Antofagasta February 2012 IR

43
26 29 February 2012

Transcript of Antofagasta February 2012 IR

Page 1: Antofagasta February 2012 IR

26 – 29 February 2012

Page 2: Antofagasta February 2012 IR

Cautionary Statement

This presentation has been prepared by Antofagasta plc and consists of the slides for a written presentation

concerning Antofagasta plc. By reviewing and/or attending this presentation you agree to be bound by the following

conditions.

This presentation includes forward-looking statements that express expectations of future events or results. All

statements based on future expectations rather than on historical facts are forward-looking statements that involve a

number of risks and uncertainties, and the company cannot give assurance that such statements will prove to be

correct.

Nothing in this presentation should be interpreted to mean that future earnings per share of Antofagasta plc will

necessarily match or exceed its historical published earnings per share.

Certain statistical and other information about Antofagasta plc included in this presentation is sourced from publicly

available third party sources. Such information presents the views of those third parties and may not necessarily

correspond to the views held by Antofagasta plc.

This presentation is for information purposes only and does not constitute an offer to sell or the solicitation of an offer

to buy shares in Antofagasta plc in any jurisdiction. Further it does not constitute a recommendation by Antofagasta

plc or any other person to buy or sell shares in Antofagasta plc or any other securities.

Page 3: Antofagasta February 2012 IR

3. Growth beyond

the Core Business

2. Organic &

sustainable growth of

the Core Business

1. Our existing

Core Business

• Focused copper producer with high quality low-cost

asset base in Chile

• Delivering on significant production growth

• Additional low cost production offsetting industry

cost pressures to keep costs stable

• Consistently strong capital returns to shareholders

• Major growth projects in existing core districts in

Chile

• Extensive exploration programme for longer-term

Chilean and international growth

• Los Pelambres

• Esperanza

• El Tesoro

• Michilla

• Centinela district

• Los Pelambres district

• Antucoya

• Twin Metals

• Reko Diq

• Early-stage exploration

• Energy

3

1

2

Our business and strategy

3

Page 4: Antofagasta February 2012 IR

Our existing Core Business

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Realising strong production growth

Copper production 2010 – 2012E (‘000 tonnes)

Molybdenum (‘000 tonnes) Gold (000' ounces)

521

641

700

27 2 0

90

22)

3

(3)

80

2010 Los Pelambres

(412)

El Tesoro

(97)

Michilla

(42)

Esperanza

(90)

2011 Los Pelambres

(390)

El Tesoro

(100)

Michilla

(40)

Esperanza

(170)

2012E

910

11

35

197

280

34%

25%

700%

5

(

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• Main ramp-up activities now completed

• During 2011 focus was on maximising

general plant reliability and optimising the

milling process

• Current focus on testing of ore hardness and

the capacity of the tailings thickeners

27.1

53.3

65.3

76.5144.9

114.1

72.4

59.1

0

10

20

30

40

50

60

70

80

0

20

40

60

80

100

120

140

Q1 Q2 Q3 Q4

Throughput (‘000 tpd) Cash Cost (cents per pound)

Esperanza

• 2012 forecasts:

• 160,000 – 175,000 tonnes copper (2011 – 90,000 tonnes)

• 240,000 – 260,000 ounces gold (2011 – 157,000 ounces)

• Net cash costs: 55 – 65 c/lb

• Reflects forecast plant throughput of 80,000 – 86,000

tonnes per day

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• Average LME copper price in 2011 of 400 c/lb – all time high in nominal terms

• Copper achieved record high in Q1 2011, followed by price fall in Q4 and significant volatility

• Antofagasta’s average realised copper price in 2011 - 373 c/lb

o Reflected negative provisional pricing adjustments in H2

• Fundamentals remain healthy with inventories still at low levels

• Analysts forecast a volatile copper price, highly dependent on macro economic factors

o 2012 consensus c. 380 c/lb

LME Copper Price London Gold Price Molybdenum Price

Pricing environment and outlook

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Competitive and stable cost position

Weighted average cash cost including by-product credits 2010 – 2012E (c/lb)

2007 2008 2009 2010 Sep-11

EBITDA (US$m) Turnover (US$m) EBITDA/Turnover (%)

EBITDA (US$m) and EBITDA margin (%) 2011 copper cost curve (ranked by C1)

