REG - Antofagasta PLC - HALF YEAR FINANCIAL REPORT FOR PERIOD TO 30.06.22
11/08/2022 07:00
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RNS Number : 6312V Antofagasta PLC 11 August 2022
NEWS RELEASE, 11 AUGUST 2022
HALF YEARLY FINANCIAL REPORT
FOR THE SIX MONTHS ENDED 30 JUNE 2022
Antofagasta plc CEO Iván Arriagada said: "Although we have experienced
significant challenges over the half year - a volatile copper price as a
result of macro developments, the continued drought in Chile, and an incident
with our concentrate pipeline at Los Pelambres - the actions we have taken,
coupled with the quality of our assets and balance sheet, have meant that we
were able to weather the storm. Sales volumes during the period were lower
as were copper prices and this is reflected in the 30% decline in revenue.
As we previously announced, with the fall in production and higher input
prices, cash costs were higher. And although we have experienced general
inflation, the impact was offset by the weak Chilean peso.
"As we continue to decarbonise our business, we successfully moved all our
mining operations away from using fossil fuels for energy generation and as of
April this year, they are now all using 100% renewable energy.
"We expect the remainder of the year to look very different from the first
half - as production improves quarter-on-quarter, we ship and sell the
concentrate that was impacted by the concentrate pipeline incident, and the
desalination plant at Los Pelambres starts, significantly alleviating the
issue of water availability. We remain on track to produce our revised
guidance of 640-660,000 tonnes of copper for the full year.
"While the short-term outlook remains uncertain for copper, inflation, global
economics and geopolitics, we remain committed to maintaining our operating
discipline and cost control, and a strong balance sheet.
"Copper's critical role in the development of low-carbon technologies is
essential for the energy transition and the long-term fundamentals for copper
remain favourable. I am confident that Antofagasta's strategy of developing
mining for a better future is the right one and will deliver long-term value
for all our stakeholders.
"In line with our normal 35% pay-out ratio for interims, the Board has
declared an interim dividend of 9.2 cents per share."
HIGHLIGHTS
Financial performance
· Revenue for the first half of 2022 was $2,528 million, 29.6% lower
than the same period in 2021 mainly because of lower copper and by-product
sales volumes and lower realised copper prices
· EBITDA((1)) was $1,238 million, 47.5% lower than in the same
period last year on lower revenue and operating costs that increased by 6.9%
mainly due to higher input prices
· EBITDA margin((2)) was 49.0%, compared with 65.6% in H1 2021 and
64.7% for the full year 2021
· The Cost and Competitiveness Programme generated savings and
productivity improvements of $35 million in the first half of 2022, equivalent
to 6c/lb of unit cash costs
· Profit before tax was $680 million, a $1,104 million decrease on
the same period in 2021
· Continuing strong balance sheet with a net debt to EBITDA ratio
at the end of the period of 0.13 times. The cash, cash equivalents and liquid
investments balance at 30 June 2022 was $2,878 million, a decrease from $3,713
million at the end of 2021, largely reflecting the $1,172 million payment of
the 2021 final dividend
· Cash flow from operations reduced to $1,683 million compared with
$2,461 million in the first half of 2021
· Capital expenditure of $831 million was 44% of full year guidance
· Earnings per share of 26.4 cents, 41.1 cents lower than the same
period in 2021
· Interim dividend of 9.2 cents per share, equivalent to a pay-out
ratio of 35% of underlying net earnings in line with the Company's capital
allocation framework
Production and cost performance (as previously announced on 20 July 2022)
· Group copper production in the first six months of the year was
268,600 tonnes, 25.7% lower than in the same period last year mainly due to
the expected temporary reduction in throughput at Los Pelambres as a result of
the drought and the concentrate pipeline incident and expected lower grades at
Centinela Concentrates. Throughput at Los Pelambres was 36.2% lower than in H1
2021, and the grades at Centinela Concentrates were 25.4% lower
· Cash costs before by-product credits for the first half of the
year were $2.37/lb, 37.0% higher than in the same period last year mainly due
to the temporary decrease in production and higher input prices, particularly
for diesel and sulphuric acid. General inflation was largely offset by the
weaker Chilean peso
· Net cash costs were $1.82/lb for the first half of the year,
compared with $1.14/lb in the first half of 2021, reflecting the increase in
cash costs before by-product credits and slightly lower by-product credits due
to lower by-product production, partially offset by higher realised prices
2022 Guidance (as previously announced)
· Full year copper production for the Group is expected to be
640-660,000 tonnes. This includes the impact of the concentrate pipeline
incident, and the impact of the water shortage at Los Pelambres due to the
drought
· The drought has continued at Los Pelambres during the period
although there has been heavier precipitation since then. The revised guidance
range incorporates a negative outlook for water availability for the rest of
the year, which we consider to be low probability. Strict water management
protocols remain in place to optimise water usage and mitigate the impact of
low water availability
· With increases in diesel and other input prices, net cash cost
guidance is $1.65/lb, assuming market consensus estimates of by-product prices
and the Chilean Peso exchange rate for the rest of the year
· As announced in April, expected Group capital expenditure for the
year is unchanged at $1.9 billion
· The Group is on track to achieve its Cost and Competitiveness
Programme savings target of at least $50 million for the full year
Growth projects
· As previously announced, at the end of H1 the Los Pelambres
Expansion project was 82% complete
· Completion of the desalination plant is expected in Q4 2022 and
of the concentrator plant expansion in early 2023
· On completion of the desalination plant, the Group's exposure to
water scarcity risk will be substantially reduced. An application to further
expand the plant is underway
· As previously announced, the Zaldívar Chloride Leach project was
completed in January 2022 on budget
· Since the period end, mining with the Group's first fleet of
autonomous trucks has started at Esperanza Sur and the ore is being processed
at the Centinela concentrator
· Following the completion of a detailed review of the Centinela
Second Concentrator project, the capital cost estimate has been revised to
$3.7 billion (up from $2.7 billion in the 2015 prefeasibility study). This
estimate includes a new water system and the increase reflects design changes,
inflation, heightened environmental and other regulatory requirements, and the
results of advanced engineering and a more detailed execution plan. The
decision on whether to proceed with the project is scheduled for early 2023
· The expansion at Centinela will increase production by an average
of 170,000 tonnes per annum of copper equivalent and move Centinela into the
first cost quartile, and takes advantage of the Group's large resource base in
the Centinela district
Sustainability
· As previously announced, from April this year all mining operations
have been operating solely using renewable energy, significantly reducing the
Company's Scope 2 emissions
· The Group's Sustainability Report was published in April and its
first Tax Report was published in July
· In August, Antucoya obtained the Copper Mark, for compliance with
this independently verified responsible production standard, joining Centinela
and Zaldívar who received it in 2021
Other
· As previously announced, there was a discharge from the
concentrate pipeline at Los Pelambres during the period and the pipeline
resumed operations on 26 June. There was no material environmental impact and
the pipeline was approved for reopening by the relevant local regulator. A
review is underway to ensure enhanced safety conditions are incorporated into
pipeline operations ahead of the replacement of the pipeline which is
currently being permitted and is expected to be completed in 2025. Engagement
with members of the local communities concerned about the safety of the
pipeline by the Company together with the local authorities were also
concluded successfully
· The Constitutional Convention completed the draft of the new
constitution on 4 July. A national referendum to accept or reject the new
constitution will be held on 4 September
· The government presented a tax reform bill to Congress on 7 July
and a new proposal for the mining royalty on 11 July. This proposal is being
evaluated by the mining industry. The initial view is that it is more onerous
than the proposal made by the Senate Mining and Energy Committee in January,
but less onerous than the original proposal made by the lower house in May
2021. The new draft will now be reviewed by the Senate before being passed to
the lower house for its consideration
UNAUDITED RESULTS SIX MONTHS ENDED 30 JUNE 2022 2021 %
Revenue $m 2,528.2 3,591.0 (29.6)
EBITDA((1)) $m 1,237.7 2,357.1 (47.5)
EBITDA margin((1, 2)) % 49.0 65.6 (25.3)
Profit before tax (including exceptional items) $m 679.6 1,783.5 (61.9)
Earnings per share (continuing and discontinued operations including cents 26.4 67.5 (60.9)
exceptional items)
Dividend per share cents 9.2 23.6 (61.0)
Cash flow from operations (continuing and discontinued) $m 1,682.5 2,460.5 (31.6)
Capital expenditure((3)) $m 831.0 781.9 6.3
Net debt/(cash) at period end $m 491.4 (701.3) N/A
Realised copper price $/lb 4.13 4.42 (6.6)
Copper sales((4)) kt 240.4 325.1 (26.1)
Gold sales koz 73.6 103.7 (29.0)
Molybdenum sales kt 3.9 5.7 (31.6)
Cash costs before by-product credits((1)) $/lb 2.37 1.73 37.0
Net cash costs((1)) $/lb 1.82 1.14 59.6
Note: The financial results are for continuing operations and are prepared in
accordance with IFRS unless otherwise noted below.
(1) Non-IFRS measures. Refer to the alternative performance measures
section on page 60 in the half-year financial report below.
(2) Calculated as EBITDA/Revenue. If Associates and JVs' revenue is
included EBITDA Margin was 44.6% in HY 2022 and 61.8% in HY 2021.
(3) On a cash basis.
(4) Does not include 22,700 tonnes of sales by Zaldívar in HY 2022
and 21,100 tonnes in HY 2021, as it is equity accounted.
A recording and copy of the 2022 Half Year Results presentation is available
for download from the Company's website www.antofagasta.co.uk
(http://www.antofagasta.co.uk) .
There will be a Q&A video conference call at 2:00pm BST today hosted by
Iván Arriagada - Chief Executive Officer, Mauricio Ortiz - Chief Financial
Officer and René Aguilar, Vice President - Corporate Affairs and
Sustainability. Participants can join the conference call here
(https://protect-eu.mimecast.com/s/FIsAC73DqsVDRWT80GSG) .
Investors - London Media - London
Andrew Lindsay alindsay@antofagasta.co.uk (mailto:alindsay@antofagasta.co.uk) Carole Cable antofagasta@brunswickgroup.com (mailto:antofagasta@brunswickgroup.com)
Telephone +44 20 7808 0988 Telephone +44 20 7404 5959
Rosario Orchard rorchard@antofagasta.co.uk (mailto:rorchard@antofagasta.co.uk)
Telephone +44 20 7808 0988 Media - Santiago
Pablo Orozco porozco@aminerals.cl (mailto:porozco@aminerals.cl)
Carolina Pica cpica@aminerals.cl (mailto:cpica@aminerals.cl)
Telephone +56 2 2798 7000
Register on our website to receive our email alerts
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FINANCIAL AND OPERATING REVIEW
FINANCIAL HIGHLIGHTS
Group revenue was $2,528.2 million, 29.6% lower than in the same period last
year mainly as a result of copper sales volumes falling by 26.1%, the realised
copper price decreasing by 6.6%, and as by-product revenues decreased by
25.3%, mainly due to lower molybdenum and gold volumes, partially offset by
higher realised by-product prices.
EBITDA during the first six months was $1,237.7 million, 47.5% lower than in
the same period in 2021, reflecting lower revenue and higher cost of sales
which increased by 6.9%.
