning of the year to 347 cents at
the end of June, but falling to around 240 cents in February and peaking at over
370 cents in May. More recently, the market has weakened again as concerns in
the United States have affected sentiment in commodity markets, with the LME
price falling to a current level of around 332 cents.
Fundamentals for the copper market nevertheless remain strong, with inventories
remaining at historically low levels. Despite uncertainties over the United
States, demand remains strong in both Europe and Asia, with Chinese imports of
refined copper in the 2007 half year exceeding imports in the 2006 calendar
year. Supply continues to be affected by disruptions, including labour disputes
during the first half in Chile, Mexico, Peru and Canada. Growth also remains
constrained by previous under-investment, equipment availability, labour
shortages and longer lead times for environmental permitting. The market is
expected to remain in balance in 2007 with a small surplus possible the
following year, although this will continue to be subject to supply-side risks.
The outlook for prices remains positive and this should continue well into 2008.
Nevertheless, the increased role of investment funds in commodity markets has
made base metal prices more sensitive to changes in market sentiment, and
accordingly short-term copper prices are expected to remain volatile.
The concentrate market remains in favour of producers, with the deficit which
developed in 2006 continuing to intensify as further smelting capacity continues
to come on stream without corresponding increases in mine production. Most
mid-year negotiations have been agreed at around US$50 per dry metric tonne of
concentrate for smelting and 5.0 cents per pound of copper for refining with nil
price participation, compared with US$60 and 6.0 cents and nil price
participation for the 2007 calendar year. Most commentators expect the
concentrate deficit to remain to at least 2009, with the market balancing
through reduced utilisation rates by smelters.
The molybdenum market has also remained strong, improving from around US$25 per
pound at the beginning of the year and remaining at over US$30 per pound since
May. The market is expected to remain strong, with continued demand from the
steel and catalyst sectors combined with limited supply increases. Inventory
levels for molybdenum remain low and the market, which also continues to be
vulnerable to supply disruptions, is expected to remain in deficit until at
least 2008.
Group copper production for 2007 is expected to be around 449,000 tonnes,
compared with the original forecast of 457,000 tonnes. Nevertheless, full year
molybdenum production is expected to increase slightly from the original
forecast of 11,000 tonnes, and if prices remain at the current level this could
largely offset the expected lower copper output. On-site and shipping costs for
the Group's three mines, while higher than in 2006, are expected to remain in
line with forecasts for the year, although industry-wide cost pressures from
labour, fuel and energy persist. Treatment and refining charges should remain at
levels favouring producers, with price participation having less of an impact
than in previous years following the 2007 calendar year negotiations.
The Group also expects to advance with its capital projects in the second half
of the year, including completion of the Mauro tailings dam; continued progress
on the recently approved Esperanza project; and completion of the drilling
programme and scoping study at Reko Diq. The Group, supported by its sound
financial position, believes that it has a number of prospects that will
continue to enhance its production profile in the medium to longer term. In
addition, it will continue to seek opportunities globally to secure further
world-class mining assets.
FINANCIAL COMMENTARY FOR THE HALF YEAR TO 30 JUNE 2007
Results
Turnover
Group turnover in the 2007 half year increased by 5.2% to US$1,942.1 million,
compared with US$1,846.9 million in the first six months of 2006. The increase
was mainly due to higher molybdenum prices and volumes, lower tolling charges
for copper concentrate and higher sales at the transport and water divisions.
These factors were partly offset by lower copper revenues due mainly to a
decrease in realised prices while copper sales volumes remained substantially
unchanged.
Turnover from copper concentrate and copper cathodes
Turnover from copper concentrate sales and copper cathode sales from the Group's
three mines decreased by 1.8% to US$1,509.1 million compared with US$1,537.4
million in the 2006 half year.
The Group's average realised copper price decreased by 4.1% to 338.9 cents per
pound (2006 half year - 353.4 cents per pound), despite an increase in the
average LME copper price in the 2007 half year to 307.0 cents per pound compared
with 275.3 cents per pound in the 2006 half year. Realised copper prices are
determined by comparing turnover (gross of tolling charges) with sales volumes
in the period. Realised copper prices differ from 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). The
decrease in realised copper prices was due to lower positive provisional pricing
adjustments in the 2007 half year as the level of increase in the LME copper
price in that period was less than in the comparable period in 2006.
In the case of Los Pelambres, pricing adjustments added US$142.4 million to
initially invoiced sales before deducting tolling charges in the 2007 half year
(when the LME copper price increased from 285 cents per pound at the beginning
of the year to 347 cents at the end of June), compared with US$348.8 million in
the 2006 half year (when the LME copper price increased from 208 cents per pound
at the beginning of that year to 340 cents at the end of June 2006). The 2007
first half adjustments comprised US$22.0 million in respect of sales invoiced in
2006 (net of mark-to-market adjustments at the end of 2006) which were finally
priced in 2007 and US$120.4 million in respect of sales invoiced in 2007
(including mark-to-market adjustments for open sales at the end of the period of
US$56.7 million). Pricing adjustments for the first half of 2007 (which relate
mainly to sales invoiced in 2007) added US$5.2 million at El Tesoro (2006 half
year - US$18.6 million) and US$2.2 million at Michilla (2006 half year - US$12.7
million). Further details are given in Note 4(a) to the interim results
announcement. El Tesoro and Michilla also continued to benefit from strong
cathode premiums.
In the first half of 2007, turnover also included a loss of US$3.3 million on
commodity derivatives at Michilla which matured during the period under the
hedge accounting provisions of IAS 39 'Financial Instruments: Recognition and
Measurement' which were applied with effect from 1 January 2007. As explained
below, during 2006 losses on the commodity derivatives were recognised within
other operating expenses.
Copper sales volumes increased marginally by 0.4% from 213,200 tonnes in the
2006 half year to 214,100 tonnes this half year, as timing differences in
shipment and loading schedules partly offset an increase in Group copper
production of 2.0% to 212,100 tonnes (2006 half year - 207,900 tonnes).
Tolling charges for copper concentrates at Los Pelambres decreased by 26.6% from
US$123.6 million in the 2006 half year to US$90.7 million, mainly as a result of
reduced price participation following annual negotiations for the 2007 calendar
year. Tolling charges are deducted from concentrate sales in reporting turnover
and hence the decrease in these charges has had a positive impact on turnover
compared with the 2006 first half.
Turnover from by-products
Turnover from by-products at Los Pelambres increased by 50.9% to US$344.9
million in the 2007 half year compared with US$228.5 million in the 2006 half
year, mainly due to both higher molybdenum market prices and increased sales
volumes. Molybdenum revenues (net of roasting charges) were US$320.5 million
(2006 half year - US$210.0 million).
The realised molybdenum price increased by 36.1% to US$30.9 per pound in the
2007 half year (2006 half year - US$22.7 per pound), mainly due to the increase
in the market price which averaged US$28.4 per pound compared with US$23.7 per
pound in the first half of 2006. Molybdenum sales are also subject to
provisional pricing and as prices strengthened during the first half of this
year, realised prices were marginally higher than the average market price. In
contrast, during the first half of 2006 weakening prices caused the realised
price to be lower than the market price.
Molybdenum sales of 4,900 tonnes were 11.4% higher than sales of 4,400 tonnes in
the first half of 2006, reflecting the increased production in the current
period and inventory movements in the first half of 2006.
Credits received for gold and silver contained in copper concentrate sold
increased to US$24.4 million (2006 half year - US$18.5 million).
Turnover from the transport and water divisions
Turnover from the transport division (FCAB) increased by US$5.9 million or 12.1%
to US$54.7 million, reflecting increased volumes due to the impact of the Spence
project (which commenced shipments in the second half of 2006), as well as
increased volumes from other clients.
Turnover at Aguas de Antofagasta, which operates the Group's water business,
increased by US$1.2 million or 3.7% to US$33.4 million, mainly due to improved
sales to industrial customers including Spence, partly offset by lower tariffs
to domestic customers following the tariff review in mid-2006.
Operating profit from subsidiaries and joint ventures and EBITDA
Operating profit from subsidiaries and joint ventures was US$1,392.8 million in
the 2007 half year, 6.7% higher than the first six months of 2006 (US$1,304.9
million).
Operating profit at the mining division was US$1,359.4 million, compared to
US$1,274.4 million in the first half of 2006, mainly reflecting the increased
revenues discussed above and lower costs from commodity hedging, partly offset
by higher operating costs at the Group's three mines.
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 68.1 cents per pound in the 2006 half year to 85.1 cents in the
2007 half year. This reflected the impact of higher input costs (including the
costs of the one-off bonus payments on the conclusion of labour negotiations at
Los Pelambres and Michilla and the re-negotiation of the power supply contract
at El Tesoro), lower ore grades at Los Pelambres and a higher waste-to-ore ratio
at El Tesoro.
During the 2006 half year a loss of US$89.7 million (of which US$43.5 million
related to El Tesoro and US$46.2 million related to Michilla) was recognised
within other operating expense in respect of commodity derivatives, relating
both to amounts realised on instruments maturing during the period and net
mark-to-market adjustments prior to the adoption of the hedge accounting
provisions of IAS 39. As noted above, during the 2007 half year a loss of US$3.3
million relating to commodity derivatives at Michilla which matured in the
period has been recorded within turnover, along with a net mark-to-market loss
of US$14.7 million deferred in equity.
Operating profits (excluding income from associates) at the transport division
increased to US$17.3 million (2006 half year - US$14.1 million) reflecting the
increased volumes. Aguas de Antofagasta contributed US$16.1 million compared
with US$16.4 million in the 2006 half year, with revenues from increased volumes
being offset by lower domestic tariffs and higher operating costs.
EBITDA (earnings before interest, tax, depreciation and amortisation) in the
2007 half year was US$1,470.8 million, compared with US$1,374.7 million in the
first half of 2006, up 7.0%. This is calculated by adding back to operating
profit from subsidiaries and joint ventures the items of depreciation and
amortisation of US$75.1 million (2006 half year - US$65.3 million) and loss on
disposals of property, plant and equipment of US$2.9 million (2006 half year -
US$4.5 million). Higher depreciation and amortisation charges resulted mainly
from the amortisation of fair value adjustments following the acquisition of
Equatorial Mining Limited in the second half of 2006.
The Group's share of net profit from its 30% investment in Antofagasta Terminal
Internacional S.A. ('ATI') was US$0.8 million (2006 half year - US$0.5 million).
Net finance income
Net finance income in the 2007 half year was US$43.1 million, compared with
US$19.9 million in the six months ended 30 June 2006.
Interest receivable increased from US$34.5 million to US$53.8 million, mainly
due to the higher level of cash and deposit balances but also higher market
interest rates compared with the 2006 half year.
Interest expense (excluding the mark-to-market effect of interest rate
derivatives) decreased from US$13.2 million in the first half of 2006 to
USS$11.3 million, reflecting the reduced level of borrowings due to scheduled
loan repayments since the previous period.
Foreign exchange gains included in finance items were US$0.6 million, compared
with a loss of US$1.7 million in the 2006 half year. No interest derivatives
were held during the current period and so no mark-to-market gains or losses
arose, compared to a mark-to-market gain of US$0.3 million in the first half of
2006.
