Antofagasta February 2012 IR
Transcript of Antofagasta February 2012 IR
26 – 29 February 2012
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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
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correspond to the views held by Antofagasta plc.
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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.
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
Our existing Core Business
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
(
• 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
6
• 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
7
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
% % % % %
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$1.1 billion
o Reflected return of surplus cash after completion of key
growth projects
Consistently strong capital returns
8.6 9.0 9.4 16.0
41.051.0
14.0
100.0
35% 35% 35%
109%
2007 2008 2009 2010
Ordinary dividends Special dividends Payout ratio
9
Growth Opportunities
3.2
4.4
6.4
9.2
13.4
2006 2007 2008 2009 2010
Growth opportunities
Group exploration and
evaluation expenditure (US$ 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
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
12
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
13
Centinela District (formerly the Sierra Gorda District)
14
• 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)
15
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
16
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
17
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
18
26 - 29 February 2012
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)
Brief History
1888
1979 1996 1997 2000 2003
•
•
•
2011 •
•
2006 •
•
•
2008 •
•
•
•
2009 •
•
•
•
2010
21
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
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
23
(Volumes represent 2012 forecasts)
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$m)
8.6 9.0 9.4 16.0
41.051.0
14.0
100.0
35% 35% 35%
109%
2007 2008 2009 2010
Ordinary dividends Special dividends Payout ratio
1,947
2,919
1,596
1,345
851
2007 2008 2009 2010 Sep-11
466
1,190
1,3351,386
610
2007 2008 2009 2010 Sep-11
24
Cash flow 2011 H1 (US$ million)
Net cash position – Gross basis (US$ million) Net cash position – Attributable basis (US$ million)
25
Debt analysis 2011 H1 (US$m)
• Los Pelambres – Regular repayments of term loans, partly offset by new finance leases
• Esperanza – US$200 million of new short-term borrowings
Esperanza Los Pelambres El Tesoro Other
26
Corporate tax (deferred and current) RoyaltyWithholding tax Exchange rate
Effective tax rate – 2011 H1
21.0%
30.7%
27
Production and realised
prices analysis – 2011
Copper, molybdenum and gold production Realised copper (c/lb), molybdenum (US$/lb)
& gold price (oz/lb)
28
* Estimated range of 160,000–175,000 tonnes of copper
** Estimated range of 240,000–260,000 ounces of gold
*
**
Cash cost analysis – 2011 Cash cost (c/lb)
Los Pelambres cash cost (c/lb)
Esperanza cash cost (c/lb)
29
(*)
(*) Represents mid-point of estimated range of 55–65 cents per pound
(**)
(*)
(**) Represents mid-point of estimated range of 190–200 cents per pound
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
30
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$cents/MWh)
Source: SIC & SING
Source: Bloomberg
2011 Av: 95
2010 Av: 79
2011 NG Av: 95
2010 NG Av: 121
2011 CG Av: 182 2010 CG Av: 135
31
Realised prices
and mark-to-market
(US cents/pound) 2008 2009 2010 2011
Effects on results (US$ 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
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
33
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
34
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
35
• 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
36
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
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
• 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
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)
40
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.
41
Antofagasta contacts
London
(Antofagasta plc)
Tel: (+44-20) 7808-0988
Fax: (+44-20) 7808-0966
Santiago de Chile
(Antofagasta Minerals S.A.)
Tel:
Fax
42
26 – 29 February 2012