Profit before tax including exceptional items was $679.6 million, 61.9% lower
than in the same period in 2021 reflecting the lower EBITDA.
Earnings per share from continuing operations including exceptional items for
the year were 26.4 cents, a decrease of 60.9% compared with 2021.
Cash flow from operations was $1,682.5 million, a 31.6% decrease compared with
the same period last year, reflecting the Group's lower EBITDA.
The Board has declared an interim ordinary dividend of 9.2 cents per share,
equal to a 35% pay-out ratio in both periods and in line with our dividend
policy.
SUSTAINABILITY
Safety and health
Antofagasta prioritises the safety and wellbeing of its people.
Given that our safety management system prioritises eliminating fatalities,
the Group's focus is on high potential incidents (HPIs), and we are using this
measure as our key lead indicator of safety performance. During the first half
of 2022, the Group recorded 23 HPIs, 21% less than the same period in the
previous year, with improvements seen in both our Mining and Transport
divisions.
The Group's Lost Time Injury Frequency Rate (LTIFR) was 0.92 per million hours
worked, 23% less than in 2021. All incidents with lost time are now being
investigated to identify and learn from the organisational causes.
Communities
We seek to engage in long-term sustainable relationships with the communities
near to our operations through our Somos Choapa (We are Choapa) and Diálogos
para el Desarrollo (Dialogues for Development) engagement mechanisms in the
Choapa Province and the Antofagasta Region, respectively.
Following the concentrate pipeline incident at Los Pelambres, engagement with
several rural communities ensued with the participation of local and regional
authorities. Agreements reached include initiatives focused on participatory
monitoring through enhanced information sharing about parts of the company's
infrastructure, and financing social projects related to drinking water,
sanitation, health, education and public spaces. In line with the Group's
community relations model, most of these projects will be in partnership with
the public sector.
Over recent years, Los Pelambres has strengthened its water strategy to
contribute to the mitigation of communities' challenges arising from water
scarcity. Projects have been developed to provide assistance during
emergencies and improve the quantity and quality of water available to local
communities. Los Pelambres has also implemented projects to improve the
efficient use of water for irrigation, financing the lining of more than 200
kilometres of irrigation canals over the last 10 years and the construction of
some 200,000 m(3) of water storage. Additionally, innovation and technology
have been used to automate sluice gates on the Illapel River to improve the
efficiency and use of water.
In recent months Zaldívar has advanced its relationship with the community of
Peine, an indigenous Atacameño village located in the Salar de Atacama,
approximately 100km from the operation and close to its water well field. The
community has established an elected committee to work with the company and
the local and regional authorities in supporting the community's development.
Climate Change and emission targets
At Antofagasta, we see climate change as one of the greatest challenges facing
the world today and are committed to being part of the solution. As a copper
producer, we have a clear role to play in supplying a metal that is a critical
input for many low-carbon technologies such as electromobility and the
generation of renewable energy.
After meeting our 2018-2022 GHG emissions reduction target two years early in
2020, the Company announced two new targets.
The first is to reduce the Company's Scope 1 and Scope 2 GHG emissions by 30%,
or 730,000 tonnes of CO(2)e by 2025, relative to 2020. And the second is for
the Group to achieve carbon neutrality by 2050, in line with Chile's own
national target, or earlier if suitable technologies are developed.
These targets are supported by the conversion of our operations to electricity
generated solely from renewable sources, which was achieved in April 2022. At
the same time, we are working to reduce and, ultimately, eliminate the use of
diesel at our mining operations by using alternative power sources and a
portfolio of energy efficiency initiatives.
More details of our Climate Change Strategy can be found in our 2021 Climate
Change Report.
Water
One clear impact of climate change is the 13-year drought in central Chile,
which is where Los Pelambres is located. In 2018, we took the decision to
build a desalination plant for Los Pelambres and the first stage of this
project, with an output of 400 litres per second, is due to start operation in
Q4 2022 and to double its capacity as soon as the necessary permitting is
obtained.
Our Centinela and Antucoya operations in the north of Chile already almost
only use sea water and Zaldívar will use continental water until 2025 or 2031
(see below). As a result, we expect raw or desalinated seawater and reused or
recycled water to account for 90% of the operational water use of all our
mining operations by 2025.
In 2018, Zaldívar submitted an Environmental Impact Assessment (EIA), which
included an application to extend its water permit from 2025 to 2031 and the
mining lease (which expires at the end of 2023). This has involved government
agencies reviewing the application and a consultation process with the
indigenous community in Peine, led by the environmental authority.
If the relevant permits are not extended, this is likely to be considered as
an indicator of a potential impairment, requiring a full impairment assessment
to be carried out.
Zaldívar's mine life is to 2036. Field work and studies are underway on
further extending the life of the mine by exploiting the primary sulphide ore
body that lies below the current ore reserves. Water planning beyond the
extension to 2031 is being evaluated as part of these studies as is the use of
the Group's Cuprochlor-T technology.
To safeguard the availability of water resources for our operations,
communities and the environment, we published our first Water Policy earlier
this year, which commits us to increasing our water efficiency, implementing
robust and transparent water governance practices, and collaborating with
other stakeholders on environmentally responsible and sustainable water
management.
Suppliers
The Group is requiring improved sustainability practices from its suppliers
with the purpose of working with them to ensure alignment with leading
standards on environmental, social and governance (ESG) matters.
This strategy includes applying an internal carbon price to tenders as well as
other ESG criteria. The use of an internal carbon price is being rolled out
and during the half year was used with larger suppliers for specific goods and
services contracts, such as explosives and mine haulage trucks. The new
measures complement the energy efficiency and safety criteria already used in
bid evaluations.
At the same time, as part of supply chain management, Antofagasta is holding
workshops to help micro, small and medium-sized suppliers near our operations
to comply with these conditions so as to take advantage of their inherent
advantage of having short transport distances and enhance trustworthy supplier
relationships built on shared value creation.
PRODUCTION AND CASH COSTS
Group copper production in the first half of 2022 was 268,600 tonnes, 25.7%
lower than in the same period last year, mainly due to the expected temporary
reduction in throughput at Los Pelambres as a result of the drought, the
concentrate pipeline incident and expected lower grades at Centinela
Concentrates.
Group gold production for the first six months decreased by 38.8% to 73,800
ounces.
Molybdenum production was 4,000 tonnes, 31.0% lower than in the same period
last year.
Group cash costs before by-product credits in the first half of 2022 were
$2.37/lb, 64c/lb higher than last year, a result of the temporary decrease in
production and higher input prices, particularly for diesel and sulphuric
acid. General inflation was largely offset by the weaker Chilean peso.
Net cash costs for the first half of 2022 were $1.82/lb, 68c/lb higher than in
the same period last year reflecting the higher cash costs before by-product
credits, and slightly lower by-product credits due to lower by-product
production, partially offset by higher realised by-product prices.
COST AND COMPETITIVENESS PROGRAMME
During the first half of the year, the Cost and Competitiveness Programme achieved savings of $35 million, equivalent to $6c/lb as the Group has managed to reduce cash expenditure in some areas by optimising and negotiating third party services and increasing productivity. The Group is on track to achieve its savings target of at least $50 million for the full year.
EXPLORATION AND EVALUATION COSTS
Exploration and evaluation costs for the first half of the year were $51.4
million, similar to the same period last year.
TAXATION
The effective tax rate for the period was 36.5%, which compares with 37.1%
during the same period in 2021 and 36.5% (before exceptional items) for the
full year 2021.
CAPITAL EXPENDITURE AND DEPRECIATION & AMORTISATION
Group capital expenditure on a cash basis was $831.0 million during the period
of which $301.4 million was mine development, $188.0 million was sustaining
(mining) and $323.8 million was development, of which $218.5 million was on
the Los Pelambres Expansion project. The balance was at the Transport division
and at the corporate centre. Group capital expenditure for the full year is
expected to be $1.9 billion.
Depreciation and amortisation for the first half of 2022 was $489.0 million,
an increase of $6.5 million compared with the same period in 2021.
NET DEBT
Net debt at the end of the period was $491.4 million, reflecting the $1,172.2
million payment of the final dividend. The Net Debt to EBITDA ratio at the end
of the period was 0.13 times. Cash flow from operations reduced to $1,682.5
million compared with $2,460.5 million in the first half of 2021.
CORPORATE BOND
The Group successfully issued its second bond, a $500 million 5.625% note due
2032. This financing further diversifies funding sources and extends the
maturity profile of the Group.
DIVIDENDS
The Board has declared an interim dividend of 9.2 cents per share, equivalent
to $90.7 million and a pay-out ratio of 35%, consistent with the Company's
policy and previous interim dividends. Any distribution of excess cash for the
year, as defined under the policy, will be made as part of the final dividend.
LABOUR AGREEMENTS
A labour negotiation with the supervisors' union at Antucoya was successfully
concluded during the period before the November 2022 deadline.
There are three other labour agreements that will expire during the year, with
the workers at Antucoya (September) and the supervisors at Los Pelambres
(October) and Zaldívar (August).
PROPOSED MINING ROYALTY
The government presented a tax reform bill to Congress on 7 July and a new
proposal for the mining royalty on 11 July. This proposal is being evaluated
by the mining industry. The initial view is that it is more onerous than the
proposal made by the Senate Mining and Energy Committee in January, but less
onerous than the original proposal made by the lower house in May 2021. The
new draft will now be reviewed by the Senate before being passed to the lower
house for its consideration.
CONSTITUTIONAL CONVENTION
The Constitutional Convention completed the draft of the new constitution on 4
July. A national referendum to accept or reject the new constitution will be
held on 4 September.
MINERAL RESOURCES
As announced on 14 June, the Company has released maiden mineral resource
figures for the Encierro deposit in Chile of 522Mt of Inferred Resources at
0.79% copper equivalent. The deposit is jointly held with Barrick Gold, with
Antofagasta the majority shareholder and operator.
Note: Inferred Resources are compliant with the Australasian Joint Ore
Reserves Committee Code for Reporting of Exploration Results, Minerals
Resources and Reserves 2012 edition (JORC Code). A cut-off grade of 0.5%
copper has been applied. The geological model and resource estimation have
been reviewed and validated by registered Competent Person (Chile) Mr. Osvaldo
Galvez.
CUPROCHLOR-T®
During the first quarter of 2022 we finalised a large-scale pilot programme to
validate our in-house patented primary sulphides leaching technology
(Cuprochlor-T®). We conducted industrial-scale trials at Centinela using a
40,000-tonne heap of Centinela's primary sulphides. The results were
consistent with previous test work, giving recoveries of 70% after
approximately 200 days.
This new technology will potentially unlock value from previously uneconomic
mineral resources and bring forward the profitable processing of ore otherwise
scheduled to be mined in many years' time or that was previously considered to
be uneconomic.
We are currently progressing studies for the primary sulphide orebody that
lies below the Zaldívar reserves to evaluate if Cuprochlor-T leaching is a
viable processing route.
An alternative is for idle leach pad and SX-EW capacity to be used to process
material using the Cuprochlor-T technology and one area of flexibility is that
the existing EW plant can process blended solutions from both oxide and
chloride leach. This allows the technology to be gradually deployed during the
life of each mine as appropriate for the specific situation and the use of
this option is being investigated by Centinela and Antucoya as part of their
annual mine planning processes.