Profit before tax
The resulting profit before tax for the period increased by 8.4% to US$1,436.7
million compared with US$1,325.3 million in the first half of 2006, 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 2007
and 2006. Los Pelambres, El Tesoro and Michilla are also subject to a mining tax
(royalty) which imposes an additional tax of 4% of tax-adjusted operating
profit. 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. The effect 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$331.7 million (2006 half year -
US$255.0 million), with the increase compared with 2006 mainly due to the higher
level of withholding tax recorded in the first half of this year, as explained
below. Including both current and deferred taxes, this comprises corporate tax
of US$238.3 million (2006 half year - US$221.6 million), the Chilean mining tax
of US$25.6 million (2006 half year - US$24.4 million) and provision for
withholding taxes of US$68.1 million (2006 half year - US$9.6 million). This was
partly offset by exchange gains on corporate tax balances of US$0.3 million
(2006 half year - US$0.6 million).
As a result of these factors, the effective tax rate for the Group for the six
months ended 30 June 2007 was 23.1% (2006 half year - 19.2%), compared with the
Chilean statutory tax rate of 17%. The increase in the effective tax rate in the
2007 half year, compared with the first half of 2006, is principally due to a
higher level of deferred withholding taxes as a result of the requirements of
IFRS with respect to intercompany dividends recognised in the period. This has
resulted in an effective tax rate similar to the 2006 full year of 23.3%. During
2006, a higher proportion of deferred withholding taxes was recognised in the
second half of the year resulting in an effective tax rate of 26.7% compared
with 19.2% in the first half of that year.
Minority interests
Profit attributable to minority interests decreased to US$376.6 million (2006
half year - US$417.7 million), representing 34.1% of Group profit after tax
(2006 half year - 39.0%). The decrease was mainly due to the acquisition of
Equatorial Mining Limited in the second half of 2006 which had the effect of
eliminating the 39% minority interest at El Tesoro, thereby reducing the
minority interest charge in the period by US$66.1 million.
Earnings per share
As a result of the factors set out above, profit attributable to equity
shareholders of the Company was US$728.4 million compared with US$652.6 million
in the first half of 2006.
Accordingly, basic earnings per share increased by 11.6% to 73.9 cents in the
first half of 2007 compared with 66.2 cents for the 2006 half year.
Derivative financial instruments
The Group periodically uses derivative financial instruments to reduce exposure
to commodity price movements. The Group does not use such derivative instruments
for speculative trading purposes.
The Group has applied the hedge accounting provisions of IAS 39 'Financial
Instruments: Recognition and Measurement' with effect from 1 January 2007. From
that date, changes in the fair value of derivative financial instruments that
are designated and effective as hedges of future cash flows have been recognised
directly in equity, with any ineffective portion recognised immediately in the
income statement. Realised gains and losses on commodity derivatives recognised
in the income statement have been recorded within turnover. Prior to 1 January
2007 derivatives were measured at fair value through the income statement, with
both realised and unrealised gains or losses on commodity derivatives being
recorded within other operating income or expense.
The impact of such instruments on the Group's results for the period is set out
above in the sections on turnover and operating profit from subsidiaries, and in
Notes 4(b) and 5 to the interim financial statements.
At 30 June 2007, the Group had min/max instruments for 86,200 tonnes of copper
production (of which 76,800 tonnes related to El Tesoro and 9,400 tonnes related
to Michilla), covering a total period to 31 December 2009 and with a weighted
average floor of 261.0 cents per pound and a weighted average cap of 389.4 cents
per pound. The remaining weighted average period covered by the individual
hedges calculated with effect from 1 July 2007 is 13.6 months. The Group also
had futures at Michilla for 8,400 tonnes of copper production covering a total
period to 31 December 2007 with an average price of 306.9 cents. The weighted
average duration of these hedges from 1 July 2007 is 3.5 months. It also had
futures to both buy and sell copper production at El Tesoro, with the effect of
swapping COMEX prices for LME prices without eliminating underlying market price
exposure. These hedges covered a total period to 31 January 2008 and have a
weighted average price of US 312.0 cents. The weighted average duration of these
instruments from 1 July 2007 is 4 months.
These instruments represent approximately 80% of Michilla's forecast production
for the remainder of 2007 and 35% of El Tesoro's forecast production to the end
of 2009, and the Group's exposure to the copper price will be limited to the
extent of these instruments. Details of the mark-to-mark position of these
instruments at 30 June 2007, together with details of any interest and exchange
derivatives held by the Group, are given in Note 4(b) to the interim financial
statements.
Cash flows, cash and debt
Cash flows from operations were US$1,349.3 million in the first six months of
2007, up 29.1% compared with US$1,045.4 million in the same period last year,
reflecting the improved operating results adjusted for depreciation,
amortisation and working capital movements. The movement in working capital was
particularly material in the 2006 half year due to the effect of the significant
increase in the copper price on the level of trade debtors during that period.
A dividend of US$1.3 million (2006 half year - US$0.3 million) was received from
the Group's investment in ATI.
Cash tax payments in the first half of 2007 were US$363.0 million (2006 half
year - US$265.4 million), comprising corporation tax of US$299.4 million (2006
half year - US$208.9 million) and mining tax of US$64.8 million (2006 half year
- US$3.9 million), partly offset by a withholding tax rebate of US$1.2 million
(2006 half year - payment of US$52.6 million). Withholding taxes of US$118.8
million relating to remittance of cash to cover the June dividend payment were
settled in July 2007. These amounts differ from the current tax charge in the
consolidated income statement of US$343.9 million (2006 half year - US$278.5
million) because cash tax payments partly comprise monthly payments on account
in respect of current year profits and partly comprise the settlement of the
outstanding balance for the previous year.
Cash proceeds from disposals of interests in subsidiaries, joint ventures and
available for sale investments amounted to US$27.5 million in the 2007 half
year; there were no comparable proceeds in the 2006 half year. This comprised
US$4.9 million received at the beginning of the period from the sale of
Equatorial North America Inc. in December 2006; US$6.0 million for the cash
element of the sale of the Group's interest in Cordillera de Las Minas S.A. to
Panoro Minerals Limited and US$16.6 million for the sale of shares in Mercator
Minerals Limited. No acquisitions were made in the 2007 half year; in the 2006
half year the Group paid US$166.3 million on the acquisition of Tethyan Copper
Company Limited (with the part disposal to Barrick Gold Corporation and
elimination of BHP Billiton's Claw-back Right as well as the acquisition of
Equatorial Mining Limited taking place in the second half of that year).
Capital expenditure was US$241.6 million in the period (2006 half year -
US$279.6 million). Expenditure in the first six months of 2007 included US$95.7
million relating to the Mauro tailings dam project, US$40.4 million relating to
the completion of the 140,000 tpd plant expansion project, and US$10.5 million
relating to preliminary work on the possible further repowering, all at Los
Pelambres. In addition, US$10.8 million was spent in the first half of 2007
relating to the feasibility study on Esperanza.
Dividends (including special dividends) paid to ordinary shareholders of the
Company in the first six months of this year were US$423.8 million (2006 half
year - US$185.3 million), which related to the final dividend declared in
respect of the previous year. Dividends paid by subsidiaries to minority
shareholders were US$307.2 million (2006 half year - US$204.2 million),
principally due to increased distributions by Los Pelambres.
Repayments of borrowings and finance leasing obligations in the first six months
of 2007, mainly at Los Pelambres and El Tesoro, were US$49.3 million (2006 half
year - US$48.7 million). New borrowings in the period amounted to US$2.3 million
(2006 half year - nil).
Details of other cash inflows and outflows in the period are contained in the
Consolidated Cash Flow Statement.
At 30 June 2007, the Group had cash and cash equivalents of US$1,847.5 million
(2006 half year - US$1,238.8 million). Excluding the minority share in each
partly-owned operation, the Group's attributable share of total cash and cash
equivalents was US$1,707.4 million (2006 half year - US$1,009.3 million).
Total Group borrowings at 30 June 2007 were US$311.9 million (2006 half year -
US$417.1 million). Of this, US$199.0 million (2006 half year - US$254.6 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$3,155.1 million at the beginning of the year to US$3,455.5
million at 30 June 2007, relating mainly to profit after tax and minority
interests for the period of US$728.4 million less the ordinary dividend for 2006
of US$423.8 million which was approved and paid in the first half of 2007. Other
changes relate mainly to movements in the fair value of hedges and available for
sale investments and the currency translation adjustment; these are set out in
the Consolidated Statement of Changes in Equity.
Minority interests increased from US$793.0 million at the beginning of the year
to US$859.8 million, principally reflecting the minority's share of profit after
tax less the minority's share of the dividends approved or paid by subsidiaries
in the period. Other movements affecting minority interest are also set out in
the Consolidated Statement of Changes in Equity.
Condensed Consolidated Income Statement
Six months Six months Year ended
ended ended
30.06.07 30.06.06 31.12.06
Notes US$'m US$'m US$'m
Group turnover 2,3 1,942.1 1,846.9 3,870.0
Total operating costs (549.3) (542.0) (1,065.9)
------- ------- -------
Operating profit from subsidiaries 2,3 1,392.8 1,304.9 2,804.1
and joint ventures
Share of income from associate 12 0.8 0.5 1.1
------- ------- -------
Total profit from operations and 2 1,393.6 1,305.4 2,805.2
associates
------- ------- -------
Investment income 53.8 34.5 78.3
Interest expense (11.3) (13.2) (26.4)
Other finance items 0.6 (1.4) 1.9
------- ------- -------
Net finance income 5 43.1 19.9 53.8
------- ------- -------
Profit before tax 1,436.7 1,325.3 2,859.0
Income tax expense 6 (331.7) (255.0) (664.9)
------- ------- -------
Profit for the financial period 1,105.0 1,070.3 2,194.1
======= ======= =======
Attributable to:
------- ------- -------
Minority interests 376.6 417.7 839.8
Equity holders of the Company (net 728.4 652.6 1,354.3
earnings) ------- ------- -------
US cents US cents US cents
Basic earnings per share 7 73.9 66.2 137.4
======= ======= =======
Dividends to ordinary shareholders
of the Company
Per share US cents US cents US cents
Dividends per share proposed in 8
relation to the period
- ordinary dividend (interim) 3.2 3.2 3.2
- ordinary dividend (final) - - 5.0
- special dividend (interim) 3.0 2.0 2.0
- special dividend (final) - - 38.0
------- ------- -------
6.2 5.2 48.2
======= ======= =======
Dividends per share paid in the
period and deducted from net
equity
- ordinary dividend (interim) - - 3.2
- ordinary dividend (final) 5.0 4.8 4.8
- special dividend (interim) - - 2.0
- special dividend (final) 38.0 14.0 14.0
------- ------- -------
43.0 18.8 24.0
======= ======= =======
In aggregate US$'m US$'m US$'m
Dividends proposed in relation to 8 61.1 51.3 475.2
the period ======= ======= =======
Dividends paid in the period and 423.8 185.3 236.6
deducted from net equity ======= ======= =======
Turnover and operating profit are derived from continuing operations.
There was no potential dilution of earnings per share in any period set out
above.
