REG - Antofagasta PLC - 2014 PRELIMINARY RESULTS <Origin Href="QuoteRef">ANTO.L</Origin> - Part 2

AntofagastaAnnouncement

17/03/2015 07:02

- Part 2: For the preceding part double click  ID:nRSQ5979Ha 

described above. As explained in more
detail above, the reduction in turnover associated with the decreased copper sales volumes was $127.0 million, resulting in
a net reduction in EBITDA of $56.8 million. 
 
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 (representing on-site and shipping costs in the case of
Los Pelambres and Centinela Concentrates and total cash costs in the case of Centinela Cathodes and Michilla) remained
stable at $1.65/lb. 
 
Exploration and evaluation costs decreased by $107.4 million to $167.5 million (2013 - $274.9 million), mainly reflecting
the completion of pre-feasibility studies at Twin Metals and Los Pelambres, which had been on-going throughout 2013. 
 
In 2014 there was a $7.4 million credit in respect of updates to mine closure provisions, compared with a charge of $69.6
million in 2013, with the relatively high charge in the prior year reflecting increases to the Los Pelambres provision in
that year. 
 
Operating costs (excluding depreciation, amortisation and disposals) at the transport and water divisions 
 
Operating costs at the transport division decreased by $7.7 million to $112.1 million. This was mainly due to lower fuel,
maintenance and labour costs. Operating costs at the water division decreased by $8.4 million to $49.8 million, mainly
reflecting the weaker Chilean peso. 
 
EBITDA and operating profit from subsidiaries and joint ventures 
 
EBITDA 
 
EBITDA (earnings before interest, tax, depreciation, and amortisation) from subsidiaries and joint ventures decreased by
$480.6 million or 17.8% to $2,221.6 million in 2014 (2013 - $2,702.2 million), with the $681.2 million decrease in turnover
partially offset by the $200.6 million reduction in operating expenses (excluding depreciation and amortisation) as
described above. 
 
EBITDA at the mining division decreased by 18.4% from $2,547.7 million in 2013 to $2,077.8 million in 2014. As explained
above, this was mainly due to the decrease in the realised copper price, partly offset by lower exploration and evaluation
expenses and a decrease in the cost relating to mine closure provisions. 
 
EBITDA at the transport division decreased by $8.1 million to $68.7 million in 2014, reflecting the decreased revenue as
explained above. The water division contributed $75.1 million in 2014 compared with $77.7 million in 2013, reflecting the
decreased revenue as well as operating costs, as explained above. 
 
Depreciation, amortisation and disposals 
 
The depreciation, amortisation and disposals charge was higher at $581.9 million (2013 - $530.1 million). Increased
depreciation at Centinela and Michilla was partly offset by a $28.6 million disposal gain related to the temporary loss of
control of the Twin Metals project. This gain on disposal is largely offset by the related $26.3 million impairment charge
in respect of the available for sale investment relating to Duluth Metals Limited, included within Other finance items as
explained below. 
 
Operating profit from subsidiaries 
 
As a result of the above factors, operating profit from subsidiaries decreased by 24.5% to $1,639.7 million (2013 -
$2,172.1 million),with the $532.4 million reduction mainly drive by the decreased revenue as a result of the lower realised
copper price. 
 
Share of results from associates and joint ventures 
 
The Group's share of results from its associates and joint ventures was a loss of $4.1 million (2013 - loss of $14.4
million). This mainly reflects lower expenditures in respect of the Energia Andina joint venture partly offset by lower
profits at Inversiones Hornitos. 
 
Net finance expense 
 
Net finance expense in 2014 was $62.1 million, a $12.1 million reduction compared with the net expense of $74.2 million in
2013. 
 