REKO DIQ PROJECT'S ARBITRATION
In March 2022 the Company reached an agreement in principle with Barrick Gold
and the Governments of Pakistan and Balochistan on a framework that provides
for the reconstitution of the Reko Diq project, and a pathway for the Company
to exit the project. If definitive agreements are executed and the conditions
to closing are satisfied, a consortium comprising various Pakistani
state-owned enterprises will acquire an interest in the project for
consideration of approximately $900 million to jointly develop the project
with Barrick, and Antofagasta would exit. If all the conditions are satisfied
during 2022, we would expect to receive the proceeds in 2023.
AUDIT TENDER
The Group intends to undertake a competitive tender process during the second
half of 2022 in respect of the appointment of the Group's external auditor
with effect from 2024 onwards. The Group previously conducted a tender process
during 2014, which resulted in PwC replacing the previous auditor and being
appointed with effect from 2015 onwards. The tender process in respect of the
2024 audit is one year in advance of the regulatory requirement to undertake a
tender at least every ten years.
FUTURE GROWTH
The Group has a pipeline of embedded growth projects across our significant
mineral resource base which we are currently advancing through a disciplined
process of project evaluation.
The Zaldívar Chloride Leach project was completed in January on budget and
pre-stripping of the Esperanza Sur pit project was completed in July. The Los
Pelambres Expansion project was 82% complete as at the end of H1 with the
completion of the desalination plant expected in Q4 2022 and of the
concentrator plant expansion in early 2023.
A detailed review of the Centinela Second Concentrator Plant schedule and
costs has recently been updated. The capital cost estimate has been revised to
$3.7 billion (up from $2.7 billion in the 2015 prefeasibility study). This
increase reflects design improvements, inflation, and the results of advanced
engineering and a detailed execution plan. The decision on whether to proceed
with the project is scheduled for early 2023.
OUTLOOK
As previously announced, considering the impact of the concentrate pipeline
incident and the risk of continued low water shortages at Los Pelambres, Group
copper production guidance for the full year has been revised from 660-690,000
tonnes to 640-660,000 tonnes. The increased rate of production in H2 is based
on the precipitation levels to date, the stockpiled concentrates at Los
Pelambres and the expected increase in grade at Centinela Concentrates.
Following increases in diesel and other input prices, net cash cost guidance
is increased to $1.65/lb, assuming market consensus estimates at the period
end of by-product prices, the Chilean Peso exchange rate and inflation for the
rest of the year.
The significant decline in the copper price since the beginning of June has
reinforced our commitment to control costs, particularly during this period of
higher input prices and general inflation.
Although the copper price traded strongly at the beginning of the year
averaging $4.49/lb in the first five months, it weakened rapidly in June,
ending the half year at $3.74/lb as concerns about the speed of the economic
recovery in China and the likelihood of a recession in the United States and
Europe increased. These concerns were further heightened by the ongoing
conflict in Ukraine and its impact on the availability of energy supplies,
trade and stability, particularly in Europe. Given the current global
environment of rising inflation and rising interest rates, commodity price
volatility is expected to continue over the rest of the year, however the
longer term fundamentals for copper remain strong.
REVIEW OF OPERATIONS AND PROJECTS
MINING DIVISION
LOS PELAMBRES
Financial performance
EBITDA at Los Pelambres was $510.6 million in the first half of 2022, a 62.1%
decrease compared with $1,346.9 million in the first six months of 2021. This
decrease was mainly due to a lower copper sales tonnage (41.8%) and the lower
realised copper price, which was partially offset by lower operating costs
during the period.
Production
In the first six months of 2022, copper production decreased by 41.9% to
98,400 tonnes compared with the same period last year, mainly driven by the
expected reduced throughput, which was down 36.2% compared with the same
period last year due to water restrictions arising from the drought. This
decrease also includes the impact of the concentrate pipeline incident, with
unfiltered copper produced during the incident but not shipped expected to be
recorded as production during the balance of 2022.
Molybdenum production for the first six months of the year decreased to 2,700
tonnes from 5,100 in H1 2021, due to lower throughput and molybdenum grades.
Costs
Cash costs before by-product credits for the first six months of 2022 were
$2.02/lb, 33.8% higher than in the same period last year. This was due to the
decrease in production, higher input prices, mainly diesel and explosives, and
general inflation, partially offset by the weaker Chilean peso.
For the first six months of 2022, by-product credits were $0.70/lb, in line
with the same period last year.
Net cash costs for the year to date increased by 59.0% to $1.32/lb. This
reflected the higher cash costs before by-product credits.
Capital expenditure
Capital expenditure in the first six months of 2022 was $404.0 million in
total of which $115.5 million was sustaining capital expenditure, $67.0
million mine development and $221.5 million was on the Los Pelambres Expansion
project.
CENTINELA
Financial performance
EBITDA for the first six months of 2022 was $526.9 million, a decrease of
36.6% compared with the first half of 2021. This decrease was due to lower
copper and gold sales volumes, higher operating costs and the lower copper
realised price compared with the same period last year.
Production
Total copper production in H1 2022 was 111,300 tonnes, 15.7% lower than in H1
2021 due to expected lower ore grades at Centinela Concentrates, slightly
offset by higher grades at Centinela Cathodes.
Production of copper in concentrates was 66,200 tonnes for the half year,
26.8% lower than in the same period last year, mainly due to the expected
lower copper grade of 0.44% compared with 0.59% in H1 2021. This was partially
offset by increased throughput, with the concentrator averaging above design
capacity over the half year.
Copper cathode production for the first six months was 45,100 tonnes, 8.2%
higher than in the same period last year primarily due to expected higher
grades and recoveries.
Gold production in H1 was 58,400 ounces, 36.9% lower than H1 last year as
grades, which are correlated to copper grades, and recoveries decreased.
Molybdenum production in H1 2022 increased to 1,300 tonnes from 700 tonnes in
H1 2021, due to higher grades.
Costs
Cash costs before by-product credits for the first six months of 2022 were
$2.68/lb, 48.9% higher than the same period in 2021 primarily due to lower
production and higher input costs, particularly for diesel, sulphuric acid and
explosives. General inflation was largely offset by the weaker Chilean peso.
For the first six months of 2022, by-product credits were $0.70/lb, 2c/lb
lower than in the same period last year.
Net cash costs during the first six months of the year were $1.98/lb, 90c/lb
higher than in H1 2021 reflecting the increase in cash costs before by-product
credits and the slightly lower by-product credits.
Capital expenditure
Capital expenditure in the first six months of 2022 was $387.2 million of
which $51.5 million was sustaining capex, $233.5 million was mine development
and $102.2 million was development capex, of which $44.7 million was on the
Centinela Second Concentrator project.
ANTUCOYA
Financial performance
For the first half of the year, EBITDA was $153.4 million, a decrease of 3.5%
compared with $159.0 million in the same period last year, due to lower copper
sales volumes and higher operating costs, largely offset by the higher copper
realised price.
Production
Production in the first six months of 2022 was 36,400 tonnes, 7.8% lower than
the same period last year due to expected lower grades, partially offset by
higher throughput.
Costs
During the first six months, cash costs were 22.5% higher than in H1 2021 at
$2.50/lb due to lower production and increased input costs, particularly for
sulphuric acid, diesel and explosives. General inflation was largely offset by
the weaker Chilean peso.
Capital expenditure
Capital expenditure in the first six months of the year was $21.9 million,
almost all of which was sustaining capital expenditure.
ZALDÍVAR
Financial performance
Attributable EBITDA at Zaldívar was $104.8 million in the first half of 2022,
compared with $76.4 million in the same period last year largely because of
higher sales volumes, lower operating costs and the higher realised copper
price.
Production
Copper production at Zaldívar for the year to date was 22,500 tonnes, 9.2%
higher compared with the same period last year due to higher copper grades and
recoveries. Following completion of the Chloride Leach project during the
period, recoveries are projected to increase as the project ramps up.
Costs
Cash costs during the first six months of 2022 were $2.14/lb compared with
$2.46/lb in the same period in 2021, mainly due to higher production partially
offset by higher input prices.
Capital expenditure
In the first six months of 2022, attributable capital expenditure was $25.1
million of which $17.4 million was sustaining capital expenditure and $7.7
million was development capital expenditure.
TRANSPORT DIVISION
Financial performance
EBITDA at the Transport division was $37.4 million in the first half of 2022, a 3.9% improvement on the same period last year, as a result of higher revenue.
Transport volumes
For the first six months of the year, transport volumes increased by 11.8% as new rail transport contracts ramped up during the period.
Capital expenditure
Capital expenditure for the first half of the year was $13.7 million.
GROWTH PROJECTS AND OPPORTUNITIES
Los Pelambres Expansion
This expansion project is divided into two phases. Phase 1 is expected to be
completed in early 2023 and Phase 2 by the end of 2025.
Phase 1
This phase is designed to optimise throughput within the limits of the
existing operating, environmental and water extraction permits.
As mining progresses at Los Pelambres, ore hardness will increase. The
expansion is designed to compensate for this, increasing plant throughput from
the current capacity of 175,000 tonnes of ore per day to an average of 190,000
tonnes of ore per day. The expansion is divided into two sub-projects, the
construction of a desalination plant and water pipeline from the coast to the
El Mauro tailings storage facility, and the expansion of the concentrator
plant, which includes the installation of an additional SAG mill and ball
mill, and six additional flotation cells.
Annual copper production will be increased by an average of 60,000 tonnes per
year over 15 years, starting at approximately 40,000 tonnes per year for the
first four to five years and rising to 70,000 tonnes for the rest of the
period as the hardness of the ore increases and the benefit of the higher
milling capacity is fully realised.
In 2020 the decision was made to change the scope of the project and double
the planned capacity of the desalination plant that is part of Phase 1 of the
project, from 400 l/s to 800 l/s. However, the amount of work that can be done
on the expansion of the desalination plant during Phase 1 is limited by what
is allowed under the permits that have already been issued. These additional
costs are included as part of the total Phase 1 capital cost.
As at the end of H1 the Los Pelambres Expansion project was 81.7% complete.
The desalination plant is expected to be completed in Q4 2022 and the
concentrator plant expansion in early 2023.
The desalination plant and the water pipeline are 87.5% complete and
preparation for pre-commissioning is underway. The concentrator expansion site
is 75.9% complete and the principal equipment (SAG and ball mills, and
flotation cells) have been installed.
A detailed review of the project schedule and costs was completed in Q1 2022
resulting in the capital cost estimate for Phase 1 being increased to $2.2
billion (from $1.7 billion). Of this increase, approximately $220 million was
related to the impact of COVID-19 on costs and the construction schedule, $170
million to general inflation, including increased input prices, wages, labour
incentives and logistics costs, with the balance reflecting other adjustments
to implementation plans and an updated contingency provision.
Phase 2 - Further expansion
Following the decision to increase the size of the desalination plant, Phase 2
of the expansion now requires two separate Environmental Impact Assessment
(EIA) applications, one for the expansion of the desalination plant and one
for the extension of the mine life of Los Pelambres through the permitting of
an increase in the size of the El Mauro tailings storage facility. The latter
EIA will also provide for the option to further increase the throughput
capacity of the concentrator plant.