Condensed Consolidated Balance Sheet
At At At
30.06.07 30.06.06 31.12.06
Notes US$'m US$'m US$'m
Non-current assets
Intangible assets 9 204.3 321.2 205.3
Property, plant and equipment 10 2,508.1 2,025.4 2,373.7
Investment property 11 3.2 3.2 3.2
Investment in associate 12 3.0 3.0 3.5
Derivative financial instruments 4 1.9 - -
Available for sale investments 14 4.0 0.2 6.2
Deferred tax assets 19 7.6 6.8 3.1
-------- -------- --------
2,732.1 2,359.8 2,595.0
-------- -------- --------
Current assets
Inventories 15 109.4 116.1 120.3
Trade and other receivables 670.0 756.4 549.4
Current tax assets 4.7 4.6 7.5
Derivative financial instruments 4 0.9 - 7.3
Cash and cash equivalents 22 1,847.5 1,238.8 1,805.5
-------- -------- --------
2,632.5 2,115.9 2,490.0
-------- -------- --------
Total assets 5,364.6 4,475.7 5,085.0
======== ======== ========
Current liabilities
Short-term borrowings 16,22 (101.8) (97.0) (97.6)
Derivative financial instruments 4 (1.6) (43.8) -
Trade and other payables (190.7) (220.6) (211.5)
Current tax liabilities (182.8) (121.1) (204.8)
-------- -------- --------
(476.9) (482.5) (513.9)
-------- -------- --------
Non-current liabilities
Medium and long term borrowings 16,22 (210.1) (320.1) (261.1)
Derivative financial instruments 4 (12.0) - -
Trade and other payables (2.9) (3.2) (4.8)
Post-employment benefit obligations 17 (24.3) (20.6) (24.1)
Long-term provisions 18 (10.3) (10.0) (9.8)
Deferred tax liabilities 19 (312.9) (201.6) (323.2)
-------- -------- --------
(572.5) (555.5) (623.0)
-------- -------- --------
Total liabilities (1,049.4) (1,038.0) (1,136.9)
======== ======== ========
Net assets 4,315.2 3,437.7 3,948.1
======== ======== ========
Equity
Share capital 20 89.8 89.8 89.8
Share premium 20 199.2 199.2 199.2
Hedging, translation and fair value 10.5 10.4 12.3
reserves
Retained earnings 3,156.0 2,203.4 2,853.8
-------- -------- --------
Net equity attributable to equity 3,455.5 2,502.8 3,155.1
holders of the Company
Minority interests 859.7 934.9 793.0
-------- -------- --------
Total equity 4,315.2 3,437.7 3,948.1
======== ======== ========
The interim financial information was approved by the Board of Directors on 28
August 2007.
Condensed Consolidated Cash Flow Statement
Six months Six months Year ended
ended ended
30.06.07 30.06.06 31.12.06
Notes US$'m US$'m US$'m
Cash flows from operations 21 1,349.3 1,045.4 2,810.1
Interest paid (10.7) (14.1) (24.6)
Dividends from associate 12 1.3 0.3 0.4
Income tax paid (363.0) (265.4) (498.2)
-------- -------- --------
Net cash from operating activities 976.9 766.2 2,287.7
-------- -------- --------
Investing activities
Acquisition of subsidiaries 23 - (166.3) (487.5)
Disposal and part-disposal of 23 4.9 - 84.3
subsidiaries
Disposal of joint venture interest 6.0 - -
Disposal of available for sale 16.6 - -
investments
Recovery of Chilean VAT paid on 5.1 5.4 8.7
purchase of water concession
Purchases of property, plant and (241.6) (279.6) (506.6)
equipment
Interest received 52.0 34.5 77.6
-------- -------- --------
Net cash used in investing (157.0) (406.0) (823.5)
activities -------- -------- --------
Financing activities
Dividends paid to equity holders of (423.8) (185.3) (236.6)
the Company
Dividends paid to preference (0.1) (0.1) (0.2)
shareholders of the Company
Dividends paid to minority interests (307.2) (204.2) (630.6)
Net proceeds from issue of new 2.3 - 3.8
borrowings
Repayments of borrowings (48.9) (48.0) (109.6)
Repayments of obligations under (0.4) (0.7) (1.8)
finance leases
-------- -------- --------
Net cash used in financing (778.1) (438.3) (975.0)
activities -------- -------- --------
Net increase/(decrease) in cash and 41.8 (78.1) 489.2
cash equivalents ======== ======== ========
Cash and cash equivalents at 1,805.5 1,316.8 1,316.8
beginning of the period
Net increase/(decrease) in cash and 41.8 (78.1) 489.2
cash equivalents
Effect of foreign exchange rate 0.2 0.1 (0.5)
changes
-------- -------- --------
Cash and cash equivalents at end of 22 1,847.5 1,238.8 1,805.5
the period ======== ======== ========
Condensed Consolidated Statement of Changes in Equity
For the six months ended 30 June 2006
Share Share Hedging Fair Translation Retained Net Minority Total
capital premium reserve value reserve earnings equity interests
reserve
US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m
Balance at 1 16.6 272.4 - - 16.6 1,736.1 2,041.7 721.3 2,763.0
January 2006
Profit for the - - - - - 652.6 652.6 417.7 1,070.3
financial period
Currency - - - - (6.2) - (6.2) 0.1 (6.1)
translation adjustment
Capitalisation
of share premium
on bonus issue 73.2 (73.2) - - - - - - -
of ordinary shares
Dividends - - - - - (185.3) (185.3) (204.2) (389.5)
----- ------ ------ ------ ------- ------ ------ ------ ------
Balance at 30 89.8 199.2 - - 10.4 2,203.4 2,502.8 934.9 3,437.7
June 2006 ===== ====== ====== ====== ======= ====== ====== ====== ======
For the year ended 31 December 2006
Share Share Hedging Fair Translation Retained Net Minority Total
capital premium reserve value reserve earnings equity interests
reserve
US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m
Balance at 1 16.6 272.4 - - 16.6 1,736.1 2,041.7 721.3 2,763.0
January 2006
Profit for the - - - - - 1,354.3 1,354.3 839.8 2,194.1
financial year
Currency - - - - (4.3) - (4.3) - (4.3)
translation adjustment
Capitalisation
of share premium
on bonus issue 73.2 (73.2) - - - - - - -
of ordinary shares
Acquisition of - - - - - - - (137.5) (137.5)
minority interest
Dividends - - - - - (236.6) (236.6) (630.6) (867.2)
----- ------ ------ ------ ------- ------ ------ ------ ------
Balance at 31 89.8 199.2 - - 12.3 2,853.8 3,155.1 793.0 3,948.1
December 2006 ===== ====== ====== ====== ======= ====== ====== ====== ======
For the six months ended 30 June 2007
Share Share Hedging Fair Translation Retained Net Minority Total
capital premium reserve value reserve earnings equity interests
reserve
US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m
Balance at 1 89.8 199.2 - - 12.3 2,853.8 3,155.1 793.0 3,948.1
January 2007
Profit for the - - - - - 728.4 728.4 376.6 1,105.0
financial period
Currency - - - - 4.8 - 4.8 - 4.8
translation adjustment
Losses in fair
value of cash
flow hedges - - (8.4) - - (2.9) (11.3) (3.3) (14.6)
deferred in reserves
Gains in fair
value of cash
flow hedges
transferred to
the income statement - - (0.1) - - - (0.1) - (0.1)
Gains in fair
value of
available for - - - 10.7 - - 10.7 - 10.7
sale investments
Gains in fair
value of
of available for
sale investments
transferred to
the income statement - - - (10.5) - - (10.5) - (10.5)
Deferred tax
effects arising
from hedge accounting - - 1.7 - - 0.5 2.2 0.6 2.8
Dividends - - - - - (423.8) (423.8) (307.2) (731.0)
----- ------ ------ ------ ------- ------ ------ ------ ------
Balance at 30 89.8 199.2 (6.8) 0.2 17.1 3,156.0 3,455.5 859.7 4,315.2
June 2007 ===== ====== ====== ====== ======= ====== ====== ====== ======
Notes
1. General information and accounting policies
a) General information
These June 2007 interim consolidated financial statements ('the interim
financial statements') are for the six months ended 30 June 2007. The interim
financial statements are unaudited.
The information for the year ended 31 December 2006 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 2006 (except in relation to the application by
the Group of the hedge accounting provisions of IAS 39 'Financial Instruments:
Recognition and Measurement' with effect from 1 January 2007 as set out in Note
4(b)). This change does not have any effect on prior year comparatives.
Change in accounting policies
In the current financial year, the Group will adopt IFRS 7 'Financial
Instruments: Disclosures' for the first time. As IFRS 7 is a disclosure
standard, there is no impact of that change in accounting policy on the
half-yearly financial report. Full details of the change will be disclosed in
our annual report for the year ending 31 December 2007.
There are no other Standards or Interpretations which apply or are expected to
apply for the first time for the year ending 31 December 2007 which are expected
to have any material impact on the Group.
2. Total profit from operations and associates
Six months Six months Year ended
ended ended
30.06.07 30.06.06 31.12.06
US$'m US$'m US$'m
Turnover 1,942.1 1,846.9 3,870.0
Cost of sales (470.3) (367.3) (805.1)
-------- -------- --------
Gross profit 1,471.8 1,479.6 3,064.9
Administrative expenses (82.8) (70.6) (152.6)
Closure provision (0.3) (0.2) (0.6)
Severance charges (1.3) (4.6) (7.7)
Exploration costs (16.1) (8.1) (21.5)
Other operating income 24.6 0.8 10.3
Other operating expenses (3.1) (92.0) (88.7)
-------- -------- --------
Operating profit from 1,392.8 1,304.9 2,804.1
subsidiaries and joint ventures
Share of income from associate 0.8 0.5 1.1
-------- -------- --------
Total profit from operations and 1,393.6 1,305.4 2,805.2
associates ======== ======== ========
Notes to total profit from operations and associates
(i) In the current period, cost of sales includes an inventory
write-off of US$18.8 million relating to high carbonate ore inventories at El
Tesoro (see Note 15).
(ii) In the current period, other operating income includes a
gain of US$10.5 million relating to the disposal of shares held in Mercator
Minerals Ltd (see Note 14), a gain of US$9.7 million relating to the disposal of
the Cordillera de las Minas joint venture to Panoro Minerals Ltd (see Note 13),
and a gain of US$1.6 million from a settlement in respect of the remaining
consideration receivable for the disposal of Minera Tamaya S.A. in 2002. These
items totalled US$21.8 million.
(iii) In 2006, other operating expenses included losses on
commodity derivatives prior to the application of the hedge accounting
provisions of IAS 39 'Financial Instruments: Recognition and Measurement' with
effect from 1 January 2007 (see Note 3(a)(vii) and Note 4(b)).
3. Segmental analysis
Based on risks and returns, the Directors consider the primary reporting format
is by business segment and the secondary reporting format is by geographical
segment. The Group considers its business segments to be Los Pelambres, El
Tesoro, Michilla, exploration, railway and other transport services and the
water concession. Corporate and other items principally relate to the costs
incurred by the Company and Antofagasta Minerals S.A., the Group's mining
corporate centre, which are not allocated to any individual business segment.