                      Year ended 31.12.14$'m  Year ended 31.12.13$'m  
 Investment income    18.4                    12.6                    
 Interest expense     (44.6)                  (62.0)                  
 Other finance items  (35.9)                  (24.8)                  
 Net finance expense  (62.1)                  (74.2)                  
 
 
Investment income increased from $12.6 million in 2013 to $18.4 million in 2014, mainly reflecting additional interest
income in respect of a loan from Los Pelambres to the Alto Maipo associate. 
 
Interest expense decreased from $62.0 million in 2013 to $44.6 million in 2014, mainly due to a decrease of interest
payable at Centinela as a result of a refinancing during the year. 
 
Other finance items comprised a net expenses of $35.9 million (2013 - net expense of $24.8 million). A loss of $5.1 million
(2013 - loss of $13.5 million) has been recognised in respect of the time value element of changes in the fair value of
commodity derivative options, which is excluded from the designated hedging relationship, and is therefore recognised
directly in profit or loss. Foreign exchange losses included in finance items were $4.6 million in 2014, compared with a
loss of $2.9 million in 2013. An expense of $9.1 million (2013 - $14.2 million) has been recognised in relation to the
unwinding of the discount on provisions. 
 
Also included within Other finance items is an impairment charge of $26.3 million, recognised in respect of the available
for sale investment relating to Duluth Metals Limited ("Duluth"). As explained in Note 6 to the preliminary results
announcement, as at 31 December 2014 the Group held a 17.2% stake in Duluth. In November 2014 Antofagasta entered into a
binding letter of agreement to acquire 100% of Duluth, with the acquisition completing subsequent to the year-end following
approval from Duluth's shareholders in January 2015. Movements in the fair value of the available for sale investment in
Duluth had previously been recorded within the Consolidated Statement of Comprehensive Income. The agreed acquisition terms
indicated a final fixed value for the Duluth shares, and that there had therefore been an impairment in the value of the
Duluth shares to this amount. Fair value losses previously recorded within the Consolidated Statement of Comprehensive
Income have therefore been transferred to the income statement and recognised within this impairment loss. This impairment
change has been largely offset by the related $28.6 million disposal gain in respect of the temporary loss of control of
the Twin Metals project included within Depreciation, amortisation and disposals as described above. 
 
Profit before tax 
 
As a result of the factors set out above, profit before tax decreased by $510.0 million or 24.5% to $1,573.5 million,
compared with $2,083.5 million in 2013. 
 
Income tax expense 
 
The tax charge in 2014 was $722.8 million (2013 - $843.7 million) and the effective tax rate was 45.9% (2013 - 40.5%). 
 
                                                                  Year ended  Effective  Year ended  Effective  
                                                                  31.12.2014  tax rate   31.12.2013  tax rate   
                                                                  $m          %          $m          %          
 Profit before tax                                                1,573.5                2,083.5                
 Taxes (Current and deferred)                                                                                   
 Corporate tax                                                    (365.9)     23.3       (455.0)     21.8       
 Adjustment to deferred tax attributable to changes in tax rates  (220.6)     14.0       -           -          
 Royalty                                                          (79.1)      5.0        (99.2)      4.8        
 Withholding tax                                                  (56.8)      3.6        (289.1)     13.9       
 Exchange rate                                                    (0.4)       -          (0.4)       0.1        
 Total tax charge                                                 (722.8)     45.9       (843.7)     40.5       
 
 
The tax charge for the 2014 was $722.8 million and the effective tax rate was 45.9%. This rate varied from the standard
rate (comprising first category tax) of 21% principally due to the deferred tax charge of $220.6 million reflecting the
increase in tax rates as a result of the Chilean tax reform ($142.2 million impact on net earnings; 14.4 cents impact on
earnings per share), the effect of items not deductible from first category tax (mainly corporate items which principally
comprise exploration and evaluation costs), a withholding tax charge of $56.8 million and the effect of the mining tax
which resulted in a charge of $79.1 million. In 2013 the total charge was $843.7 million, with an overall effective tax
rate of 40.5% compared with the statutory rate of corporate tax of 20%. The main variance compared with the statutory rate
in 2013 reflected a withholding tax charge of $289.1 million. Further details are given in Note 7 to the preliminary
results announcement. 
 