Desalination plant expansion
This project is to protect Los Pelambres from the future impact of climate
change and the deteriorating availability of water in the region. The project
cost will be reported as part of the Group's sustaining capital expenditure.
The project includes the expansion of the desalination plant and the
construction of a new water pipeline from the El Mauro tailings storage
facility to the concentrator plant. In 2021 Los Pelambres submitted the EIA
required for this project, which includes the desalination plant expansion and
two other sustaining capital infrastructure projects, the replacement of the
concentrate pipeline and the construction of certain planned enclosures at the
El Mauro tailings storage facility. The EIA is expected to be approved in time
for the project to be completed in 2025 at which time over 95% of Los
Pelambres's water needs will be from either desalinated or recycled water.
Mine life extension
The current mine life of Los Pelambres is 13 years and is limited by the
capacity of the El Mauro tailings storage facility. The scope of the second
EIA will include increasing the capacity of the tailings storage facility and
the mine waste dumps. This will extend the mine's life by a minimum of 15
years, accessing a larger portion of Los Pelambres's six billion tonnes of
mineral resources. The EIA will also provide for the option to increase
throughput to 205,000 tonnes of ore per day, increasing copper production by
35,000 tonnes per year.
The feasibility study is underway and includes repowering the conveyor that
runs from the primary crusher in the pit to the concentrator plant which will
support the additional throughput.
The capital expenditure to extend the mine life was estimated in a
pre-feasibility study in 2014 at approximately $500 million, with most of the
expenditure on mining equipment and increasing the capacity of the
concentrator and the El Mauro tailings facility. Community consultation is
ongoing and the EIA application is being prepared.
Esperanza Sur pit
Esperanza Sur pit is 4 km south of the Esperanza pit and is close to
Centinela's concentrator plant. The deposit contains 1.4 billion tonnes of
reserves with a grade of 0.4% copper, 0.13g/t of gold and 0.012% of
molybdenum.
Pre-stripping by a contractor has been completed and Centinela has taken over
the operation of the pit using a fleet of 11 autonomous trucks. These are the
first autonomous trucks to be used by the Group. Ore from the pit is now being
processed at the Centinela concentrator.
The opening of the Esperanza Sur pit improves Centinela's flexibility to
supply its concentrator and, over the initial years, the higher-grade material
from the pit will increase production by some 10-15,000 tonnes of copper per
year, compared with how much would be produced if material was solely supplied
from the Esperanza pit. This greater flexibility will allow Centinela to
smooth and optimise its year-on-year production profile, which has in the past
been variable.
Zaldívar Chloride Leach
The project is expected to increase copper recoveries by approximately 10
percentage points with further upside in recoveries possible, depending on the
type of ore being processed. This will increase copper production at Zaldívar
by approximately 10-15,000 tonnes per annum over the remaining life of the
mine.
The project was completed on-budget in early 2022 at a total capital cost of
$190 million. The project required an upgrade of the Solvent Extraction (SX)
plant, new reagents facilities and the construction of additional washing
ponds for controlling the chlorine levels. Ramp-up to achieve the full
improvement in recoveries is currently underway.
As the Group equity accounts for its interest in Zaldívar, capital
expenditure at the operation is not included in Group total capital
expenditure amounts.
Centinela Second Concentrator
The project has two phases, the first being the construction of a new
concentrator and its associated infrastructure, and the second its possible
expansion. The EIA for both phases was approved in 2016.
Detailed engineering and costings have recently been updated for Phase 1 of
the project and key contracts finalised. The capacity of the new concentrator
will be 95,000 tonnes of ore per day producing on average approximately
170,000 tonnes of copper equivalent a year over the first 10 years of
operation. This will move Centinela into the first cost quartile of producers.
The Phase 1 capital cost is estimated at $3.7 billion, including the cost of
the new water supply system. The increase on the previously quoted 2015
pre-feasibility estimate of $2.7 billion reflects inflation, design
improvements, heightened environmental and other regulatory requirements, and
the results of advanced engineering and a more detailed execution plan. The
estimate includes a concentrator plant, capitalised stripping, mining
equipment, a new tailings storage facility, a water pipeline and other
infrastructure, pre commercial production operating costs plus owner's and
other costs.
The decision by the Board on whether to proceed with the project is scheduled
for early 2023. Work on Phase 2 would only start once construction of Phase 1
is completed and it is operating successfully.
The second concentrator, and its potential further expansion to 150,000 tonnes
of ore per day, will source ore initially from the recently opened Esperanza
Sur pit and later from the Encuentro pit. The sulphide ore in the Encuentro
pit lies under the Encuentro Oxides reserves, which are expected to be
depleted by 2026. These expansions will be further steps towards Centinela
maximising the potential of its large mineral resource base.
In late 2020 a tender process was started to invite third parties to provide
water for Centinela's current and future operations, by acquiring the existing
water supply system, and building the new water pipeline. This process is
expected to be completed in Q4 2022. The outsourcing of the water supply will
only proceed if it improves the net present value of the project.
Twin Metals Minnesota (TMM)
Twin Metals Minnesota (Twin Metals) is a wholly owned copper, nickel and
platinum group metals (PGM) underground mining project, which holds copper,
nickel/cobalt and PGM deposits in north-eastern Minnesota, US.
The project envisages mining and processing 18,000 tonnes of ore per day for
25 years and producing three separate concentrates - copper, nickel/cobalt
and PGM. Twin Metals has been progressing its Mine Plan of Operations (MPO)
and Scoping Environmental Assessment Worksheet Data Submittal, submitted in
December 2019 to the US Bureau of Land Management (BLM) and Minnesota
Department of Natural Resources (DNR), respectively. However, over the past
year, while the Twin Metals project was advancing its environmental review,
several actions were taken by the federal government that have changed the
potential outcomes for the project.
In 2021, the US Forest Service (USFS) and BLM initiated an up to two-year
study regarding the potential withdrawal of lands within the Superior National
Forest (SNF), which could ultimately lead to an effective ban on mining for
twenty years. This action alone would not have prevented Twin Metals from
proceeding with the project.
BLM also rejected advancing Twin Metals' preference right lease applications
(PRLAs) and prospecting permit applications (PPAs), using the potential
withdrawal as a rationale. Twin Metals is challenging this rejection, and has
made minor changes to the project's configuration to address it.
In early 2022, BLM took an additional action through a legal opinion issued by
the Office of the Solicitor (M-Opinion). This action arbitrarily cancelled
Twin Metals' federal leases 1352 and 1353, citing concerns with the
reinstatement and renewal process. Twin Metals considers the lease
cancellation to be contrary to the terms of the leases and in violation of its
rights.
In early 2022, BLM also stopped its evaluation of Twin Metals' MPO, and an
administrative court dismissed Twin Metals' appeal of that decision.
Unless reversed, these actions prevent Twin Metals from continuing the project
as configured in the MPO. Considering the time and uncertainty related to any
legal action to challenge the government decisions, an impairment was
recognised as at 31 December 2021 in respect of the intangible assets and
property, plant and equipment relating to the Twin Metals project. Twin Metals
is currently evaluating its options to protect its mineral rights and to
respond to these legal challenges.
FINANCIAL REVIEW FOR THE SIX MONTHS ENDED 30 JUNE 2022
Results (unaudited)
Six months ended Six months ended
30.06.2022 30.06.2021
Total
Total
$m $m
Revenue 2,528.2 3,591,0
EBITDA (including share of EBITDA from associates and joint ventures) 1,237.7 2,357.1
Total operating costs (1,886.9) (1,790.4)
Operating profit from subsidiaries 641.3 1,800.6
Net share of results from associates and joint ventures 49.1 19.4
Total profit from operations, associates and joint ventures 690.4 1,820.0
Net finance expense (10.8) (36.5)
Profit before tax 679.6 1,783.5
Income tax expense (247.9) (661.9)
Profit for the year 431.7 1,121.6
Attributable to:
Non-controlling interests 171.4 456.3
Profit attributable to the owners of the parent 260.3 665.3
Basic earnings per share cents cents
Basic earnings per share from continuing operations 26.4 67.5
The $405.0 million decrease in the profit for the financial period
attributable to the owners of the parent from $665.3 million in the first six
months of 2021 to $260.3 million in the current period reflected the following
factors:
$m
Profit for the financial period attributable to the owners of the parent in H1 665.3
2021
Decrease in revenue (1,062.8)
Increase in total operating costs (96.5)
Increase in net share of profit from associates and joint ventures 29.7
Decrease in net finance expenses 25.7
Decrease in income tax expense 414.0
Decrease in non-controlling interests 284.9
(405.0)
Profit for the financial period attributable to the owners of the parent in H1 260.3
2022
Revenue
The $1,062.8 million decrease in revenue from $3,591.0 million in the first
six months of 2021 to $2,528.2 million in the current period reflected the
following factors:
$m
Revenue in the first six months of 2021 3,591.0
Decrease in copper sales volumes (824.4)
Decrease in realised copper price (152.8)
Decrease in treatment and refining charges 12.6
Decrease in gold revenue (44.4)
Decrease in molybdenum revenue (42.8)
Decrease in silver revenue (16.7)
Increase in transport division revenue 5.7
(1,062.8)
Revenue in the first six months of 2022 2,528.2
Revenue from the Mining division
Revenue in the first half of 2022 from the Mining division decreased by
$1,068.5 million, or 30.5%, to $2,436.2 million, compared with $3,504.7
million in the first six months of 2021. The decrease reflected a $964.6
million decrease in copper sales and $103.9 million decrease in by-product
revenue.
Revenue from copper sales
Revenue from copper concentrate and copper cathode sales decreased by $964.6
million, or 31.2%, to $2,129.7 million, compared with $3,094.3 million in the
first six months of 2021. The decrease reflected the impact of $824.4 million
from lower sales volumes and $152.8 million from lower realised prices, offset
slightly by a $12.6 million benefit from lower treatment and refining charges.
(i) Copper volumes
Copper sales volumes reflected within revenue decreased by 26.1% from 325,100
tonnes in 2021 to 240,400 tonnes in 2022, decreasing revenue by $824.4
million. This decrease was due to lower copper sales volumes at Los Pelambres
(69,200 tonnes decrease) as a result of its decreased production volumes due
to the expected impact of the drought and the temporary closure of the
concentrate pipeline in June, and lower sales volumes at Centinela (12,400
tonnes decrease) due to decreased production volumes reflecting expected lower
ore grades.
(ii) Realised copper price
The average realised price decreased by 6.6% to $4.13/lb in the first six
months of 2022 (first half of 2021 - $4.42/lb), resulting in a $152.8 million
decrease in revenue. The LME average market price increased by 7.3% in H1 2022
to $4.43/lb (first half of 2021 - $4.13/lb). In the first half of 2022 there
was a $206.8 million negative impact from provisional pricing adjustments,
mainly reflecting the decrease in the period-end mark-to-mark copper price to
$3.75/lb at 30 June 2022, compared with $4.42/lb at 31 December 2021.
Conversely there had been a $282.1 million positive impact from provisional
pricing adjustments in the first six months of 2021, which mainly reflected
the increase in the period-end copper price to $4.26/lb at 30 June 2021,
compared with $3.52/lb at 31 December 2020. In addition, during the first six
months of 2022 there was nil impact in respect of realised losses from
commodity hedging instruments, as all commodity hedges had matured by 31
December 2021, whereas in the first six months of 2021 there had been an $73.5
million negative impact.