The classification reflects the Group's management structure. The amounts
presented for each business segment exclude any amounts relating to the
investment in Antofagasta Terminal Internacional S.A., an associate which is
held through the railway and other transport services segment.
a) Turnover, EBITDA and operating profit /(loss) from
subsidiaries analysed by business segment
Turnover EBITDA Operating profit/(loss) from
---------- -------- subsidiaries and joint ventures
---------------------------
Six Six Year Six Six Year Six Six Year
months months ended months months ended months months ended
ended ended 31.12.06 ended ended 31.12.06 ended ended 31.12.06
30.06.07 30.06.06 30.06.07 30.06.06 30.06.07 30.06.06
US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m
Los Pelambres 1,354.5 1,312.8 2,701.3 1,122.1 1,130.5 2,297.0 1,087.0 1,097.6 2,223.7
El Tesoro 332.0 287.5 664.8 213.3 168.2 456.0 188.4 149.6 409.9
Michilla 167.5 165.6 334.9 97.1 51.5 158.4 91.3 44.3 145.5
Exploration - - - (16.1) (8.1) (21.5) (16.1) (8.1) (21.5)
Corporate - - - 9.1 (8.4) (16.9) 8.8 (9.0) (17.6)
and other items
------ ------ ------ ------ ------ ------ ------ ------ ------
Mining 1,854.0 1,765.9 3,701.0 1,425.5 1,333.7 2,873.0 1,359.4 1,274.4 2,740.0
Railway and 54.7 48.8 105.3 24.4 19.3 42.9 17.3 14.1 32.6
other transport
services
Water concession 33.4 32.2 63.7 20.9 21.7 41.4 16.1 16.4 31.5
------ ------ ------ ------ ------ ------ ------ ------ ------
Group 1,942.1 1,846.9 3,870.0 1,470.8 1,374.7 2,957.3 1,392.8 1,304.9 2,804.1
turnover(segment
revenue),
EBITDA and
operating
profit from
subsidiaries
and joint
ventures
(segment
result)
====== ====== ====== ====== ====== ====== ====== ====== ======
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$5.0 million
(2006 half year - US$4.5 million; 2006 full year - US$9.6 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) In the current period turnover includes realised losses on
commodity derivatives at Michilla of US$3.3 million. The classification of these
amounts within turnover is due to the application of the hedge accounting
provisions of IAS 39 'Financial Instruments: Recognition and Measurement' with
effect from 1 January 2007. Prior to this point gains and losses on commodity
derivatives (including both gains and losses realised in the period and
period-end mark-to-market adjustments) were included in other operating income
or expense. Further details of such gains or losses are given in Note 3(a)(vii)
and 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$0.8 million (2006 half year - US$0.5 million; 2006 full year -
US$1.1 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) As explained in Note 3(a)(iii) above, in the current period
EBITDA and operating profit include realised losses on commodity derivatives at
Michilla of US$3.3 million (recorded within turnover). In the six months ended
30 June 2006 EBITDA and operating profit included losses on commodity
derivatives (including both losses realised in the period and period-end
mark-to-market adjustments) at El Tesoro of US$43.5 million, and at Michilla of
US$46.2 million (recorded within other operating expense). In the year ended 31
December 2006 EBITDA and operating profit included losses at El Tesoro of
US$44.8 million, and losses at Michilla of US$39.7 million (recorded within
other operating expense).
(viii) Income and expenditure (other than exploration costs)
relating to Tethyan Copper Company Limited (See Note 13) have been included
within Corporate and other items.
(ix) As explained in Note 2(i) and Note 15, in the current period
EBITDA and operating profit at El Tesoro include an inventory write-off of
US$18.8 million.
(x) As explained in Note 2(ii), EBITDA and operating profit in
the corporate and other items category includes gains of US$21.8 million
relating to various items.
Turnover at Los Pelambres by mineral
Before deducting tolling charges Tolling charges Net of tolling charges
-------------------------- ----------------- ------------------------
Six Six Year Six Six Year Six Six Year
months months ended months months ended months months ended
ended ended 31.12.06 ended ended 31.12.06 ended ended 31.12.06
30.06.07 30.06.06 30.06.07 30.06.06 30.06.07 30.06.06
US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m
Copper 1,100.3 1,207.9 2,399.0 (90.7) (123.6) (254.0) 1,009.6 1,084.3 2,145.0
Molybdenum 331.6 220.4 536.4 (11.1) (10.4) (22.6) 320.5 210.0 513.8
Gold and silver 24.8 18.8 43.1 (0.4) (0.3) (0.6) 24.4 18.5 42.5
------ ------ ------ ------ ------ ------ ------ ------ ------
Los Pelambres 1,456.7 1,447.1 2,978.5 (102.2) (134.3) (277.2) 1,354.5 1,312.8 2,701.3
====== ====== ====== ====== ====== ====== ====== ====== ======
b) Depreciation and amortisation, loss on disposal of
property, plant and equipment and capital expenditure by business segment
Depreciation and amortisation Loss on disposals Capital expenditure
--------------------------- ------------------- ---------------------
Six Six Year Six Six Year Six Six Year
months months ended months months ended months months ended
ended ended 31.12.06 ended ended 31.12.06 ended ended 31.12.06
30.06.07 30.06.06 30.06.07 30.06.06 30.06.07 30.06.06
US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m
Los Pelambres (35.0) (32.5) (72.8) (0.1) (0.4) (0.5) 156.1 243.2 463.5
El Tesoro (23.7) (17.8) (43.4) (1.2) (0.8) (2.7) 5.2 4.7 16.3
Michilla (5.8) (4.9) (10.4) - (2.3) (2.5) 3.9 6.5 7.7
Corporate (0.3) (0.2) (0.3) - (0.4) (0.4) 23.6 8.9 20.5
and other items
------ ------ ------ ------ ------ ------ ------ ------ ------
Mining (64.8) (55.4) (126.9) (1.3) (3.9) (6.1) 188.8 263.3 508.0
Railway (5.6) (4.7) (8.4) (1.5) (0.5) (1.9) 18.6 11.6 25.2
and other
transport
services
Water concession (4.7) (5.2) (9.7) (0.1) (0.1) (0.2) 2.0 2.0 5.8
------ ------ ------ ------ ------ ------ ------ ------ ------
(75.1) (65.3) (145.0) (2.9) (4.5) (8.2) 209.4 276.9 539.0
====== ====== ====== ====== ====== ====== ====== ====== ======
Other non-cash expenses relate to severance and closure costs and are disclosed
for the Group in Note 2.
Capital expenditure represents purchases of property, plant and equipment stated
on an accruals basis (see Note 10) and may therefore differ from the amount
included in the cash flow statement.
c) Assets and liabilities by business segment
Segment assets Segment liabilities Segment net assets
---------------- --------------------- --------------------
Six months Six months Year ended Six months Six months Year ended Six months Six months Year ended
ended ended 31.12.06 ended ended 31.12.06 ended ended 31.12.06
30.06.07 30.06.06 30.06.07 30.06.06 30.06.07 30.06.06
US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m
Los Pelambres 2,308.8 2,149.2 2,103.4 (96.3) (79.2) (125.5) 2,212.5 2,070.0 1,977.9
El Tesoro 564.1 416.3 591.8 (56.1) (73.9) (53.3) 508.0 342.4 538.5
Michilla 78.4 76.9 74.5 (35.9) (48.3) (24.8) 42.5 28.6 49.7
Corporate 199.2 251.0 145.8 (21.3) (72.3) (12.3) 177.9 178.7 133.5
and other items
------ ------ ------ ------ ------ ------ ------ ------ ------
Mining 3,150.5 2,893.4 2,915.5 (209.6) (273.7) (215.9) 2,940.9 2,619.7 2,699.6
Railway 168.1 142.7 158.8 (24.0) (17.0) (25.2) 144.1 125.7 133.6
and other
transport
services
Water
concession 176.0 183.0 181.7 (8.2) (7.5) (9.1) 167.8 175.5 172.6
------ ------ ------ ------ ------ ------ ------ ------ ------
3,494.6 3,219.1 3,256.0 (241.8) (298.2) (250.2) 3,252.8 2,920.9 3,005.8
====== ====== ====== ====== ====== ====== ====== ====== ======
Assets and liabilities of Tethyan Copper Company Limited (See Note 13) 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 Six months Year ended Six months Six months Year ended Six months Six months Year ended
ended ended 31.12.06 ended ended 31.12.06 ended ended 31.12.06
30.06.07 30.06.06 30.06.07 30.06.06 30.06.07 30.06.06
US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m
Segment 3,494.6 3,219.1 3,256.0 (241.8) (298.2) (250.2) 3,252.8 2,920.9 3,005.8
assets/
(liabilities)
Investment 3.2 3.2 3.2 - - - 3.2 3.2 3.2
property
Investment in 3.0 3.0 3.5 - - - 3.0 3.0 3.5
associate
Available for 4.0 0.2 6.2 - - - 4.0 0.2 6.2
sale investments
Deferred tax 7.6 6.8 3.1 (312.9) (201.6) (323.2) (305.3) (194.8) (320.1)
assets/
(liabilities)
Current tax 4.7 4.6 7.5 (182.8) (121.1) (204.8) (178.1) (116.5) (197.3)
assets/
(liabilities)
Cash and cash 1,847.5 1,238.8 1,805.5 (311.9) (417.1) (358.7) 1,535.6 821.7 1,446.8
equivalents/
(borrowings) ====== ====== ====== ====== ====== ====== ====== ====== ======
Entity 5,364.6 4,475.7 5,085.0 (1,049.4) (1,038.0) (1,136.9) 4,315.2 3,437.7 3,948.1
assets/
(liabilities) ====== ====== ====== ====== ====== ====== ====== ====== ======
d) Geographical analysis of turnover by location of customer
(geographical segment)
Sales
-------
Six months Six months Year ended
ended ended 31.12.06
30.06.07 30.06.06
US$'m US$'m US$'m
Europe
- United Kingdom 0.1 - 8.1
- Switzerland 247.8 166.4 396.5
- Rest of Europe 240.1 414.0 877.1
Latin America
- Chile 107.2 161.4 407.5
- Rest of Latin 160.9 80.0 165.2
America
North America 227.3 246.9 472.7
Asia
- Japan 558.1 514.2 1,008.2
- China 247.8 108.0 317.5
- Rest of Asia 152.8 152.3 213.5
Australia - 3.7 3.7
------ ------ ------
1,942.1 1,846.9 3,870.0
====== ====== ======
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
to the balance sheet at the end of each period are as follows:
Balance sheet -
------------------
net mark to market effect on debtors
-------------------------------------
At 30.06.07 At 30.06.06 At 31.12.06
US$'m US$'m US$'m
Los Pelambres - copper 56.7 103.9 (110.1)
concentrate
Los Pelambres - tolling (11.4) (6.1) 7.6
charges for copper concentrate
Los Pelambres - molybdenum 13.1 4.4 (3.9)
concentrate
El Tesoro - copper cathodes (0.4) 1.0 1.3
Michilla - copper cathodes 0.4 0.7 (0.6)
-------- -------- --------
58.4 103.9 (105.7)
======== ======== ========
(i) Copper sales
Six months ended Six months ended Year ended 31.12.06
30.06.07 30.06.06
US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m US$'m
Los El Michilla Los El Michilla Los El Michilla
Pelambres Tesoro Pelambres Tesoro Pelambres Tesoro
Copper Copper Copper Copper Copper Copper Copper Copper Copper
concentrate cathodes cathodes concentrate cathodes cathodes concentrate cathodes cathodes
Provisionally 957.9 326.8 168.6 859.1 268.9 152.9 2,175.5 653.1 326.0
invoiced gross sales
Effects of pricing
adjustments to
previous period
invoices
------- ------ ------ ------ ------ ------ ------ ------ ------
Reversal of 110.1 (1.3) 0.6 (33.2) (0.2) 0.1 (33.2) (0.2) 0.1
mark-to-market
adjustments at
the end of the
previous period
Settlement of (88.1) (6.6) (3.2) 157.2 19.8 0.6 169.2 2.0 0.6
copper sales
invoiced in
the previous
period ------- ------ ------ ------ ------ ------ ------ ------ ------
Total effect 22.0 (7.9) (2.6) 124.0 19.6 0.7 136.0 1.8 0.7
of adjustments
to previous
period invoices in
the current period
Effects of pricing
adjustments to
current period
invoices ------- ------ ------ ------ ------ ------ ------ ------ ------
Settlement of 63.7 13.5 4.4 120.9 (2.0) 11.3 197.6 8.6 8.8
copper sales
invoiced in
the current
period
Mark-to-market 56.7 (0.4) 0.4 103.9 1.0 0.7 (110.1) 1.3 (0.6)
adjustments at
the end of the
current period ------- ------ ------ ------ ------ ------ ------ ------ ------
Total effect 120.4 13.1 4.8 224.8 (1.0) 12.0 87.5 9.9 8.2
of adjustments
to current
period invoices
Realised gains - - (3.3) - - - - - -
/(losses) on
commodity
derivatives
------- ------ ------ ------ ------ ------ ------ ------ ------
Turnover 1,100.3 332.0 167.5 1,207.9 287.5 165.6 2,399.0 664.8 334.9
before deducting
tolling charges
Tolling charges (90.7) - - (123.6) - - (254.0) - -
------- ------ ------ ------ ------ ------ ------ ------ ------
Turnover net 1,009.6 332.0 167.5 1,084.3 287.5 165.6 2,145.0 664.8 334.9
of tolling ======= ====== ====== ====== ====== ====== ====== ====== ======
charges
Copper concentrate
Copper concentrate sales at Los Pelambres have an average settlement period of
approximately four months from shipment date. At 30 June 2007, sales totalling
103,800 tonnes remained open as to price, with an average mark-to-market price
of 344.2 cents per pound compared with an average provisional invoice price of
319.4 cents per pound. At 30 June 2006, sales totalling 104,400 tonnes remained
open as to price, with an average mark-to-market price of 333.3 cents per pound
compared with an average provisional invoice price of 288.2 cents per pound. At
31 December 2006, sales totalling 127,100 tonnes remained open as to price, with
an average mark-to-market price of 287.0 cents per pound compared with an
average provisional invoice price of 326.3 cents per pound.