Non-controlling interests 
 
Profit attributable to non-controlling interests was $390.9 million, compared with $580.2 million in 2013, reflecting the
lower profit attributable to the non-controlling interests as a consequence of the decrease in the earnings of the mining
operations analysed above. 
 
Earnings per share 
 
                       Year ended 31.12.14  Year ended31.12.13  
                       US cents             US cents            
 Earnings per share    46.6                 66.9                
 
 
Earnings per share calculations are based on 985,856,695 ordinary shares.  As a result of the factors set out above, profit
in 2014 attributable to equity shareholders of the Company was $459.8 million compared with $659.6 million in 2013.
Accordingly, earnings per share were 46.6 cents in 2014 compared with 66.9 cents in 2013, a decrease of 30.3%. Excluding
the deferred tax provision resulting from the changes in the Chilean tax law during 2014 (14.4 cents impact on earnings per
share), earnings per share were 61.0 cents, a 7.5% decrease compared with 2013. 
 
Dividends 
 
Dividends per share proposed in relation to the year are as follows: 
 
                                             Year ended 31.12.14  Year ended31.12.13  
                                             US cents             US cents            
                                                                                      
 Interim                                     11.7                 8.9                 
 Final                                       9.8                  86.1                
 Total dividends to ordinary shareholders    21.5                 95.0                
 
 
The Board determines the appropriate dividend each year based on consideration of the Group's cash balance, the level of
free cash flow and earnings generated during the year and significant known or expected funding commitments. It is expected
that the total annual dividend for each year would represent a payout ratio based on net earnings for that year of at least
35%. 
 
The Board has recommended a final dividend for 2014 of 9.8 cents per ordinary share, which amounts to $96.6 million and if
approved at the Annual General Meeting, will be paid on 22 May 2015 to shareholders on the Register at the close of
business on 24 April 2015. This gives total dividends for the year of 21.5 cents, including the interim dividend of 11.7
cents. In 2013 total dividends were 95.0 cents. 
 
Capital expenditure 
 
Capital expenditure increased by $122.3 million from $1,458.7 million in 2013 to $1,581.0 million in 2014. This was mainly
due to the ongoing construction at the Antucoya project and the expansion of the Centinela concentrator to a capacity of
105,000 tonnes per day. 
 
Derivative financial instruments 
 
The Group generally sells its commodity production at prevailing market prices. It may periodically use derivative
financial instruments to reduce exposure to commodity price movements in certain specific circumstances. At 31 December
2014 the Group did not have any significant level of commodity derivatives which fixed or limited its exposure to market
prices. 
 
The Group periodically uses interest rate swaps to swap floating rate interest for fixed rate interest. At 31 December 2014
the Group had entered into contracts in relation to the Centinela project financing for a maximum notional amount of $140
million at a weighted average fixed rate of 3.372 % fully maturing in August 2018. The Group had also entered into
contracts in relation to a financing loan at the Railway for a maximum notional amount of $150 million at a weighted
average fixed rate of 1.634%, fully maturing in August 2019. 
 
The Group also periodically uses foreign exchange derivatives to cover expected operational cash flow needs. At 31 December
2014 Antucoya had cross-currency swaps with a principal value of $45 million to swap Chilean pesos for US dollars at an
average rate of Ch$564.6/$1, covering a total period up to 15 May 2015. The weighted average remaining period covered by
these hedges calculated with effect from 1 January 2015 is 2.4 months. Additionally, at 31 December 2014 Antucoya had zero
cost collar instruments with a principal value of $27 million covering a total period up to 15 Mar 2015. The weighted
average remaining period covered by the zero cost collars calculated with effect from 1 January 2015 was 1.4 months. The
instruments had a weighted average floor of Ch$589.6/$1 and a weighted average cap of Ch$550.0/$1. 
 