Realised copper prices are determined by comparing revenue (before treatment
and refining charges for concentrate sales) 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 in future periods (normally around one month after
delivery to the customer in the case of cathode sales and four months after
delivery to the customer in the case of concentrate sales).
Further details of provisional pricing adjustments are given in Note 6 to the
condensed consolidated interim financial statements.
(iii) Treatment and refining charges
Treatment and refining charges (TC/RCs) for copper concentrate decreased by
$12.6 million to $57.0 million in 2022, compared with $69.6 million in 2021,
reflecting the decrease in the concentrate sales volumes at Los Pelambres and
Centinela.
With sales of concentrates at Los Pelambres and Centinela, which are sold to
smelters and roasting plants for further processing into fully refined metal,
the price of the concentrate invoiced to the customer reflects the market
value of the fully refined metal less a "treatment and refining charge"
deduction, to reflect the lower value of this partially processed material
compared with the fully refined metal. For accounting purposes, the revenue
amount is the net of the market value of fully refined metal less the
treatment and refining charges. However, under the standard industry
definition of unit cash costs, treatment and refining charges are regarded as
an expense and part of cash costs.
Accordingly, the decrease in these charges has had a positive impact on
revenue in the year.
Revenue from molybdenum, gold and other by-product sales
Revenue from by-product sales at Los Pelambres and Centinela relate mainly to
molybdenum and gold and, to a lesser extent, silver. Revenue from by-products
decreased by $103.9 million or 25.3% to $306.5 million in the first half of
2022, compared with $410.4 million in the first six months of 2021. This
decrease was mainly due to lower molybdenum and gold sales volumes.
Revenue from gold sales (net of treatment and refining charges) was $139.4
million (first half of 2021 - $183.8 million), a decrease of $44.4 million
which reflected a decrease in volumes slightly offset by a 6.9% higher
realised price. Gold sales volumes decreased by 29.1% from 103,700 ounces in
the first half of 2021 to 73,600 ounces in the first six months of
2022, mainly due to lower gold grades and recoveries at Centinela and the
expected lower throughput and gold grades at Los Pelambres. The realised gold
price was $1,899.3/oz in the first half of 2022 compared with $1,776.3/oz in
the first six months of 2021, reflecting the average market price for 2022 of
$1,873.4/oz (2021 - $1,807.5/oz) and a positive provisional pricing adjustment
of $3.7 million.
Revenue from molybdenum sales (net of roasting charges) was $141.9 million
(first half of 2021 - $184.7 million), a decrease of $42.8 million. The
decrease was due to lower sales volumes of 3,900 tonnes (first half of 2021 -
5,700 tonnes) partially offset by a 11.8% higher realised price of $18.0/lb
(first half of 2021 - $16.1/lb).
Revenue from silver sales decreased by $16.7 million to $25.2 million (first
six months of 2021 - $41.9 million). The decrease was due to lower sales
volumes of 1.1 million ounces (first half of 2021 - 1.6 million ounces) and a
12.6% lower realised silver price of $23.5/oz (first six months of 2021 -
$26.9/oz).
Revenue from the Transport division
Revenue from the Transport division (FCAB) increased by $5.7 million or 6.6%
to $92.0 million (first six months of 2021 - $86.3 million), as a result of
increased volumes transported, offset slightly by the impact of the weakening
of the Chilean peso on sales denominated in the local currency.
Total operating costs
The $96.5 million increase in total operating costs from $1,790.4 million in
the first half of 2021 to $1,886.9 million in the first six months of 2022
reflected the following factors:
$m
Total operating costs in the first half of 2021 1,790.4
Increase in mine-site operating costs 82.0
Decrease in closure provision and other mining expenses (4.1)
Decrease in exploration and evaluation costs (0.9)
Increase in corporate costs 8.5
Increase in Transport division operating costs 5.1
Increase in depreciation, amortisation and loss on disposals 5.9
96.5
Total operating costs in the first six months of 2022 1,886.9
Operating costs (excluding depreciation, amortisation and loss on disposals)
at the Mining division
Operating costs (excluding depreciation, amortisation and loss on disposals)
at the Mining division increased by $85.5 million to $1,340.3 million in the
first half of 2022, an increase of 6.8%. Of this increase, $82.0 million was
attributable to higher mine-site operating costs. This increase in mine-site
costs reflected higher key input prices and general inflation, partly offset
by the weaker Chilean peso, decreased sales volumes in the period and the cost
savings from the Group's Cost and Competitiveness Programme. On a unit cost
basis, weighted average cash costs excluding treatment and refining charges
and by-product revenue increased from $1.61/lb in the first six months of 2021
to $2.25/lb in the first half of 2022. As detailed in the alternative
performance measures section on page 60 of the half-year financial report, for
accounting purposes by-product credits and treatment and refining charges both
form part of revenue, and don't therefore impact operating expenses.
The Cost and Competitiveness Programme was implemented to reduce the Group's
cost base and improve its competitiveness within the industry. During 2022 the
programme achieved benefits of $34.7 million in the mining division, of which
$33.7 million reflected cost savings and $1.0 million reflected the value of
productivity improvements. Of the $33.7 million of cost savings, $19.4 million
related to Los Pelambres, Centinela and Antucoya, and therefore impacted the
Group's operating costs, and $14.3 million related to Zaldívar (on a 100%
basis) and therefore impacted the share of results from associates and joint
ventures.
Closure provisions and other mining expenses decreased by $4.1 million.
Exploration and evaluation costs decreased by $0.9 million to $51.4 million
(2021 - $52.3 million), reflecting decreased expenditure in respect of the
Twin Metals project and the desalination plant expansion pre-feasibility study
at Los Pelambres, offset by increased exploration expenditure, principally in
Chile. Corporate costs increased by $8.5 million.
Operating costs (excluding depreciation, amortisation and loss on disposals)
at the Transport division
Operating costs (excluding depreciation, amortisation and loss on disposals)
at the Transport division increased by $5.1 million to $57.6 million (first
half of 2021 - $52.5 million), mainly due to higher diesel prices.
Depreciation, amortisation and disposals
The depreciation and amortisation charge increased by $5.9 million in the
first half of 2022 to $489.0 million (first half of 2021 - $483.1 million).
This increase is mainly due to higher amortisation of IFRIC 20 stripping costs
at Centinela, largely offset by the impact of depreciation deferred in
inventory at Centinela and Los Pelambres. The loss on disposal of property,
plant & equipment was nil (2021 - $0.6 million).
Operating profit from subsidiaries
As a result of the above factors, operating profit from subsidiaries decreased
by $1,159.3 million or 64.4% in 2022 to $641.3 million (first half of 2021 -
$1,800.6 million).
Share of results from associates and joint ventures
The Group's share of results from associates and joint ventures increased by
$29.7 million to a profit of $49.1 million in the first six months of 2022,
compared with $19.4 million in the first half of 2021. Of this increase, $24.1
million was due to the higher profit from Zaldívar, reflecting increased
copper sales volumes and reduced cash costs.
EBITDA
EBITDA (earnings before interest, tax, depreciation and amortisation)
decreased by $1,119.4 million or 47.5% to $1,237.7 million (first half of 2021
- $2,357.1 million). EBITDA includes the Group's proportional share of EBITDA
from associates and joint ventures.
EBITDA from the Mining division decreased by $1,120.8 million or 48.3% from
$2,321.1 million in the first six months of 2021 to $1,200.3 million this half
year. This reflected the lower revenue and higher mine-site costs, slightly
offset by higher EBITDA from associates and joint ventures.
EBITDA at the Transport division increased by $1.4 million to $37.4 million in
2022 ($36.0 million - first half of 2021), reflecting the higher revenue and
slightly increased EBITDA from associates and joint ventures, offset by the
higher operating costs (linked to the price of diesel and inflation).
Commodity price and exchange rate sensitivities
The following sensitivities show the estimated approximate impact on EBITDA
for the first six months of 2022 of a 10% movement in the average copper,
molybdenum and gold prices and a 10% movement in the average US dollar /
Chilean peso exchange rate.
The impact of the movement in the average commodity prices reflects the
estimated impact on the relevant revenues during the first six months of 2022,
and the impact of the movement in the average exchange rate reflects the
estimated impact on Chilean peso denominated operating costs during the
period. These estimates do not reflect any impact in respect of provisional
pricing or hedging instruments, any potential inter-relationship between
commodity price and exchange rate movements, or any impact from the
retranslation or changes in valuations of assets or liabilities held on the
balance sheet at the period-end.
Average market commodity price / average exchange rate during the six months Impact of a 10% movement in the commodity price / exchange rate on EBITDA
ended 30.06.22
for the six months ended 30.06.22
$m
Copper price $4.43/lb 257
Molybdenum price $18.7/lb 16
Gold price $1,873/oz 14
US dollar / Chilean peso exchange rate 826 71
Net finance expense
Net finance expense decreased by $25.7 million to $10.8 million, compared with
$36.5 million in 2021.
Six months ended 30.06.22 Six months ended 30.06.21
$m $m
Investment income 4.3 2.9
Interest expense (34.8) (33.5)
Other finance items 19.7 (5.9)
Net finance expense (10.8) (36.5)
Investment income increased from $2.9 million in 2021 to $4.3 million in 2022,
mainly due to an increase in average interest rates partially offset by lower
average cash and liquid investment balances.
Interest expense increased marginally from $33.5 million in 2021 to $34.8
million in 2022, reflecting an increase in the average relevant borrowing
balances and an increase in the average interest rates.
Other finance items were a net gain of $19.7 million, compared with a net loss
of $5.9 million in 2021, a variance of $25.6 million. This was mainly due to
the foreign exchange impact of the retranslation of Chilean peso denominated
assets and liabilities, which resulted in a $26.4 million gain in 2022
compared with a $2.4 million loss in 2021. In addition, there was an expense
of $6.8 million in respect of the unwinding of the discounting of provisions
(first half of 2021 - expense of $3.4 million).
Profit before tax
As a result of the factors set out above, profit before tax decreased by 61.9%
to $679.6 million in the first half of 2022 (first half of 2021 - $1,783.5
million).
Income tax expense
The tax charge in the first half of 2022 decreased by $414.0 million to $247.9
million (first half of 2021 - $661.9 million) and the effective tax rate was
36.5% (first half of 2021 - 37.1%).
Six months Six months
ended ended
30.06.2022 30.06.2021
ítems ítems
$m % $m %
Profit before tax 679.6 1,783.5
Tax at the Chilean corporate tax rate of 27% (183.5) 27.0 (481.6) 27.0
Mining Tax (royalty) (41.0) 6.0 (128.5) 7.2
Deduction of mining royalty as an allowable expense in determination of first 11.7 (1.7) 36.0 (2.0)
category tax
Withholding tax (32.0) 4.7 (111.3) 6.2
Items not deductible from first category tax (13.7) 2.0 (7.2) 0.4
Adjustment in respect of prior years (2.5) 0.4 0.8 -
Tax effect of share of profit of associates and joint ventures 13.0 (1.9) 5.2 (0.3)
Impact of unrecognised tax losses on current tax 0.1 0.0 24.7 (1.4)
Tax expense and effective tax rate for the period (247.9) 36.5 (661.9) 37.1
The effective tax rate of 36.5% varied from the statutory rate principally due
to the mining tax (royalty) (net impact of $29.3 million / 4.3% including the
deduction of the mining tax (royalty) as an allowable expense in the
determination of first category tax), the withholding tax relating to the
remittance of profits from Chile (impact of $32.0 million / 4.7%), items not
deductible for Chilean corporate tax purposes, principally the funding of
expenses outside of Chile (impact of $13.7 million / 2.0%) and adjustments in
respect of prior years (impact of $2.5 million / 0.4%), partly offset by the
impact of the recognition of the Group's share of profit from associates and
joint ventures, which are included in the Group's profit before tax net of
their respective tax charges (impact of $13.0 million / 1.9%).