Tolling charges include a mark-to-market loss for copper concentrate sales open
as to price at 30 June 2007 of US$11.4 million (30 June 2006 - loss of US$6.1
million, 31 December 2006 - gain of US$7.6 million).
Copper cathode
Copper cathode sales at El Tesoro and Michilla have an average settlement period
of approximately one month from shipment date. At 30 June 2007, sales totalling
10,700 tonnes remained open as to price, with an average mark-to-market price of
346.7 cents per pound compared with an average provisional invoice price of
347.0 cents per pound. At 30 June 2006, sales totalling 11,600 tonnes remained
open as to price, with an average mark-to-market price of 336.5 cents per pound
compared with an average provisional invoice price of 329.7 cents per pound. At
31 December 2006, sales totalling 11,600 tonnes remained open as to price, with
an average mark-to-market price of 286.6 cents per pound compared with an
average provisional invoice price of 294.0 cents per pound.
(ii) Molybdenum sales
Six months Six months Year
ended ended ended
30.06.07 30.06.06 31.12.06
US$'m US$'m US$'m
Los Los Los
Pelambres Pelambres Pelambres
Molybdenum Molybdenum Molybdenum
concentrate concentrate concentrate
Provisionally invoiced gross sales 295.5 229.7 547.8
Effects of pricing adjustments to
previous period invoices
Reversal of mark-to-market adjustments 2.4 12.6 12.6
at the end of the previous period
Settlement of molybdenum sales invoiced (1.0) (27.5) (27.5)
in the previous period
Total effect of adjustments to previous 1.4 (14.9) (14.9)
period invoices in the current period
Effects of pricing adjustments to
current period invoices
Settlement of molybdenum sales invoiced 21.6 1.2 5.9
in the current period
Mark-to-market adjustments at the end of 13.1 4.4 (2.4)
the current period
Total effect of adjustments to current 34.7 5.6 3.5
period invoices
Turnover before deducting tolling 331.6 220.4 536.4
charges
Tolling charges (11.1) (10.4) (22.6)
Turnover net of tolling charges 320.5 210.0 513.8
Molybdenum sales at Los Pelambres have an average settlement period of
approximately three months after shipment date. At 30 June 2007, sales totalling
2,100 tonnes remained open as to price, with an average mark-to-market price of
US$33.1 per pound compared with an average provisional invoice price of US$30.3
per pound. At 30 June 2006, sales totalling 1,500 tonnes remained open as to
price, with an average mark-to-market price of US$25.2 per pound compared with
an average provisional invoice price of US$24.1 per pound. At 31 December 2006,
sales totalling 2,100 tonnes remained open as to price, with an average
mark-to-market price of US$25.0 per pound compared with an average provisional
invoice price of US$25.5 per pound.
b) Derivative financial instruments
The Group uses derivative financial instruments to reduce exposure to foreign
exchange, interest rate and commodity price movements. The Group does not use
such derivative instruments for speculative trading purposes.
The Group has applied the hedge accounting provisions of IAS 39 'Financial
Instruments: Recognition and Measurement' with effect from 1 January 2007. From
that date, changes in the fair value of derivative financial instruments that
are designated and effective as hedges of future cash flows have been recognised
directly in equity, with any ineffective portion recognised immediately in the
income statement. Realised gains and losses on commodity derivatives recognised
in the income statement have been recorded within turnover. Prior to 1 January
2007 derivatives were measured at fair value through the income statement, with
gains or losses on commodity derivatives being recorded within other operating
income or expense.
Commodity derivatives
The Group periodically uses commodity derivatives to reduce its exposure to the
copper price.
The balance sheet mark-to-market adjustments in respect of commodity derivatives
at the end of each period, and the total effect on operating profit in the
income statement for each period, are as follows:
Balance sheet Income statement
--------------- ------------------
Net financial asset/(liability) Total effect
--------------------------------- --------------
At At At Six Six Full year
30.06.07 30.06.06 31.12.06 months months 2006
ended ended
30 June 30 June
2007 2006
US$'m US$'m US$'m US$'m US$'m US$'m
El Tesoro (2.0) (27.3) - - (43.5) (44.8)
Michilla (8.8) (16.5) 7.3 (3.3) (46.2) (39.7)
-------- -------- -------- -------- -------- --------
(10.8) (43.8) 7.3 (3.3) (89.7) (84.5)
======== ======== ======== ======== ======== ========
Analysed between:
Non-current assets 1.9 - -
Current assets 0.9 - 7.3
Current liabilities (1.6) (43.8) -
Non-current (12.0) - -
liabilities -------- -------- --------
(10.8) (43.8) 7.3
======== ======== ========
During the six months ended 30 June 2007 a loss of US$3.3 million was recognised
within turnover at Michilla, relating to amounts realised on derivatives which
matured in the period. During the period net mark-to-market losses of US$14.7
million were recognised within reserves, comprising US$2.0 million at El Tesoro
and US$12.7 million at Michilla.
During the six months ended 30 June 2006 a loss of US$89.7 million was
recognised within other operating expense, comprising US$43.5 million at El
Tesoro and US$46.2 million at Michilla. This comprised losses on derivatives
which matured in the first six months of 2006 of US$81.3 million and
mark-to-market losses of US$52.9 million in respect of derivatives maturing
after the period end, less reversal of opening mark to market provisions of
US$44.5 million.
The balance sheet impact at 30 June 2006 of US$43.8 million is shown net of
margin calls of US$9.1 million. There were no margin calls at 30 June 2007 or 31
December 2006.
The Group had min/max instruments at 30 June 2007 for 86,200 tonnes of copper
production (of which 76,800 tonnes relate to El Tesoro and 9,400 tonnes relate
to Michilla), covering a total period up to 31 December 2009. The weighted
average remaining period covered by these hedges calculated with effect from 1
July 2007 is 13.6 months. The instruments have a weighted average floor of 261.0
cents per pound and a weighted average cap of 389.4 cents per pound.
At 30 June 2007, the Group also had futures at Michilla for 8,400 tonnes of
copper production, covering a total period to 31 December 2007. The weighted
average remaining period covered by these hedges was 3.5 months and the weighted
average price was 306.9 cents. It also had futures to both buy and sell copper
production at El Tesoro, with the effect of swapping COMEX prices for LME prices
without eliminating underlying market price exposure, covering a period to 31
January 2008 The remaining weighted average period covered by these instruments
was 4 months and the weighted average price was 312.0 cents.
Interest and exchange derivatives
There were no outstanding interest derivative instruments at 30 June 2007 or 31
December 2006. At 30 June 2006 the Group had interest rate collars with a
notional principal amount of US$ 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$0.3
million, and the effect on the income statement was included within other
finance items.
There were no outstanding exchange derivative instruments at 30 June 2007, 31
December 2006 or 30 June 2006.
5. Net finance income
Six months Six months Year ended
ended ended 31.12.06
30.06.07 30.06.06
US$'m US$'m US$'m
Investment income
Interest receivable 53.8 34.5 78.3
-------- -------- --------
Interest expense
Interest payable (10.5) (12.4) (24.6)
Amortisation of (0.2) (0.2) (0.4)
deferred finance costs
Discount charge (0.5) (0.5) (1.2)
relating to provisions
Preference dividends (0.1) (0.1) (0.2)
-------- -------- --------
(11.3) (13.2) (26.4)
-------- -------- --------
Other finance items
Mark-to-market effect - 0.3 0.3
of derivatives
Foreign exchange 0.6 (1.7) 1.6
-------- -------- --------
0.6 (1.4) 1.9
-------- -------- --------
-------- -------- --------
Net finance income 43.1 19.9 53.8
======== ======== ========
6. Taxation
The tax charge for the period comprised the following:
Six months Six months Year ended
ended ended 31.12.06
30.06.07 30.06.06
US$'m US$'m US$'m
Current tax charge
Corporate tax (principally (203.7) (202.6) (474.2)
first category tax in Chile)
Mining tax (Royalty) (22.9) (23.8) (58.5)
Withholding tax provision (117.6) (52.7) (61.9)
Exchange gains on corporate 0.3 0.6 2.4
tax balances ------- ------- -------
(343.9) (278.5) (592.2)
------- ------- -------
Deferred tax charge
Corporate tax (principally (34.6) (19.0) (2.4)
first category tax in Chile)
Mining tax (Royalty) (2.7) (0.6) 1.9
Withholding tax provision 49.5 43.1 (72.2)
------- ------- -------
12.2 23.5 (72.7)
------- ------- -------
Total tax charge (Income tax (331.7) (255.0) (664.9)
expense) ======= ======= =======
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
the other countries in which it operates 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 2007
and 2006. Los Pelambres, El Tesoro and Michilla are also subject to a mining tax
(royalty) which imposes an additional tax of 4% of tax-adjusted operating
profit. 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. The effect 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 2007 was 23.1%, 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 provision of
withholding tax of US$68.1 million and the effect of the mining tax, which
resulted in a charge of US$25.6 million. The effective tax rate for the six
months ended 30 June 2006 was 19.2%, principally due to the impact of the
US$24.4 million mining tax charge 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$728.4 million (2006 half year - US$652.6 million) and
based on 985,856,695 ordinary shares. There was no potential dilution of
ordinary shares in any period.
8. Dividends
The Board has declared an interim dividend of 6.2 cents per ordinary share (2006
half year - 5.2 cents) for payment on 11 October 2007 to shareholders on the
register at the close of business on 21 September 2007. The 2007 interim
dividend comprises an ordinary dividend of 3.2 cents per share and a special
dividend of 3.0 cents per share (2006 half year - ordinary dividend of 3.2 cents
and special dividend of 2.0 cents). Dividends are declared and paid gross.
Dividends per share actually paid in the period and recognised as a deduction
from net equity under IFRS were 43.0 cents (2006 half year - 18.8 cents),
representing the final dividend (including the special dividend) declared in
respect of the previous year.