13.16.5 3.4 3.2

5.0

23.3

3.4 4.1 4.8

9.2

2010

Esp

eranza

on-

site

co

sts

Oth

ers

Exchan

ge R

ate &

Infla

tion e

ffect

Acid

co

st

En

erg

y

By-p

rod

uct

cre

dits

& T

ollin

g

charg

es

2011

Oth

ers

Pela

mb

res

dec

rease in

gra

de

By-p

rod

uct

cre

dits

& T

ollin

g

charg

es

Esp

eranza

on-

site

co

sts

2012

8

-100

0

100

200

300

400

0 20 40 60 80 100

Co

st

C1 (

cU

S$/l

b)

ESP MLP MET MIC AMSA 2011

% % % % %

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Dividends per share (cents) and payout ratio

• Track record of consistently strong capital

returns to shareholders

• Low-cost base allows strong cash generation

throughout the cycle

• Capital returns via combination of:

o Ordinary dividends – progressively increased and

sustainable throughout cycle

o Special dividends – during periods of high commodity

prices and high cash inflows

• Averaged overall payout ratio of 35% for

number of years

• Total payout in June 2011 of US$1.1 billion

o Reflected return of surplus cash after completion of key

growth projects

Consistently strong capital returns

8.6 9.0 9.4 16.0

41.051.0

14.0

100.0

35% 35% 35%

109%

2007 2008 2009 2010

Ordinary dividends Special dividends Payout ratio

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Growth Opportunities

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3.2

4.4

6.4

9.2

13.4

2006 2007 2008 2009 2010

Growth opportunities

Group exploration and

evaluation expenditure (US$ m) Mineral Resources

(including ore reserves)

(billion tonnes)

(The above mineral resources relates only to the Group’s subsidiaries and

do not include amounts relating to the Group’s joint venture at Reko Diq)

11

Indicative

project

timeline

54.9 67.1

99.0

200.0

2008 2009 2010 2011E

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Challenges for new projects

Chile’s mining project portfolio

• Forecast investment in mining projects c. US$80 billion over

next 8 years

• Expected to increase production to 7.8 million tonnes by 2020

(2010 – 5.5 million tonnes)

• Challenges likely to include:

Energy

o 65% increase in current mining sector electricity

requirements, requiring capital investment of c. US$8 billion

Labour

o More than 50% increase in current operational labour force

required by 2020 compared with 2012 levels

o By 2014 projects in construction will need 190,000 additional

workers

Water

o Expect general industry move towards use of sea water

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Antucoya

• Board approval for project in December 2011

• Construction is expected between 2012 and

2013 with first production in the course of 2014

• SX-EW operation with an annual cathode

production of approximately 80,000 tonnes

• Estimated mine life of over 20 years

• Environmental approvals received June 2011

• MoU signed in December 2011 with Marubeni

whereby they will become a 30% partner for

US$350 million

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Centinela District (formerly the Sierra Gorda District)

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• Feasibility study for Telégrafo and Caracoles in progress

o US$109 million expenditure programme approved in September 2011

o Study expected to be completed in H1 2013

• Telégrafo and Caracoles could each potentially support a 100ktpd plant - comparable to Esperanza

o Potential for production from Telégrafo from 2017

o Caracoles – longer lead-times

• Continuing exploration and drilling programme

o Highly prospective area with only a fraction of the potential fully defined to date

Centinela District (formerly the Sierra Gorda District)

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Los Pelambres District

• Total mineral resources of 5.8 billion tonnes @ 0.53% copper plus molybdenum and gold credits

o Existing 26 year mine plan includes ore reserves of 1.4 billion tonnes

• Potential to more than double existing capacity

• Pre-feasibility study at a cost of just under US$100 million now in progress

• Key challenges likely to include water supply, community engagement and environmental issues

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Potential development

prospects outside Chile

Twin Metals project

• 40% interest in Twin Metals project in Minnesota

• Incorporation of properties formerly held by Franconia Minerals Corp

• Pre-feasibility study initiated in October 2011 following completion of conceptual study

Reko Diq copper-gold

project

• Joint venture with Barrick Gold Corporation

• Arbitration proceedings initiated following rejection of mining lease application in November 2011

Early stage earn-in

agreements

• Long-term optionality through earn-in agreements with junior mining companies

• Earn-ins in place in the Americas, Europe, Africa and Australia

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Conclusion

• Focused copper producer with high quality low-cost asset

base in Chile

• Delivering on significant production growth

• Additional low cost production offsetting industry cost

pressures to keep costs stable

• Consistently strong capital returns to shareholders

• Major growth projects in existing core districts in Chile

• Exploration programme for longer-term Chilean and

international growth

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26 - 29 February 2012

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Overview

LSE-FREE

FLOAT

35%

• FTSE 100 since March 2004

• Market cap (22 February 2012): US$20.6bn

TRANSPORT

FCAB (Chile)

FCA (Bolivia)

Combined rail and road

tonnages of approx.