Non-controlling interests
Profit for the first half of the year attributable to non-controlling
interests was $171.4 million, compared with $456.3 million in the first half
of 2021, a decrease of $284.9 million. This reflected the decrease in earnings
analysed above.
Earnings per share
Six months ended 30.06.22 Six months ended
30.06.21
$ cents $ cents
Basic earnings per share 26.4 67.5
Earnings per share calculations are based on 985,856,695 ordinary shares.
As a result of the factors set out above, profit attributable to equity
shareholders of the Company was $260.3 million, compared with $665.3 million
in the first half of 2021, and total earnings per share were 26.4 cents for
the first half of 2022 (first half of 2021 - 67.5 cents per share).
Dividends
Dividends per share declared in relation to the period are as follows:
Six months ended 30.06.22 Six months ended
30.06.21
$ cents $ cents
Ordinary dividends:
Interim 9.2 23.6
Total dividends to ordinary shareholders 9.2 23.6
The Board determines the appropriate dividend each year based on consideration
of the Group's cash balance, the level of free cash flow and underlying
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 underlying net earnings for that year of at
least 35%.
The Board has declared an interim dividend for the first half of 2022 of 9.2
cents per ordinary share, which amounts to $90.7 million. The interim dividend
will be paid on 30 September 2022 to ordinary shareholders that are on the
register at the close of business on 2 September 2022.
Capital expenditure
Capital expenditure increased by $49.1 million from $781.9 million in the
first half of 2021 to $831.0 million in the current period. The capital
expenditure in the first six months of 2022 included $301.4 million of IFRIC
20 stripping costs and $218.5 million in respect of the Los Pelambres
Expansion project.
NB: capital expenditure figures quoted in this report are on a cash flow
basis, unless stated otherwise.
Derivative financial instruments
The Group periodically uses derivative financial instruments to reduce its
exposure to commodity price, foreign exchange and interest rate movements. The
Group does not use such derivative instruments for speculative trading
purposes. At 30 June 2022 there were no derivative financial instruments in
place (30 June 2021 - negative fair value of $51.1 million).
Cash flows
The key features of the cash flow statement are summarised in the following
table.
Six months ended 30.06.22 Six months ended 30.06.21
$m $m
Cash flows from continuing operations 1,682.5 2,460.5
Income tax paid (620,6) (348.1)
Net interest paid (26.2) (26.5)
Capital contributions and loans to associates - (5.5)
Purchases of property, plant and equipment (831.0) (781.9)
Dividends paid to equity holders of the Company (1,172.2) (478.1)
Dividends paid to non-controlling interests (80.0) (40.0)
Dividends from associates and joint ventures 50.0 65.0
Other items (0.1) 1.7
Changes in net debt relating to cash flows (997.6) 847.1
Other non-cash movements (23.0) (59.3)
Effects of changes in foreign exchange rates (11.3) (4.5)
Movement in net debt in the period (1,031.9) 783.3
Net cash/(debt) at the beginning of the year 540.5 (82.0)
Net (debt) / cash at the end of the period (491.4) 701.3
Cash flows from continuing operations were $1,682.5 million in the first half
of 2022 compared with $2,460.5 million in the first half of 2021. This
reflected EBITDA from subsidiaries for the period of $1,130.3 million (first
half of 2021 - $2,283.7 million) adjusted for the positive impact of a net
working capital decrease of $569.7 million (first half of 2021 - positive
impact of $187.6 million from a net working capital decrease), partly offset
by the negative impact of a decrease in provisions of $17.5 million (first
half of 2021 - negative impact of a decrease in provisions of $10.8 million).
The working capital decrease in the first six months of 2022 was mainly due to
a decrease in receivables, reflecting lower sales volumes towards the end of
the current period compared with the end of 2021, as well as the impact of a
negative mark-to-market adjustment of $173.8 million at 30 June 2022 compared
with a positive mark-to-market adjustment of $12.3 million at 31 December
2021.
The net cash outflow in respect of tax in the first half of 2022 was $620.6
million (first half of 2021 - $348.1 million). This amount differs from the
current tax charge in the consolidated income statement of $276.1 million
(first half of 2021 - $543.4 million) mainly because cash tax payments for
corporate tax and the mining tax include payments on account for the current
year (based on prior periods' profit levels) of $272.3 million (first half of
2021 - $286.4 million), withholding tax payments of $21.2 million (first half
of 2021 - $55.1 million), the settlement of outstanding balances in respect of
the previous year's tax charge of $332.2 million (first half of 2021 - $30.8
million), as well as the recovery of $5.1 million in 2021 relating to prior
years (first half of 2021 - recovery of $20.0 million).
There were no contributions and loans to associates and joint ventures in the
first six months of 2022 (first half of 2021 - $5.5 million).
Capital expenditure in the first half of 2022 was $831.0 million compared with
$781.9 million in the first half of 2021. This included expenditure of $404.0
million at Los Pelambres (first half of 2021 - $386.7 million), $387.2 million
at Centinela (first half of 2021 - $347.9 million), $21.9 million at Antucoya
(first half of 2021 - $30.8 million), $4.1 million at Corporate (first half of
2021 - $6.1 million) and $13.8 million at the Transport division (first half
of 2021 - $10.4 million). The increase at Centinela and Los Pelambres reflects
higher mine development expenditure, partly offset by decreased expenditure at
the Los Pelambres Expansion project.
Dividends paid to equity holders of the Company in the first half of 2022 were
$1,172.2 million (first half of 2021 - $478.1 million), related to the payment
of the final dividend declared in respect of 2021.
Dividends paid by subsidiaries to non-controlling shareholders were $80.0
million for the first half of 2022 (first half of 2021 was $40.0 million).
Financial position
At 30.06.22 At 31.12.21
$m $m
Cash, cash equivalents and liquid investments 2,878.2 3,713.1
Total borrowings (3,369.6) (3,172.6)
Net cash/(debt) at the end of the period (491.4) 540.5
At 30 June 2022 the Group had combined cash, cash equivalents and liquid
investments of $2,878.2 million (31 December 2021 - $3,713.1). Excluding the
non-controlling interest share in each partly-owned operation, the Group's
attributable share of cash, cash equivalents and liquid investments was
$2,378.1 million (31 December 2021 - $3,299.9 million).
Total Group borrowings at 30 June 2022 were $3,369.6 million (at 31 December
2021 - $3,172.6 million). The increase of $197.0 million was mainly due to the
$488.8 million receipt from the issue of the new corporate bond during the
period, $327.0 million additional draw-down of the borrowing at Los Pelambres
relating to the Expansion project, $50.0 million refinancing of the senior
loan at Antucoya and $13.5 million of new finance leases, partly offset by a
$580.6 million repayment of the senior loans at Corporate ($500.0 million),
Centinela ($55.6 million) and Los Pelambres ($25.0 million), $35.0 million
repayment of Antucoya's short term loan and $19.6 million of subordinated debt
repayment by Antucoya.
Excluding the non-controlling interest share in each partly-owned operation,
the Group's attributable share of the borrowings was $2,513.7 million (31
December 2021 - $2,409.6 million).
This resulted in net debt at 30 June 2022 of $491.4 million (31 December 2021
- net cash $540.5 million). Excluding the non-controlling interest share in
each partly-owned operation, the Group had an attributable net debt position
of $135.5 million (31 December 2021 - net cash $890.3 million).
Going concern
The financial information contained in this half-year financial report has
been prepared on the going concern basis. Details of the factors which have
been taken into account in assessing the Group's going concern status are set
out in Note 1 to the half-year financial report.
Principal risks and uncertainties
There are a number of potential risks and uncertainties which could have a
material impact on the Group's performance over the remaining six months of
the financial year and could cause actual results to differ materially from
expected and historical results. The risks and uncertainties which were
analysed in the 2021 Annual Report are as follows:
● Talent management
● Labour relations
● Safety and health
● Environmental management
● Climate change
● Community relations
● Political, legal and regulatory
● Corruption
● Operations
● Tailing storage
● Strategic resources
● Cyber security
● Liquidity
● Commodity prices and exchange rates
● Growth of mineral resource base and opportunities
● Project execution
● Innovation and digitisation
● External risks
There have been no changes to the above categories of key risks in the first
six months of 2022.
A detailed explanation of the risks summarised above can be found in the Risk
Management section of the 2021 Annual Report, which is available at
www.antofagasta.co.uk.
Cautionary statement about forward-looking statements
This half-year results announcement contains certain forward-looking
statements. All statements other than historical facts are forward-looking
statements. Examples of forward-looking statements include those regarding the
Group's strategy, plans, objectives or future operating or financial
performance, reserve and resource estimates, commodity demand and trends in
commodity prices, growth opportunities, and any assumptions underlying or
relating to any of the foregoing. Words such as "intend", "aim", "project",
"anticipate", "estimate", "plan", "believe", "expect", "may", "should",
"will", "continue" and similar expressions identify forward-looking
statements.
Forward-looking statements involve known and unknown risks, uncertainties,
assumptions and other factors that are beyond the Group's control. Given these
risks, uncertainties and assumptions, actual results could differ materially
from any future results expressed or implied by these forward-looking
statements, which apply only as at the date of this report. Important factors
that could cause actual results to differ from those in the forward-looking
statements include: natural events, global economic conditions, demand, supply
and prices for copper and other long-term commodity price assumptions (as they
materially affect the timing and feasibility of future projects and
developments), trends in the copper mining industry and conditions of the
international copper markets, the effect of currency exchange rates on
commodity prices and operating costs, the availability and costs associated
with mining inputs and labour, operating or technical difficulties in
connection with mining or development activities, employee relations,
litigation, and actions and activities of governmental authorities, including
changes in laws, regulations or taxation. Except as required by applicable
law, rule or regulation, the Group does not undertake any obligation to
publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.
Past performance cannot be relied on as a guide to future performance.