Dividends are declared in US dollars but may be paid in either dollars or
sterling. Shareholders on the register of members with an address in the United
Kingdom receive dividend payments in sterling, unless they elect to be paid in
dollars. All other shareholders are paid by cheque in dollars, unless they have
previously instructed the Company's registrar to pay dividends by bank transfer
to a sterling bank account, or they elect for payment by cheque in sterling. The
Company's registrar must receive any such election before the record date of 21
September 2007. The exchange rate to be applied to dividends to be paid in
sterling will be set on 25 September 2007.
9. Intangible assets
Concession Exploration Six months Six months Year
right licenses ended ended ended
30.06.07 30.06.06 31.12.06
US$'m US$'m US$'m US$'m US$'m
Balance at the 90.3 115.0 205.3 97.7 97.7
beginning of the period
Acquisition - - - 230.0 230.0
Disposal - - - - (115.0)
Amortisation (1.8) - (1.8) (1.9) (4.0)
Foreign currency 0.8 - 0.8 (4.6) (3.4)
exchange difference -------- -------- -------- ------- -------
Balance at the end 89.3 115.0 204.3 321.2 205.3
of the period ======== ======== ======== ======= =======
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
in the Reko Diq area of south-west Pakistan on the purchase of Tethyan Copper
Company Limited in 2006 (see Note 23).
10. Property, plant and equipment
Mining Railway Water Six months Six months Year
and other Concession ended ended ended
transport 30.06.07 30.06.06 31.12.06
services
US$'m US$'m US$'m US$'m US$'m US$'m
Balance at the 2,180.2 124.9 68.6 2,373.7 1,820.0 1,820.0
beginning of the
period
Acquisitions - - - - 0.4 171.6
Additions 188.8 18.6 2.0 209.4 276.9 539.0
Depreciation (64.8) (5.6) (2.9) (73.3) (63.4) (141.0)
Asset disposals (1.3) (1.5) (0.1) (2.9) (4.5) (8.2)
Disposal of - - - - - (4.7)
subsidiary
Foreign currency - 0.5 0.7 1.2 (4.0) (3.0)
exchange difference -------- -------- -------- -------- -------- --------
Balance at the end 2,302.9 136.9 68.3 2,508.1 2,025.4 2,373.7
of the period ======== ======== ======== ======== ======== ========
11. Investment property
Six months Six months Year
ended ended ended
30.06.07 30.06.06 31.12.06
US$'m US$'m US$'m
Balance at the 3.2 3.4 3.4
beginning of the period
Foreign currency - (0.2) (0.2)
exchange difference -------- -------- --------
Balance at the end of 3.2 3.2 3.2
the period ======== ======== ========
Investment property represents the Group's forestry properties, which are held
for long-term potential and accordingly classified as investment property held
at cost.
12. Investment in associate
Six months Six months Year
ended ended ended
30.06.07 30.06.06 31.12.06
US$'m US$'m US$'m
Balance at the 3.5 2.8 2.8
beginning of the period
Share of profit 0.9 0.6 1.3
before tax
Share of tax (0.1) (0.1) (0.2)
Dividends received (1.3) (0.3) (0.4)
-------- -------- --------
Balance at the end of 3.0 3.0 3.5
the period ======== ======== ========
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. Joint venture agreements
Cordillera de las Minas S.A.
The Group had a joint venture agreement, entered into during 2002, with
Companhia Vale do Rio Doce ('CVRD') of Brazil, with the objective of developing
mineral exploration activities in a defined area of interest in southern Peru.
In March 2007 the Group agreed to sell its 50% interest in the joint venture
vehicle Cordillera de Las Minas S.A. ('CMSA') to Panoro Minerals Limited
('Panoro'), a company listed on the TSX Venture Exchange.
The agreement was subject to a number of conditions including financing by
Panoro and regulatory approvals. These conditions were fulfilled in June 2007
and the disposal was completed at that point. The fair value of the
consideration received, being US$6.0 million in cash plus six million common
shares in Panoro, was US$9.7 million. The joint venture had a nil carrying value
in the Group's balance sheet, and accordingly the disposal has resulted in a
gain of US$9.7 million being recognised during the period, recorded within other
operating income.
Tethyan Copper Company Limited
As explained in Note 23, in April 2006 the Group acquired 100% of the issued
share capital of Tethyan Copper Company Limited ('Tethyan'). In September 2006
the Group entered into a joint venture agreement with Barrick Gold Corporation
('Barrick Gold'), to establish a 50:50 joint venture in relation to Tethyan's
mineral interests in Pakistan. The Group's 50% share of the assets and
liabilities and results of the jointly controlled entity are included in the
consolidated balance sheet and in the consolidated income statement of the Group
under the proportionate consolidation method.
14. Available for sale investments
Available for sale investments represent those investments which are not
subsidiaries, associates or joint ventures and are not held for trading
purposes.
The movement in available for sale investments during the period was as follows:
Six months Six months Year
ended ended ended
30.06.07 30.06.06 31.12.06
US$'m US$'m US$'m
Balance at the 6.2 0.1 0.1
beginning of the period
Acquisition 3.7 - 5.6
Movements in fair 10.7 0.1 0.5
value
Disposal (16.6) - -
-------- -------- --------
Balance at the end of 4.0 0.2 6.2
the period ======== ======== ========
The balance at 31 December 2006 included US$6.1 million related to the
investment in Mercator Minerals Ltd shares, acquired at a fair value of US$5.6
million through the acquisition of Equatorial Mining Limited in August 2006 (see
Note 23). These shares were disposed of during the current period, resulting in
a gain of US$10.5 million recognised in the income statement.
The acquisition during the period represents the shares in Panoro Minerals
Limited acquired as part consideration for the disposal of the Group's share of
the joint venture entity Cordillera de las Minas S.A. (see Note 13). The fair
value of these shares as at 30 June 2007 was US$3.9 million.
The fair value of the remaining available for sale investments of US$0.1 million
held by the Group at 30 June 2007 are mainly Chilean-peso denominated and did
not differ materially from cost at the period end.
15. Inventories
Six months Six months Year
ended ended ended
30.06.07 30.06.06 31.12.06
US$'m US$'m US$'m
Raw materials and 34.7 32.7 36.6
consumables
Work in progress 59.2 69.5 68.6
Finished goods 15.5 13.9 15.1
-------- -------- --------
109.4 116.1 120.3
======== ======== ========
Work in progress includes US$5.3 million related to high carbonate ore
inventories at El Tesoro which are expected to be processed more than twelve
months after the balance sheet date (30 June 2006 - US$nil; 31 December 2006 -
US$25.3 million). During the period a write-off of US$18.8 million was recorded
in respect of these inventories.
16. Borrowings
At At At
30.06.07 30.06.06 31.12.06
US$'m US$'m US$'m
Los Pelambres
Corporate loans (267.2) (343.4) (305.3)
Other loans (7.1) (11.9) (9.5)
El Tesoro
Corporate loans (20.9) (48.9) (27.9)
Finance leases (0.2) (0.2) (0.2)
Michilla
Finance leases (0.5) (1.9) (0.9)
Railway and other
transport services
Loans (12.0) (7.1) (10.8)
Other
Preference shares (4.0) (3.7) (4.1)
-------- -------- --------
Total (see Note 22) (311.9) (417.1) (358.7)
======== ======== ========
Loans at 30 June 2007 are shown net of deferred financing costs of US$1.3
million (2006 half year - US$2.0 million). The amount in relation to Los
Pelambres was US$1.3 million (2006 half year - US$1.7 million). The amount in
relation to El Tesoro was US$nil (2006 half year - US$0.3 million).
Maturity of borrowings
At At At
30.06.07 30.06.06 31.12.06
US$'m US$'m US$'m
Short-term borrowings (101.8) (97.0) (97.6)
Medium and long-term (210.1) (320.1) (261.1)
borrowings -------- -------- --------
Total (see Note 22) (311.9) (417.1) (358.7)
======== ======== ========
Loans are predominantly floating rate. However the Group periodically enters
into interest rate derivative contracts to manage its exposure to interest
rates. Details of any derivative instruments held by the Group are given in Note
4.
17. Post-employment benefit obligation
Six months Six months Year
ended ended ended
30.06.07 30.06.06 31.12.06
US$'m US$'m US$'m
Balance at the beginning (24.1) (20.6) (20.6)
of the period
Charge to operating (1.3) (4.6) (7.7)
profit in the period
Release of discount to (0.4) (0.2) (0.8)
net interest in period
Utilised in period 1.7 2.9 4.2
Foreign currency exchange (0.2) 1.9 0.8
difference -------- -------- --------
Balance at the end of the (24.3) (20.6) (24.1)
period ======== ======== ========
The post employment benefit obligation relates to the provision for severance
indemnities which are payable when an employment contract comes to an end, in
accordance with normal employment practice in Chile and other countries in which
the Group operates. The severance indemnity obligation is treated as an unfunded
defined benefit plan, and the calculation is based on periodic valuations
performed by an independent actuary.
18. Long-term provisions
Six months Six months Year
ended ended ended
30.06.07 30.06.06 31.12.06
US$'m US$'m US$'m
Balance at the beginning of (9.8) (9.8) (9.8)
the period
Charge to operating profit (0.3) (0.2) (0.6)
in the period
Release of discount to net (0.2) (0.3) (0.4)
interest in the period
Acquisition - - (0.8)
Disposal - - 0.8
Utilised in period - 0.5 0.8
Foreign currency exchange - (0.2) 0.2
difference -------- -------- --------
Balance at the end of the (10.3) (10.0) (9.8)
period ======== ======== ========
Analysed as follows:
Decommissioning and (9.8) (9.4) (9.4)
restoration
Termination of water (0.5) (0.6) (0.4)
concession -------- -------- --------
Balance at the end of the (10.3) (10.0) (9.8)
period ======== ======== ========
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.
19. Deferred tax assets and liabilities
Six months Six months Year
ended ended ended
30.06.07 30.06.06 31.12.06
US$'m US$'m US$'m
Net position at the (320.1) (218.9) (218.9)
beginning of the year
Credit/(charge) to tax on 12.2 23.5 (72.7)
profit in year
Deferred tax recognised directly in reserves and 2.8 - -
minority interest
Acquisition - - (29.0)
Foreign currency exchange (0.2) 0.6 0.5
difference ------- -------- --------
Net position at the end of (305.3) (194.8) (320.1)
the year ======= ======== ========
Analysed between:
Deferred tax assets 7.6 6.8 3.1
Deferred tax liabilities (312.9) (201.6) (323.2)
------- -------- --------
Net position (305.3) (194.8) (320.1)
======= ======== ========
20. Share capital and share premium
There was no change in share capital or share premium in the six months ended 30
June 2007. In the comparative periods, there was a 4-for-1 bonus issue of
ordinary shares on 19 June 2006, which resulted in an increase in ordinary share
capital of US$73.7 million and a corresponding reduction in the share premium
account.