8.3 million tons per year

Exploration and evaluation studies in Chile, the United States and Pakistan Earn-in agreements in

Europe, Africa, the Americas and Australia

MINING WATER

LUKSIC

GROUP

65%

20 (Volumes represent 2012 forecasts)

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Brief History

1888

1979 1996 1997 2000 2003

2011 •

2006 •

2008 •

2009 •

2010

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Geographical Locations Operations And Exploration

1

4

3 5

6 7

13

8 9

2

10

11

12

14

Chile: Operations, projects and exploration

Peru Exploration

Toronto Office

USA Exploration Twin Metals: Agreement with Duluth Metals Ltd.

Canada exploration Agreement with Riverside Resources

USA Exploration Pyramid – Agreement with Fullmetals Minerals Ltd.

Portugal Exploration Iberian Pyrite Belt: MoU with AVRUPA

Spain Exploration La Zarza: Agreement with Ormonde Mining plc

United Kingdom Registered office, London

Sweden Exploration Joint venture with Eurasian Minerals

Turkey Exploration Agreement with Stratex International PLC

Pakistan Project and Exploration: Joint venture with Barrick Gold in Reko Diq

Namibia Exploration Agreement with Eiseb Exploration and Mining Ltd and Manica Minerals Ltd

South Australia Exploration Punt Hill: Agreement with Monax Ltd.

1

2

3

4

5

6

7

8

9

10

11

12

13

14

Western Australia: Sipa Resources Ltd..

15

15

22

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Geographical locations

Chile

Antucoya

Exploration in Sierra Gorda

District

Joint venture with New Gold

(Río Figueroa)

Joint Venture with Codelco

(Cumbres)

Hornitos thermoelectrical

power plant

• Esperanza

(170,000 tonnes copper

and 250,000 ounces

gold) • El Tesoro

(100,000 tonnes copper)

• Michilla

(40,000 tonnes copper) • Transport and Water

divisions

Chile: Operations

• Los Pelambres

(390,000 tonnes copper,

11,000 tonnes moly and

28,000 ounces gold)

Chile: Projects and

Exploration

Energía Andina S.A., joint

venture with ENAP for

geothermal opportunities

Mulpun project, underground

coal gasification

Distrito

Michilla Distrito

Sierra Gorda

Proyecto

Río Figueroa

Distrito

Los Pelambres

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(Volumes represent 2012 forecasts)

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2,824

1,900 1,681

2,772 2,506

3,827

3,373 2,963

4,577 4,173

74%

56% 57%61% 60%

2007 2008 2009 2010 Sep-11

EBITDA (US$m) Turnover (US$m) EBITDA/Turnover (%)

Financial history

EBITDA (US$m) and EBITDA margin (%)

Net cash position (US$ million) Earnings and dividends per share (cents)

Capital expenditure (US$m)

8.6 9.0 9.4 16.0

41.051.0

14.0

100.0

35% 35% 35%

109%

2007 2008 2009 2010

Ordinary dividends Special dividends Payout ratio

1,947

2,919

1,596

1,345

851

2007 2008 2009 2010 Sep-11

466

1,190

1,3351,386

610

2007 2008 2009 2010 Sep-11

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Cash flow 2011 H1 (US$ million)

Net cash position – Gross basis (US$ million) Net cash position – Attributable basis (US$ million)

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Debt analysis 2011 H1 (US$m)

• Los Pelambres – Regular repayments of term loans, partly offset by new finance leases

• Esperanza – US$200 million of new short-term borrowings

Esperanza Los Pelambres El Tesoro Other

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Corporate tax (deferred and current) RoyaltyWithholding tax Exchange rate

Effective tax rate – 2011 H1

21.0%

30.7%

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Production and realised

prices analysis – 2011

Copper, molybdenum and gold production Realised copper (c/lb), molybdenum (US$/lb)

& gold price (oz/lb)

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* Estimated range of 160,000–175,000 tonnes of copper

** Estimated range of 240,000–260,000 ounces of gold

*

**

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Cash cost analysis – 2011 Cash cost (c/lb)

Los Pelambres cash cost (c/lb)

Esperanza cash cost (c/lb)

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(*)

(*) Represents mid-point of estimated range of 55–65 cents per pound

(**)

(*)