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Statement of Changes in Equity
For the six months ended 30.06.2021 (Unaudited)
Share capital Share premium Other reserves Retained earnings Equity attributable to equity holders of the Company Non- controlling interests Total
$m $m $m $m $m $m $m
Balance at 1 January 2021 89.8 199.2 (30.6) 7,492.2 7,750.6 2,330.5 10,081.1
Profit for the period - - - 665.3 665.3 456.3 1,121.6
Other comprehensive expense for period - - (10.0) (1.5) (11.5) (4.4) (15.9)
Dividends - - - (478.1) (478.1) (240.0) (718.1)
Balance at 30 June 2021 89.8 199.2 (40.6) 7,677.9 7,926.3 2,542.4 10,468.7
For the year ended 31 December 2021 (Audited)
Share capital Share premium Other reserves Retained earnings Equity attributable to equity holders of the Company Non- controlling interests Total
$m $m $m $m $m $m $m
Balance at 1 January 2021 89.8 199.2 (30.6) 7,492.2 7,750.6 2,330.5 10,081.1
Profit for the period - - - 1,290.2 1,290.2 944.6 2,234.8
Other comprehensive income for period - - 20.2 - 20.2 8.2 28.4
Dividends - - - (710.8) (710.8) (604.5) (1,315.3)
Balance at 31 December 2021 89.8 199.2 (10.4) 8,071.6 8,350.2 2,678.8 11,029.0
Consolidated Balance Sheet
The condensed consolidated interim financial statements were approved by the
Board of Directors on 10 August 2022 and signed on their behalf by
Jean-Paul Luksic Tony Jensen
Chairman Senior
Independent Director
Consolidated Cash Flow Statement
Notes
1. General information and accounting policies
a) General information
These condensed consolidated interim financial statements for the half-year
reporting period ended 30 June 2022 have been prepared in accordance with
UK-adopted International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
The condensed consolidated interim financial statements are unaudited. They
should be read in conjunction with the Group's 2021 Annual Report and
Financial Statements. The information for the year ended 31 December 2021 does
not constitute the Group's statutory accounts as defined in section 434 of the
Companies Act 2006 (the "Act") but is derived from those accounts. The
statutory accounts for the year ended 31 December 2021 have been approved by
the Board and have been delivered to the Registrar of Companies. The auditors
have reported on those accounts and their report was unqualified, with no
matters included by way of emphasis, and did not contain statements under
section 498(2) of the Act (regarding adequacy of accounting records and
returns) or under section 498(3) (regarding provision of necessary information
and explanations).
These condensed consolidated interim financial statements have been prepared
under the accounting policies as set out in the statutory accounts for the
year ended 31 December 2021, other than any changes required by the
implementation of new accounting standards as set out below.
The condensed consolidated interim financial statements do not include all of
the notes of the type normally included in annual financial statements.
Accordingly, they are to be read in conjunction with the annual report for the
year ended 31 December 2021, which was prepared in accordance with UK-adopted
International Accounting Standards.
The financial information contained in these condensed consolidated interim
financial statements has been prepared on the going concern basis.
Going concern
The Directors have assessed the going concern status of the Group, considering
the period to 31 December 2023.
The Group's business activities, together with those factors likely to affect
its future performance, are set out in the Directors' Comments, and in
particular within the Review of Operations. Details of the cash flows of the
Group during the period, along with its financial position at the period-end,
are set out in the Financial Review. The half-year financial report includes
details of the Group's cash, cash equivalents and liquid investment balances
in Note 17, and details of borrowings are set out in Note 15.
When assessing the going concern status of the Group the Directors have
considered in particular its financial position, including its significant
balance of cash, cash equivalents and liquid investments and the terms and
remaining duration of the borrowing facilities in place. The Group had a
strong financial position as at 30 June 2022, with combined cash, cash
equivalents and liquid investments of $2,878.2 million. Total borrowings were
$3,369.6 million, resulting in a net debt position of $491.4 million.
When assessing the prospects of the Group, the Directors have considered the
Group's copper price forecasts, the Group's expected production levels,
operating cost profile and capital expenditure. These forecasts are based on
the Group's budgets and life-of-mine models, which are also used when
assessing relevant accounting estimates. This analysis has focused on the
existing asset base of the Group, without factoring in potential development
projects, which is considered appropriate for an assessment of the Group's
ability to manage the impact of a depressed economic environment. The analysis
has only included the draw-down of existing committed borrowing facilities,
and has not assumed that any new borrowing facilities will be put in place.
The Directors have assessed the key risks which could impact the prospects of
the Group over the going concern period and consider the most relevant to be
risks to the copper price outlook, as this is the factor most likely to result
in significant volatility in earnings and cash generation. Robust downside
sensitivity analyses have been performed, assessing the impact of:
· A significant deterioration in the future copper price forecasts
by 20% throughout the going concern period.
· In addition to the above deterioration in the copper price
throughout the review period, an even more pronounced short-term reduction of
50 c/lb in the copper price for a period of three months.
· The Group's most significant individual operational risks. The
stability of tailings storage facilities represents a potentially significant
operational risk for mining operations globally. The Group's tailings
storage facilities are designed to international standards, constructed using
downstream methods, subject to rigorous monitoring and reporting, and reviewed
regularly by an international panel of independent experts. Given these
standards of design, development, operations and review, the impact of a
potential tailings dam failure has not been included in the sensitivity
analysis.
· A shut-down of the Group's operations for a period of three
months.
· Potential changes to the Chilean mining royalty, taking into
account the Group's existing tax stability agreements.
These downside sensitivity analyses indicated results which could be managed
in the normal course of business. The analysis indicated that the Group is
expected to remain in compliance with all of the covenant requirements of its
borrowings throughout the review period and retain sufficient liquidity. Based
on their assessment of the Group's prospects and viability, the Directors have
formed a judgement, at the time of approving the half-year results
announcement, that there are no material uncertainties that the Directors are
aware of that cast doubt on the Group's going concern status and that there is
a reasonable expectation that the Group has adequate resources to continue in
operational existence for the period to 31 December 2023. The Directors
therefore consider it appropriate to adopt the going concern basis of
accounting in preparing this half-year results announcement.
b) Critical accounting judgements and key sources of
estimation uncertainty
The Group's critical accounting judgements and key sources of estimation
uncertainty are detailed in Note 3 to the 2021 annual report which is
available at www.antofagasta.co.uk (http://www.antofagasta.co.uk)
The critical judgements relate to:
· Non-financial assets impairment
· Capitalisation of project costs within property, plant and
equipment
The key sources of estimation uncertainty relate to:
· Deferred taxation
There has been no significant change to these judgements and uncertainties
during the first six months of 2022.
c) Accounting standards issued but not yet effective
The following accounting standards, interpretations and amendments have been
issued by the IASB, but are not yet effective:
New Standards Effective date (Subject to UK endorsement)
IFRS 17, Insurance Contracts Annual periods beginning on or after January 1, 2023
Amendments to IFRSs Effective date (Subject to UK endorsement)
Deferred Tax related to Assets and Liabilities arising from a Single Annual periods beginning on or after January 1, 2023
Transaction (Amendments to IAS 12)
Classification of Liabilities as Current or Non-Current (Amendments to IAS 1) Annual periods beginning on or after January 1, 2023
Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice Annual periods beginning on or after January 1, 2023
Statement 2
Definition of Accounting Estimates - Amendments to IAS 8 Annual periods beginning on or after January 1, 2023
2. Total profit from operations, associates and joint ventures
Other operating expenses comprise $51.4 million of exploration and evaluation
expenditure (30 June 2021 - $52.3 million), $7.2 million in respect of the
employee severance provision (30 June 2021 - $8.1 million), $6.6 million in
respect of the closure provision (30 June 2021 - $4.6 million) and $58.2
million of other expenses (30 June 2021 - $57.1 million).
3. Exceptional items
Exceptional items are material items of income and expense which are
non-regular or non-operating and typically non-cash, including impairments and
profits or losses on disposals. The tax effect of items presented as
exceptional is also classified as exceptional, as are material deferred tax
adjustments that relate to more than one reporting period. The classification
of these types of items as exceptional is considered to be useful as it
provides an indication of the underlying earnings generated by the ongoing
businesses of the Group.
There were no exceptional items in the six months ended 30 June 2022.
2021 - Impairment of Twin Metals' assets
Twin Metals Minnesota (Twin Metals) is a wholly owned copper, nickel and
platinum group metals (PGM) underground mining project, which holds copper,
nickel and cobalt-PGM deposits in north-eastern Minnesota, US. In recent
years, Twin Metals has been progressing its Mine Plan of Operations (MPO) and
Scoping Environmental Assessment Worksheet Data Submittal, submitted in
December 2019 to the US Bureau of Land Management (BLM) and Minnesota
Department of Natural Resources (DNR), respectively. However, over the past
year, while the Twin Metals project was advancing through environmental
review, several actions were taken by the federal government that have changed
the potential scenarios for the project.
In September 2021, the United States Forest Service (USFS) submitted an
application to withdraw approximately 225,000 acres of land in the Superior
National Forest from the scope of federal mineral leasing laws, subject to
valid existing rights. In October 2021, the United States Bureau of Land
Management (BLM) rejected Twin Metals' Preference Right Lease Applications
(PRLAs) and Prospecting Permit Applications (PPAs). In January 2022, the
United States Department of the Interior cancelled Twin Metals' MNES-1352 and
MNES-1353 federal mineral leases. The PRLAs and federal mineral leases form a
significant proportion of the mineral resources contained within Twin Metals'
current project plan and, accordingly, it was determined that these events
collectively represented an impairment trigger as at 31 December 2021.
Prior to the resulting impairment assessment being performed, as at 31
December 2021, the Group had recognised an intangible asset of $150.1 million
and property, plant and equipment of $27.5 million relating to the Twin Metals
project. The intangible asset arose upon the acquisition in 2015 of Duluth
Metals, which owned a 60% stake in the Twin Metals project, with the carrying
value of the intangible asset reflecting the consideration paid for that
acquisition. The property, plant and equipment balances reflected the
historical cost of acquiring those assets. These carrying values prior to the
impairment did not, therefore, reflect an estimate of the commercial potential
of the project as at 31 December 2021.
The Group believes that Twin Metals has a valid legal right to the mining
leases and a strong case to defend its legal rights. Although the Group
intends to pursue validation of those rights, considering the time and
uncertainty related to any legal action to challenge the government decisions,
an impairment was recognised as at 31 December 2021 in respect of the $177.6
million of intangible assets and property, plant and equipment relating to the
Twin Metals project.
2021 - Recognition of previously unrecognised deferred tax assets
At 31 December 2021, the Group recognised $90.6 million of previously
unrecognised deferred tax assets relating to tax losses available for offset
against future profits, in respect of Antucoya.
Antucoya continued to generate taxable profits during the first six months of
2022, supporting the continued recognition of the remaining deferred tax
asset.
4. Asset sensitivities
Based on an assessment of both qualitative and quantitative factors, there
were no indicators of potential impairment, or reversal of previous
impairments, for the Group's non-current assets associated with its mining
operations at 30 June 2022, and accordingly no impairment tests have been
performed.
The quantitative element of the trigger assessment, which is based on the
Group's life-of-mine models, provides an indication of what the approximate
recoverable amount of the Group's operations would be, were a full impairment
test under IAS 36 to be performed. This impairment indicator valuation
exercise demonstrated positive headroom for all of the Group's mining
operations, with the recoverable amount of the assets in excess of their
carrying value.