21. Reconciliation of profit before tax to cash flows from operations
Six months Six months Year
ended ended ended
30.06.07 30.06.06 31.12.06
US$'m US$'m US$'m
Profit before tax 1,436.7 1,325.3 2,859.0
Depreciation and amortisation 75.1 65.3 145.0
Loss on disposal of property, plant and 2.9 4.5 8.2
equipment
Profit on disposal of joint venture interest (9.6) - -
Profit on disposal of available for sale (10.5) - -
investments
Net finance income (43.1) (19.9) (53.8)
Share of profit of associate (0.8) (0.5) (1.1)
Decrease/(increase) in inventories 10.9 (17.4) (21.5)
Increase in debtors (95.0) (386.2) (135.5)
(Decrease)/increase in creditors and provisions (17.3) 74.3 9.8
------- ------- -------
Cash flows from operations 1,349.3 1,045.4 2,810.1
======= ======= =======
22. Analysis of changes in net cash
At 1.1.07 Cash flows Other Exchange At 30.06.07
US$'m US$'m US$'m US$'m US$'m
Cash and cash equivalents 1,805.5 41.8 - 0.2 1,847.5
-------- -------- -------- -------- --------
Bank borrowings due within (96.7) 46.6 (51.0) (0.1) (101.2)
one year
Bank borrowings due after one (256.8) - 50.8 - (206.0)
year
Finance leases due within one (0.9) 0.4 (0.1) - (0.6)
year
Finance leases due after one (0.2) - 0.1 - (0.1)
year
Preference shares (4.1) - - 0.1 (4.0)
-------- -------- -------- -------- --------
Total borrowings (358.7) 47.0 (0.2) - (311.9)
-------- -------- -------- -------- --------
Net cash 1,446.8 88.8 (0.2) 0.2 1,535.6
======== ======== ======== ======== ========
Net cash at the end of each period was as follows:
At At At
30.06.2007 30.06.2006 31.12.06
US$'m US$'m US$'m
Cash and cash equivalents 1,847.5 1,238.8 1,805.5
Total borrowings (311.9) (417.1) (358.7)
-------- -------- --------
1,535.6 821.7 1,446.8
======== ======== ========
23. Acquisitions and disposals
Six months ended 30 June 2007
No acquisitions, disposals or part-disposals of subsidiaries or associates have
been made during the six months ended 30 June 2007. Details of acquisitions and
related transactions undertaken during 2006 are set out below.
2006
On 20 April 2006 the Group acquired 100% of the issued share capital of Tethyan
Copper Company Limited ('Tethyan') for cash consideration (including transaction
costs) of US$170.4 million. On 22 September 2006, the Group entered into a 50:50
joint venture agreement with Barrick Gold Corporation ('Barrick Gold') in
relation to Tethyan's mineral interests in Pakistan. The Group disposed of 50%
of the issued share capital of Atacama Copper Pty Limited ('Atacama'), the
immediate parent company of Tethyan, to Barrick Gold for US$86.8 million.
On 24 August 2006 the Group acquired 100% of the issued share capital of
Equatorial Mining Limited ('Equatorial') for a cash consideration (including
transaction costs) of US$406.1 million. Equatorial's principal asset was a 39%
interest in Minera El Tesoro, in which the Group held the remaining 61% and
which it had accounted for as a subsidiary. The acquisition resulted in the
elimination of the minority interest of US$137.5 million recognised in the
Group's balance sheet immediately prior to acquisition.
On 11 December 2006, the Group entered into an agreement to dispose of
Equatorial Mining North America Inc. (EMNA), a wholly-owned subsidiary of
Equatorial Mining Limited, to Idaho General Mines Inc ('IGM'). EMNA and its
subsidiaries formerly owned and operated the Tonopah copper mine in Nevada, over
which they retained royalties. The consideration of US$4.9 million was received
in January 2007. No amount has been recognised in respect of the further
contingent consideration of US$6.0 million which is payable should production at
the Tonopah mine commence.
24. Events after the balance sheet date
During July 2007, the Group decided not to continue with the exploration
agreements with Ascendent Copper Corporation in respect of the Chaucha deposit
in Ecuador and with AngloGold Ashanti in the area of interest in southern
Colombia, following a review of drilling results achieved to date. This
decision does not have any material impact on any of the amounts included within
these interim financial statements.
On 24 August 2007, Los Pelambres was notified of a new claim relating to the
Mauro tailings dam project in a first instance court in Los Vilos and of a court
order relating to that claim. Further details are given in Note 25(a) below.
25. Other disclosures
Contingent assets and liabilities
There are a number of legal claims currently outstanding to which the Group is a
party, for which no provision has been made in the financial statements and are
currently not expected to result in any material loss to the Group. Details of
changes in the status of the principal claims since the date of the 2006 Annual
Report are set out below.
a) Los Pelambres - Mauro tailings dam
In November 2006, the Court of Appeals of Santiago upheld a challenge by
claimants in the Pupio Valley against the Chilean Water Authority (Direccion
General de Aguas) in relation to the award of one of the sectoral permits issued
during 2005 for the construction of the Mauro tailings dam by Los Pelambres. The
Court of Appeals has rejected four requests by the claimants that work on the
dam should be suspended, and confirmed that Los Pelambres is entitled to
continue construction pending a final resolution by the Chilean Supreme Court,
to whom Los Pelambres have appealed as an affected party together with the
Direccion General de Aguas. The Group believes that Los Pelambres has received
all the necessary technical and legal permits and that these have been properly
applied for and granted entirely in accordance with the applicable regulations.
It is confident that this view will be upheld by the Chilean Supreme Court.
On 19 April 2007 a first instance court in Santiago upheld a claim relating to a
purchase agreement entered into in 1992 between two former owners of land in the
area of the Mauro tailings dam, in which the validity of that purchase agreement
was challenged by the plaintiff seller. Los Pelambres, which acquired the land
in 2001, had participated in this trial to protect its interest and has appealed
against this decision to the Court of Appeals. The appeal has the effect of
suspending the effect of the first instance resolution. The Group is confident
that Los Pelambres' legal title to the land in question will be upheld on
appeal. On 18 May 2007 the court rejected a second petition by the plaintiff in
that case that work on the Mauro tailings dam should cease immediately,
confirming Los Pelambres' right to complete its construction. The court
nevertheless has held that operation of the dam by depositing tailings cannot
for the moment commence, and Los Pelambres has appealed against this aspect of
the decision.
On 24 August 2007, a first instance court in Los Vilos notified Los Pelambres of
a new claim made by the same individuals involved in other litigation against
the Mauro tailings dam. The claim was lodged earlier the same week and Los
Pelambres was neither notified of nor represented in the hearing. The court also
notified Los Pelambres of an order to suspend those works which directly affect
the Pupio stream in the vicinity of the tailings dam. Los Pelambres believes
that it has obtained all the necessary approvals and permits for the
construction of the Mauro tailings dam and it intends to seek the reversal of
this order as soon as possible. As the works affected only form a part of the
overall project, Los Pelambres does not believe this action will affect the
schedule for the completion of the project by the end of this year.
There are other claims at first instance currently in the Chilean courts against
governmental authorities. These claims are not against Los Pelambres, but in
some cases the company has intervened in case an eventual judgement affects the
project.
Current operations are unaffected as the Quillayes dam remains in use. The Group
believes that these claims will not have any material impact on the Mauro
tailings dam project.
b) Tethyan Copper Company Limited - Chagai Hills Exploration Joint Venture
On 26 June 2007 the High Court of Balochistan rejected the Constitutional
Petition filed by three Pakistan citizens which had been directed against
several parties including the company, and which had sought to declare that the
Chagai Hills Exploration Joint Venture of 1993 and the exploration licences
granted to Tethyan were null and void.
c) Equatorial Mining Limited - Errigal
In July 2006, Equatorial Mining Limited ('Equatorial') received notice of a
claim by Errigal Limited in the New South Wales Supreme Court. Errigal is a
former minority shareholder in one of Equatorial's subsidiaries whose interest
was acquired by Equatorial in 1993. The claim is for amounts payable under the
1993 acquisition agreement. The Group does not agree with the interpretation of
the 1993 agreement advanced by Errigal and the action will continue to be
defended vigorously.
Capital commitments
Future capital commitments at 30 June 2007 were US$345.2 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 Stock Exchange. These transactions, all of which were on normal
commercial terms, are in total not considered to be material.
The Group holds a 51% interest in Antomin Limited, which owns a number of copper
exploration properties in Chile's II and IV Regions. These include (but are not
limited to) Buey Muerto, some properties in the Sierra Gorda district (including
Tesoro North-East) and a small proportion of the Esperanza project. The Group
acquired its interest in Antomin Limited pursuant to an agreement in 2001 for a
nominal consideration from Mineralinvest Establishment, a company controlled by
the Luksic family, which continues to hold the remaining 49% of Antomin Limited.
Under the terms of the acquisition agreement, the Group committed to meet in
full the exploration costs relating to these properties. During the period the
Group incurred US$0.5 million (2006 half year - US$0.7 million) of exploration
costs in respect of these properties. The cumulative amount incurred to 30 June
2007 was US$9.2 million.
In September 2006 the Group entered into a joint venture agreement with Barrick
Gold Corporation ('Barrick Gold') to establish a 50:50 joint venture over
Tethyan's mineral interests in Pakistan. During the period the Group contributed
US$9.6 million to Tethyan to provide funds for Tethyan's on-going exploration
programme.
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$1.3 million (2006 half year - US$0.3 million), as disclosed in the
Consolidated Cash Flow Statement on page 19.
26. 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
----------------- -----------------
30.06.2007 US$2.0076 = £1; US$1 = Ch$527 US$1.9697 = £1; US$1 = Ch$534
30.06.2006 US$1.8484 = £1; US$1 = Ch$539 US$1.7880 = £1; US$1 = Ch$527
31.12.2006 US$1.9569 = £1; US$1 = Ch$532 US$1.8386 = £1; US$1 = Ch$530
----------------- -----------------
27. 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 2007 which comprises the condensed consolidated
income statement, the condensed consolidated balance sheet, the condensed
consolidated cash flow statement, the condensed consolidated statement of
changes in equity and related Notes 1 to 27. 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 2007.
Deloitte & Touche LLP
Chartered Accountants
London
28 August 2007
28. Production and Sales Statistics (not subject to audit or review)
a) Production and sales volumes for copper and molybdenum
Production Sales
------------ -------
Six Six Full Six Six Full
months months year months months year
ended ended ended ended
30 June 30 June 2006 30 June 30 June 2006
2007 2006 2007 2006
000 000 000 000 000 000
tonnes tonnes tonnes tonnes tonnes tonnes
Copper
Los Pelambres 141.8 141.6 324.2 143.2 145.4 324.8
El Tesoro 46.8 42.5 94.0 46.8 43.3 95.3
Michilla 23.4 23.8 47.3 24.1 24.5 47.7
-------- -------- ------- -------- -------- -------
Group total 212.1 207.9 465.5 214.1 213.2 467.8
======== ======== ======= ======== ======== =======
Molybdenum
Los Pelambres 4.9 4.1 9.8 4.9 4.4 9.9
======== ======== ======= ======== ======== =======
b) Cash costs per pound of copper produced and realised prices
per pound of copper and molybdenum sold
Cash cost Realised prices
----------- -----------------
Six Six Full Six Six Full
months months year months months year
ended ended ended ended
30 June 30 June 2006 30 June 30 June 2006
2007 2006 2007 2006
US cents US cents US cents US cents US cents US cents
Copper
Los Pelambres (8.6) 24.4 16.4 348.6 376.8 335.0
El Tesoro 96.9 79.7 78.6 321.8 301.2 316.4
Michilla 132.3 122.0 126.4 315.3 306.6 318.5
-------- -------- ------- -------- -------- -------
Group weighted average 30.3 46.9 40.2 338.9 353.4 329.5
(net of by-products) ======== ======== ======= ======== ======== =======
Group weighted average 104.4 95.2 95.6
(before deducting ======== ======== =======
by-products)
Cash costs at Los
Pelambres comprise:
On-site and shipping 73.4 55.6 56.4
cost
Tolling charges for 28.8 39.8 39.7
concentrates -------- -------- -------
Cash costs before 102.2 95.4 96.1
deducting by-product
credits
By-product credits (110.8) (71.0) (79.7)
(principally -------- -------- -------
molybdenum)
Cash costs (net of (8.6) 24.4 16.4
by-product credits) ======== ======== =======
LME average 307.0 275.3 305.3
======== ======== =======
US$ US$ US$
Molybdenum
Los Pelambres 30.9 22.7 24.6
======== ======== =======
Market average price 28.4 23.7 24.8
======== ======== =======
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, 100% of El Tesoro (61%
prior to 24 August 2006) 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) 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 68.1 cents per pound in the first half of
2006 to 85.1 cents per pound in the first six months of 2007.