Cash flows 
 
The key features of the Group cash flow statement are summarised in the following table. 
 
                                                                     Year ended 31.12.14  Year ended 31.12.13  
                                                                     $m                   $m                   
 Cash flows from operations                                          2,507.8              2,659.2              
 Income tax paid                                                     (641.5)              (896.5)              
 Net interest paid                                                   (45.4)               (43.2)               
 Capital contributions and loans to associates and joint ventures    (125.2)              (128.2)              
 Change in ownership interest in subsidiaries                        (30.9)               -                    
 Capital increase from non-controlling interest                      50.0                 109.9                
 Acquisition of available-for-sale investments                       (5.9)                (2.1)                
 Purchases of property, plant and equipment                          (1,646.3)            (1,344.8)            
 Proceeds from sale of property, plant and equipment                 1.7                  10.6                 
 Dividends paid to equity holders of the Company                     (964.2)              (975.0)              
 Dividends paid to non-controlling interests                         (412.2)              (452.1)              
 Dividends from associate                                            20.0                 -                    
 Other items                                                         8.7                  (0.2)                
 Changes in net cash relating to cash flows                          (1,283.4)            (1,062.4)            
 Exchange and other non-cash movements                               (29.4)               (29.1)               
 Movement in net (debt)/cash in the period                           (1,312.8)            (1,091.5)            
 Net cash at the beginning of the year                               1,311.2              2,402.7              
 Net (debt)/cash at the end of the year                              (1.6)                1,311.2              
 
 
Cash flows from operations were $2,507.8 million in 2014 compared with $2,659.2 million in 2013. This reflected EBITDA for
the period of $2,221.6 million (2013 - $ 2,702.2 million) adjusted for a net working capital increase of $286.2 million
(2013 - decrease of $43.0 million). 
 
Cash tax payments in 2014 year were $641.5 million (2013 - $896.5 million), comprising corporation tax of $264.0 million
(2013 - $528.0 million), mining tax of $98.2 million (2013 - $160.0 million) and withholding tax of $279.3 million (2013 -
$208.5 million). These amounts differ from the current tax charge in the consolidated income statement of $714.8 million
(2013 - $843.7 million) mainly because cash tax payments for corporation tax and the mining tax partly comprise the
settlement of outstanding balances in respect of the previous year's tax charge and payments on account for the current
year based on the prior year profit levels. 
 
Contributions and loans to associates and joint ventures of $125.2 million mainly relate to the Group's share of the
funding of the development of the Alto Maipo project, in which the Group acquired a 40% interest in 2013. 
 
Cash disbursements relating to capital expenditure in 2014 were $1,646.3 million compared with $1,344.8 million in 2013.
This included expenditure of $734.6 million at Antucoya (2013 - $596.5 million), $566.9 million relating to Centinela (2013
- $463.5 million) and $230.0 million relating to Los Pelambres (2013 - $194.6 million). 
 
Dividends (including special dividends) paid to ordinary shareholders of the Company in 2014 were $964.2 million (2013 -
$975.0 million), which related to the final dividend declared in respect of the previous year. 
 
Dividends paid by subsidiaries to non-controlling shareholders were $412.2 million (2013 - $452.1 million), consisting of
distributions by Los Pelambres, Centinela and Michilla. 
 
Financial position 
 
                                                    At 31.12.14  At 31.12.13  
                                                    $m           $m           
 Cash, cash equivalents and liquid investments      2,374.5      2,685.1      
 Total borrowings                                   (2,376.1)    (1,373.9)    
 Net (debt)/cash at the end of the period           (1.6)        1,311.2      
 
 
At 31 December 2014 the Group had combined cash, cash equivalents and liquid investments of $2,374.5 million (31 December
2013 - $2,685.1 million). Excluding the non-controlling interest share in each partly-owned operation, the Group's
attributable share of cash, cash equivalents and liquid investm