(**) Represents mid-point of estimated range of 190–200 cents per pound

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Energy, 9%

Sulphuric acid, 12%

Services, 20%

Other, 21%

Commercial, 2%

Purchased ore, 17%

Labour, 16%

Explosives & reagents, 3%

Energy, 13%

Shipping & Tolling charges,

16%

Maintenance, 12%

Other, 21%

Services, 5%Steel milling balls, 5%

Fuel, 6%

Labour, 12%

Explosives & reagents, 4%

Sulphuric acid, 6%

Energy, 20%

Tolling charges, 7%

Maintenance, 8%

Other, 15%

Shipping , 5%

Services, 8%Steel milling balls, 6%

Fuel, 10%

Labour, 16%

Explosives & reagents, 5%

Energy, 13%

Sulphuric acid, 25%

Maintenance, 10%

Other, 13%

Services, 18%

Fuel, 7%

Labour, 11%

Explosives & reagents, 3%

Energy, 9%

Tolling charges, 14%

Maintenance, 14%

Other, 21%

Shipping , 8%Services, 14%

Steel milling balls, 6%

Fuel, 4%

Labour, 7%

Explosives & reagents, 3%

Cash operating cost 2011

Esperanza

Michilla

El Tesoro

Los Pelambres

Group

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Market cost – recent trends

Exchange rate (CLP/USD)

Inverted axis

Monthly prices of sulphuric acid

(US$/tonnes – CIF Mejillones)

Source: Bloomberg

Source: Chilean Custom – only imports

2011 Av: 483

2010 Av: 510

2011 Av: 118

2010 Av Av: 76

WTI oil price (US$/barrel

Chilean central and northern grid spot energy

prices (US$cents/MWh)

Source: SIC & SING

Source: Bloomberg

2011 Av: 95

2010 Av: 79

2011 NG Av: 95

2010 NG Av: 121

2011 CG Av: 182 2010 CG Av: 135

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Realised prices

and mark-to-market

(US cents/pound) 2008 2009 2010 2011

Effects on results (US$ million) 2008 2009 2010 2011

Provisional pricing – copper (1) (582.0) 423.2 303.5 (286.2)

Realised hedging gains (losses) – copper (2) 30.0 (65.8) (81.4) (15.1)

Period end mark-to-market * (US$

million)

31 Dec

2008

31 Dec

2009

31 Dec

2010

31 Dec

2011

Provisional pricing – copper (1) (258.2) 64.5 129.8 (14.1)

Hedge instruments – copper (2) 51.7 (77.8) (78.3) 58.9

* Pre-tax and minorities

(1) Provisional pricing: both actual realisations and mark-to-market are reflected in the income statement.

(2) Hedge instruments: only actual realisations and ineffective hedges are reflected through the income statement. Unrealised mark-to-market for effective hedges are reflected through reserves.

Copper price (US$ cents)

32

267 271

359 373

315

234

342

400

2008 2009 2010 2011

LME copper price Realised copper price

Page 33: Antofagasta February 2012 IR

Operations and projects

Los Pelambres

• Open pit operation located in Chile’s Coquimbo Region,

producing copper and molybdenum concentrates since

2000

• US$1 billion brownfield plant expansion completed during

2010

o Additional 90,000 tonnes annual copper production (first 15

years annual average)

• 2011 production and costs

o Copper – 411,800 tonnes

o Molybdenum - 9,900 tonnes

o Net cash costs 78.3 c/lb – pre-credit costs 128.0 c/lb

• 2012 forecast production and costs

o Copper – 390,000 tonnes

o Molybdenum – 11,000 tonnes

o Net cash costs 90.0 c/lb – pre-credit costs 136.6 c/lb

• Significant resource base could further enhance mine plan

in the future

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Operations and projects

El Tesoro and Michilla

SX-EW operations in Chile’s Antofagasta Region producing

copper cathodes

• El Tesoro

o 2011 production of 97,100 tonnes, and cash costs of 171.6 c/lb

o 2012 forecast production of 100,000 tonnes, and cash costs of

160 c/lb

o Ore feed from Tesoro Central, Tesoro North-East and Run-of-

Mine leaching

o Mirador oxides being processed from H2 2011, increasing

production to approximately 100,000 tonnes per annum

between 2012 and 2014, reducing cash costs and extending

the life of El Tesoro’s operation to 2022

• Michilla

o 2011 production of 41,600 tonnes, and cash costs of 213.3 c/lb

o 2012 forecast production of 40,000 tonnes, and cash costs of

285 c/lb

o Recategorization of reserves and engineering plan could

extend the base case from 2012 to 2015

o Exploration plan to extend the mine life to 2018

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Transport and

Water businesses

El Abra Conchi

Chuquicamata El Salvador

Calama Michilla

Sierra

Gorda

Gaby

El Tesoro Esperanza

Interacid

Terminal

Lomas Bayas

Zaldivar

Escondida

Augusta

Victoria

Alto

Norte

Antofagasta

Mejillones

Tocopilla

Rail station

City / port

Mine

Owned Mine

Rail Network

Chile’s Antofagasta

Region

Transport

• 2011 total volumes - 8.3 million tons

(rail volumes - 6.4 million tons;

road volumes - 1.9 million tons)

• 2010 revenue - US$155 million

• 2010 EBITDA - US$60 million

Water

• 2011 water volumes - 48.3 million m3

• 2010 revenue - US$92 million

• 2010 EBITDA - US$67 million

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• During 2011, the annual average for

copper was 400 c/lb, historically the

highest in nominal terms.