(v) 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. In the current period realised prices reflect
gains and losses on commodity derivatives, which are included within turnover.
The classification of these amounts within turnover is due to the application of
the hedge accounting provisions of IAS 39 'Financial Instruments: Recognition
and Measurement' with effect from 1 January 2007. Prior to this point, gains and
losses on commodity derivatives were included in other operating income or
expense, and so are not reflected within the realised price figures for the
comparative periods.
(vi) The totals in the tables above may include some small
apparent differences as the specific individual figures have not been rounded.
(vii) The production information in Note 28(a) and the cash cost
information in Note 28(b) is derived from the Group's production report for the
second quarter of 2007 published on 31 July 2007.
29. 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 2007 with the Chilean securities regulator, the Superintendencia
de Valores y Seguros de Chile ('SVS'). These filings are in accordance with the
Chilean mining tax legislation which requires companies that have elected to
enter a 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 Los El Tesoro El Tesoro Michilla Michilla
Pelambres Pelambres
At At At At At At
30.06.07 30.06.06 30.06.07 30.06.06 30.06.07 30.06.06
US$'m US$'m US$'m US$'m US$'m US$'m
Cash and cash equivalents 329.7 473.4 365.8 74.5 31.2 42.9
Trade and other 390.8 496.0 67.9 53.5 30.8 23.4
receivables
Inventories 48.9 51.8 41.7 46.3 17.1 16.6
Current and deferred 19.1 8.7 3.7 3.2 2.8 2.5
tax assets -------- -------- -------- -------- -------- --------
Current assets 788.5 1,029.9 479.1 177.5 81.9 85.4
Fixed assets 1,625.3 1,320.1 250.0 260.9 49.0 61.4
Other non-current assets 149.3 150.5 45.8 58.2 1.0 1.0
-------- -------- -------- -------- -------- --------
TOTAL ASSETS 2,563.1 2,500.5 774.9 496.6 131.9 147.8
======== ======== ======== ======== ======== ========
Short term borrowings (84.7) (82.6) (14.1) (28.2) - -
Trade and other (134.3) (112.9) (45.6) (92.4) (25.6) (28.7)
payables
Current and deferred - (54.3) (11.2) (14.4) (9.0) (3.2)
tax liabilities -------- -------- -------- -------- -------- --------
Current liabilities (219.0) (249.8) (70.9) (135.0) (34.6) (31.9)
-------- -------- -------- -------- -------- --------
Medium and long term (191.7) (275.5) (7.0) (21.1) - -
borrowings
Trade and other (16.3) (13.2) (7.0) (6.0) (7.8) (7.6)
payables
Deferred tax (144.6) (133.8) (32.2) (28.6) - -
liabilities -------- -------- -------- -------- -------- --------
Non-current (352.6) (422.5) (46.2) (55.7) (7.8) (7.6)
liabilities -------- -------- -------- -------- -------- --------
Total liabilities (571.6) (672.3) (117.1) (190.7) (42.4) (39.5)
-------- -------- -------- -------- -------- --------
Share capital (373.8) (373.8) (91.0) (91.0) (78.4) (78.4)
Reserves (1,617.7) (1,454.4) (566.8) (214.9) (11.1) (29.9)
-------- -------- -------- -------- -------- --------
Total shareholders' (1,991.5) (1,828.2) (657.8) (305.9) (89.5) (108.3)
equity -------- -------- -------- -------- -------- --------
======== ======== ======== ======== ======== ========
TOTAL LIABILITIES AND (2,563.1) (2,500.5) (774.9) (496.6) (131.9) (147.8)
SHAREHOLDERS' EQUITY
======== ======== ======== ======== ======== ========
(b) Income statements
Los Los El Tesoro El Tesoro Michilla Michilla
Pelambres Pelambres
Six Six Six Six Six Six
months months months months months months
ended ended ended ended ended ended
30 June 30 June 30 June 30 June 30 June 30 June
2007 2006 2007 2006 2007 2006
US$'m US$'m US$'m US$'m US$'m US$'m
Turnover 1,296.1 1,243.8 332.0 262.6 170.5 107.7
Operating costs (231.6) (180.9) (121.4) (81.4) (74.1) (70.2)
-------- -------- -------- -------- -------- --------
Operating margin 1,064.5 1,062.9 210.6 181.2 96.4 37.5
Administrative and (37.0) (34.5) (13.9) (13.0) (7.5) (6.9)
distribution expenses -------- -------- -------- -------- -------- --------
Operating profit 1,027.5 1,028.4 196.7 168.2 88.9 30.6
-------- -------- -------- -------- -------- --------
Other income - 0.1 - - 1.9 0.2
Financial income 17.9 17.5 7.9 1.0 2.2 0.5
Financial expenses (9.5) (10.8) (1.1) (1.7) (0.1) (0.2)
Other expenses (0.9) (0.8) (1.6) (0.9) - (0.3)
Exchange difference 1.2 (0.7) (0.1) 2.0 0.6 0.7
-------- -------- -------- -------- -------- --------
Net non-operating income 8.7 5.3 5.1 0.4 4.6 0.9
/(expenses) -------- -------- -------- -------- -------- --------
Profit before tax 1,036.2 1,033.7 201.8 168.6 93.5 31.5
Income tax expense (195.0) (191.0) (36.3) (31.2) (17.6) (6.2)
-------- -------- -------- -------- -------- --------
Profit for the financial 841.2 842.7 165.5 137.4 75.9 25.3
period ======== ======== ======== ======== ======== ========
(c) Cash flow statements
Los Los El Tesoro El Tesoro Michilla Michilla
Pelambres Pelambres
Six Six Six Six Six Six
months months months months months months
ended ended ended ended ended ended
30 June 30 June 30 June 30 June 30 June 30 June
2007 2006 2007 2006 2007 2006
US$'m US$'m US$'m US$'m US$'m US$'m
Net cash flow from 731.1 663.4 157.3 122.3 71.3 34.2
operating activities -------- -------- -------- -------- -------- --------
Investing activities
Additions to fixed (146.0) (240.7) (3.5) (4.3) (4.2) (6.5)
assets
Disposals of fixed assets - 0.7 - - - -
Other items - - - - - -
-------- -------- -------- -------- -------- --------
Net cash used in (146.0) (240.0) (3.5) (4.3) (4.2) (6.5)
investing activities -------- -------- -------- -------- -------- --------
Financing activities
Dividends paid (700.0) (470.0) - (40.0) (105.4) -
Loans repaid (40.7) (40.7) (7.0) (7.0) - -
-------- -------- -------- -------- -------- --------
Net cash used in (740.7) (510.7) (7.0) (47.0) (105.4) -
financing activities -------- -------- -------- -------- -------- --------
Net increase in cash and (155.6) (87.3) 146.8 71.0 (38.3) 27.7
cash equivalents
Cash and cash 485.3 560.7 219.0 3.5 69.5 15.2
equivalents at the -------- -------- -------- -------- -------- --------
beginning of the period
Cash and cash 329.7 473.4 365.8 74.5 31.2 42.9
equivalents at the end ======== ======== ======== ======== ======== ========
of the period
Notes to Chilean GAAP financial statements
(i) 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 2007 to be filed with the
SVS in Chile. Certain detailed lines in the individual statements have been
combined for convenience.
(ii) 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.
(iii) 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, 100% of El Tesoro (61% prior to 24
August 2006) and 74.2% of Michilla.
(iv) 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.
30. Reconciliation of Chilean GAAP results to Turnover and EBITDA under IFRS
for individual business segments
(a) Turnover
Los Los El El Michilla Michilla
Pelambres Pelambres Tesoro Tesoro
Six Six Six Six Six Six
months months months months months months
ended ended ended ended ended ended
30 June 30 June 30 June 30 June 30 June 30 June
2007 2006 2007 2006 2007 2006
Notes US$'m US$'m US$'m US$'m US$'m US$'m
Chilean GAAP - Turnover 1,296.1 1,243.8 332.0 262.6 170.5 107.7
Mark-to-market of 29(i) 58.4 69.0 - 0.8 0.4 0.7
provisionally priced
sales
Reclassification of 29(ii) - - - 24.1 (3.4) 57.2
realised (gains)/losses ------- ------- ------- ------- ------- -------
on commodity derivatives
to other operating
expense/reserves
IFRS - Turnover 1,354.5 1,312.8 332.0 287.5 167.5 165.6
======= ======= ======= ======= ======= =======
(b) EBITDA
Los Los El El Michilla Michilla
Pelambres Pelambres Tesoro Tesoro
Six Six Six Six Six Six
months months months months months months
ended ended ended ended ended ended
30 June 30 June 30 June 30 June 30 June 30 June
2007 2006 2007 2006 2007 2006
Notes US$'m US$'m US$'m US$'m US$'m US$'m
Chilean GAAP - Operating 1,027.5 1,028.4 196.7 168.2 88.9 30.6
profit
Depreciation & 34.7 33.0 18.4 17.2 9.5 7.4
amortisation ------- ------- ------- ------- ------- -------
Chilean GAAP - EBITDA 1,062.2 1,061.4 215.1 185.4 98.4 38.0
Mark-to-market of 29(i) 58.4 69.0 - 0.8 0.4 0.7
provisionally priced
sales
Mark-to-market of 29 - - - (19.3) (3.4) 11.0
financial derivatives (ii)
Other IFRS and 29 1.5 0.1 (1.8) 1.3 1.7 1.8
consolidation (iii) ------- ------- ------- ------- ------- -------
adjustments
IFRS - EBITDA 1,122.1 1,130.5 213.3 168.2 97.1 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.
This results in a GAAP adjustment in cases where the mark-to-market prices are
higher than the provisional invoice prices. For Los Pelambres this results in a
credit of US$45.3 million in respect of copper concentrate sales, and a credit
of US$13.1 million in respect of molybdenum concentrate sales. The adjustment in
respect of El Tesoro is nil, and the adjustment in respect of Michilla is a
credit of US$0.4 million.
(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 has applied the hedge accounting provisions of IAS 39 'Financial
Instruments: Recognition and Measurement' with effect from 1 January 2007. From
that date, changes in the fair value of derivative financial instruments that
are designated and effective as hedges of future cash flows have been recognised
directly in equity, with any ineffective portion recognised immediately in the
income statement. Realised gains and losses on commodity derivatives recognised
in the income statement have been recorded within turnover. Prior to 1 January
2007 derivatives were measured at fair value through the income statement, with
gains or losses on commodity derivatives being recorded within other operating
income or expense. For the comparative periods, any amounts included in turnover
under Chilean GAAP were reclassified accordingly.
(iii) Other IFRS and consolidation adjustments are not material
either individually or in aggregate.
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