• The price moved from a record high in

Q1 2011 down to 343 c/lb in late

December with considerable volatility,

particularly in Q4.

• The solid market outlook seen in the first

months of 2011 was followed by a

weaker second half due to the

turbulence in the world economic

scenario.

o Global consumption slowing down

o Fundamentals remain healthy supporting

the price with inventories falling.

• For 2012, market analysts forecast a

volatile copper price highly dependent on

the evolution and stability of the world

economy. Market consensus for 2012 is

for an average price around 380 cents/lb

Copper price and exchange inventories

Refined copper market

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Market balance and terms

Copper concentrates market

• Deficit market during 2011 justified mainly by

the production constraints.

• Albeit global economic risks remain unsolved,

long-term fundamentals are still strong with the

concentrates market expected to be in deficit

during the next years.

• During the first month of 2012, the spot market

has been quiet due to reduced Chinese activity

as well as shutdowns at the Pasar and

Saganoseki smelters due to fires.

• Annual negotiations very slow with some

settlements being reported by market analysts

in the range 60/6 and 63.5/6.35. Japanese

smelters maintain their position that the last

settlement is the market benchmark and failed

to reach a settlement with BHP with whom they

have cancelled their contracts for 2012.

37

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Molybdenum price and market balance

• Supply & demand balance in surplus during

2011.

o Significant production increase in North-

America

o Consumption growing at 4.4% worldwide

o Low level of inventories

• Molybdenum price trading down from

US$17.9 per pound to US$12.7 per pound,

with an annual average of US$15.5 per

pound in 2011.

• High marginal cost of production at primary

mines limits the supply growth and provides

a support to prices.

• Most of the large projects have (again)

been delayed or postponed with limited

additional supply in the short term.

• For 2012 market consensus is for an

average price of US$15 within the range of

US$13 to US$18 per pound.

38

Molybdenum market

Page 39: Antofagasta February 2012 IR

• Gold performed better than expected in 2011 due to strong

investment demand and central bank purchases, little

resolution on the Euro zone crisis, and low global interest rates.

In early trading in 2012 it has traded back towards US$1,750.

• Demand for gold is supported by a diverse range of buyers

from Indian and Chinese jewellers, electronics manufacturers in

Asia, global dentistry and medicine sectors, to Central banks

and retail investors.

• Jewellery demand continues to be strong, especially in India

and China. Physical demand from those markets doubled each

year since 2008.

• Demand for bars and coins remains robust, especially in Asia

• Many global central banks remain under allocated to gold and

seek to diversify their USD reserves.

• Strong investor demand in recent months, with ETFs displaying

net inflows. Futures and OTC markets are also very robust

• Continued weakening of US Dollar and Euro vs emerging

currencies

• Low volatility compared to the world’s commodities benchmark,

makes gold an attractive asset for long-term allocations in

portfolios.

Gold demand

Gold market

Gold price and 5-year real rates

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6 1,325

1,425

1,525

1,625

1,725

1,825

1,925

US

10 y

ear

TIP

S y

ield

Go

ld (U

S$/o

z)

Gold (US$/oz) US 10 year TIPS yield

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011En

d-u

se

go

ld c

onsum

ptio

n (to

nnes)

Jewellery Industrial & dental

Total bar & coin demand ETF & similar products39

Page 40: Antofagasta February 2012 IR

Duluth Metals, the Groups partner, published an NI 43-101 compliant resource estimate consisting of 550 and 274 million tonnes of indicated and inferred resource, respectively,

with a combined copper grade of approximately 0.6% and a combined copper equivalent grade of approximately 1.5%

Reserves and resources

(at 31 December 2010)

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Safety statistics

Definitions:

LTIFR – Number of accidents with lost time during the year per million hours worked.

AIFR – Number of accidents with and without lost time during the year per million hours worked.

Chilean mining industry source – Servicio Nacional de Geología y Minería. Comparative figures for 2009 have been updated to reflect the full year; 2010 full year

figures have not yet been released by Servicio Nacional de Geología y Minería and therefore are not shown above.

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26 – 29 February 2012