Relevant aspects of these indicative valuation estimates include:
Fair value less costs of disposal and value in use valuations
If a full IAS 36 impairment test were to be prepared, which was not the case
as at 30 June 2022, the recoverable amount is the higher of fair value less
costs of disposal and value in use. Fair value less costs of disposal reflects
the net amount the Group would receive from the sale of the asset in an
orderly transaction between market participants. For mining assets, this would
generally be determined based on the present value of the estimated future
cash flows arising from the continued use, further development or eventual
disposal of the asset. Value in use reflects the expected present value of the
future cash flows which the Group would generate through the operation of the
asset in its current condition, without taking into account potential
enhancements or further development of the asset. The fair value less costs of
disposal valuation will normally be higher than the value in use valuation for
mining companies, and accordingly the Group typically applies this valuation
estimate in its impairment or valuation assessments.
Copper price outlook
The assumption to which the value of the assets is most sensitive is the
future copper price. The copper price forecasts (representing the Group's
estimates of the assumptions that would be used by independent market
participants in valuing the assets) are based on the forward curve for the
short term and consensus analyst forecasts for the longer term. A long-term
copper price of $3.30/lb has been used in the base valuations used in the
impairment indicator assessment.
Climate risks
The indicative valuations incorporate estimates of the potential future costs
relating to climate risks. The Group reported against the recommendations of
the Task Force on Climate-related Financial Disclosures (TCFD) in the 2021
Annual Report. This process included scenario analyses assessing the potential
future impact of transition and physical risks. In preparing this analysis,
the Group used two climate scenarios to capture the broadest possible spectrum
of climate-related risks and opportunities, an aggressive mitigation scenario
and a high warming scenario. The total of the estimated potential transition
and physical risk impacts under this approach is likely to overstate the
probable overall impact, for example because if relatively aggressive actions
are taken in order to minimise transition risks, this should reduce the risk
of relatively significant physical impacts. However, in order to incorporate a
simple and conservative estimate of the potential future costs of climate
risks we combined the estimates of the potential costs of the transition risk
and physical risk scenarios, and incorporated those total cost forecasts into
the indicative valuations.
Chilean mining royalty
We have considered potential changes to the Chilean mining royalty as part of
the indicative valuation exercise. In July 2022 the Chilean government
announced its proposals for a comprehensive reform of the tax system,
including proposed changes to the mining royalty. These proposals are subject
to review and approval by the Chilean Congress, and so there is no certainty
as to the exact nature of changes which may finally be enacted into law.
Other relevant assumptions
In addition to the above factors, the indicative valuations are sensitive to
the assumptions in respect of future production levels, operating costs, the
US dollar/Chilean peso exchange rate, sustaining and development capital
expenditure and the discount rate used to determine the present value of the
future cash flows.
A real post-tax discount rate of 8% has been used in determining the present
value of the forecast future cash flow from the assets as part of the
impairment indicator assessment.
In addition, the conclusion that there are no impairment indicators at
Zaldívar does reflect certain assumptions about future operational
considerations, which include the following:
- an Environmental Impact Assessment (EIA) has been submitted to
extend the permits for water extraction (which currently expire during 2025)
and general mining activities (which currently expire at the end of 2023)
until 2031. Subsequent applications will be required in due course to further
extend the permits beyond 2031. The indicative valuation assumes that
essential permits will be extended to the end of the mine life, and other
permits can be extended, or alternative solutions to enable the ongoing
operation of the mine can be implemented. However, if essential permits are
not extended, this is likely to be considered an indicator of a potential
impairment, requiring a full impairment assessment at that point.
- Zaldívar's final pit phase, which represents approximately 20%
of current ore reserves, impacts a portion of Minera Escondida's mine
property, as well as infrastructure owned by third parties (road, railway,
powerline and pipelines). Mining of the final pit phase is subject to
agreements or easements to access these areas and relocate this
infrastructure.
As noted above, the impairment indicator valuation exercise, taking into
account the factors outlined above, demonstrated positive headroom for all of
the Group's mining operations, with the recoverable amount of the assets in
excess of their carrying value. However, for Antucoya the headroom position
was more marginal relative to the other operations, and additional future
negative factors (such as significant reductions in the medium- or long-term
copper price outlook) may be considered indicators of potential impairment for
that operation, requiring a full impairment assessment at that point.
5. Segmental analysis
The Group's reportable segments are as follows:
· Los Pelambres
· Centinela
· Antucoya
· Zaldívar
· Exploration and evaluation
· Corporate and other items
· Transport division
For management purposes, the Group is organised into two business divisions
based on their products - Mining and Transport. The mining division is split
further for management reporting purposes to show results by mine and
exploration activity. Los Pelambres produces primarily copper concentrate and
molybdenum as a by-product. Centinela produces copper concentrate containing
gold as a by-product, molybdenum concentrates and copper cathodes. Antucoya
and Zaldívar produce copper cathodes. The transport division provides rail
and road cargo transport together with a number of ancillary services. All the
operations are based in Chile. The Exploration and evaluation segment incurs
exploration and evaluation expenses. "Corporate and other items" comprises
costs incurred by the Company, Antofagasta Minerals S.A., the Group's mining
corporate centre and other entities, that are not allocated to any individual
business segment. Consistent with its internal management reporting, the
Group's corporate and other items are included within the mining division.
The Chief Operating decision-maker (the Group's Chief Executive Officer)
monitors the operating results of the business segments separately for the
purpose of making decisions about resources to be allocated and assessing
performance. Segment performance is evaluated based on the operating profit of
each of the segments.
a) Segment revenues and results
( )
(1) EBITDA refers to Earnings Before Interest, Tax, Depreciation and
Amortisation. EBITDA is calculated by adding back depreciation, amortisation,
profit or loss on disposals and impairment charges to operating profit. This
comprises 100% of the EBITDA from the Group´s subsidiaries, and the Group´s
proportional share of the EBITDA of its associates and joint ventures.
(2) Operating cash outflow in the exploration and evaluation segment was $40.7
million.
For the six months ended 30.06.2021 (Unaudited)
Los Pelambres Centinela Antucoya Zaldívar Exploration and evaluation(2) Corporate and other items Total Mining Transport division Total
$m $m $m $m $m $m $m $m $m
Revenue 1,878.7 1,289.6 336.4 - - - 3,504.7 86.3 3,591.0
Operating costs excluding depreciation (531.8) (458.1) (177.4) - (52.3) (35.2) (1,254.8) (52.5) (1,307.3)
Depreciation and amortisation (132.5) (282.5) (46.9) - - (5.6) (467.5) (15.0) (482.5)
Loss on disposals - - - - - - - (0.6) (0.6)
Operating profit/(loss) 1,214.4 549.0 112.1 - (52.3) (40.8) 1,782.4 18.2 1,800.6
Net share of income/(loss) from associates and joint ventures - - - 24.5 - (5.1) 19.4 - 19.4
Investment income 0.9 0.8 0.2 - - 1.0 2.9 - 2.9
Interest expense (1.9) (9.2) (7.4) - - (14.5) (33.0) (0.5) (33.5)
Other finance items (2.7) (2.3) (0.4) - - (0.1) (5.5) (0.4) (5.9)
Profit/(loss) before tax 1,210.7 538.3 104.5 24.5 (52.3) (59.5) 1,766.2 17.3 1,783.5
Tax (395.1) (157.6) (3.2) - - (96.9) (652.8) (9.1) (661.9)
Profit/(loss) for the period 815.6 380.7 101.3 24.5 (52.3) (156.4) 1,113.4 8.2 1,121.6
Non-controlling interests 322.9 106.8 26.5 - - 0.1 456.3 - 456.3
Profit/(loss) for the period attributable to owners of the parent 492.7 273.9 74.8 24.5 (52.3) (156.5) 657.1 8.2 665.3
EBITDA(1) 1,346.9 831.5 159.0 76.4 (52.3) (40.4) 2,321.1 36.0 2,357.1
Additions to non-current assets
Capital expenditure (3) 464.4 368.0 40.5 - - 12.2 839.0 10.6 895.7
Segment assets and liabilities
Segment assets 6,171.1 6,236.6 1,704.4 - - 1,794.9 15,907.0 383.9 16,290.9
Investments in associates and joint ventures - - - 933.5 - - 933.5 5.6 939.1
Segment liabilities (2,873.6) (1,875.5) (673.2) - - (1,246.3) (6,668.6) (92.7) (6,761.3)
(1) EBITDA refers to Earnings Before Interest, Tax, Depreciation and
Amortisation. EBITDA is calculated by adding back depreciation, amortisation,
profit or loss on disposals and impairment charges to operating profit. This
comprises 100% of the EBITDA from the Group´s subsidiaries, and the Group´s
proportional share of the EBITDA of its associates and joint ventures.
(2) Operating cash outflow in the exploration and evaluation segment was $40.0
million.
(3) The capital expenditure comparative figures have been restated to include
$46.3 million in relation to leases that were previously only disclosed within
a footnote beneath the table.
For the year ended 31.12.2021 (Audited)
Los Pelambres Centinela Antucoya Zaldívar Exploration and evaluation(2) Corporate and other items Total Mining Transport division Total
$m $m $m $m $m $m $m $m $m
Revenue 3,621.0 2,981.3 697.8 - - - 7,300.1 170.0 7,470.1
Operating costs excluding depreciation (1,095.0) (1,062.0) (360.7) - (103.2) (76.0) (2,696.9) (106.3) (2,803.2)
Depreciation and amortisation (281.8) (654.7) (98.3) - - (13.0) (1,047.8) (30.9) (1,078.7)
Loss on disposals (3.7) (4.0) (0.5) - - - (8.2) (1.0) (9.2)
Provision against the carrying value of assets(4) - - - - (177.6) - (177.6) - (177.6)
Operating profit/(loss) 2,240.5 1,260.6 238.3 - (280.8) (89.0) 3,369.6 31.8 3,401.4
Net share of income/(loss) from associates and joint ventures - - - 68.5 - (9.0) 59.5 0.2 59.7
Investment income 1.4 1.5 0.3 - - 1.7 4.9 0.1 5.0
Interest expense (3.5) (16.4) (15.5) - - (27.2) (62.6) (0.8) (63.4)
Other finance items 41.1 26.1 4.9 - - 5.1 77.2 (2.8) 74.4
Profit/(loss) before tax 2,279.5 1,271.8 228.0 68.5 (280.8) (118.4) 3,448.6 28.5 3,477.1
Tax (743.7) (382.0) (7.1) - - (188.3) (1,321.1) (11.8) (1,332.9)
Tax - exceptional items(3) - - 90.6 - - - 90.6 - 90.6
Profit/(loss) for the period 1,535.8 889.8 311.5 68.5 (280.8) (306.7) 2,218.1 16.7 2,234.8
Non-controlling interests 607.5 252.2 84.4 - - 0.5 944.6 - 944.6
Profit/(loss) for the period attributable to owners of the parent 928.3 637.6 227.1 68.5 (280.8) (307.2) 1,273.5 16.7 1,290.2
EBITDA(1) 2,526.0 1,919.3 337.1 172.8 (103.2) (84.0) 4,768.0 68.2 4,836.2
Additions to non-current assets
Additions to property, plant and equipment 903.1 826.4 62.7 - 0.6 30.4 1,823.2 32.7 1,855.9
Segment assets and liabilities
Segment assets 5,667.1 5,924.2 1,735.9 - - 2,661.1 15,988.3 384.3 16,372.6
Investments in associates and joint ventures - - - 900.0 - - 900.0 5.8 905.8
Segment liabilities (2,642.0) (1,797.0) (548.7) - - (1,174.5) (6,162.2) (87.2) (6,249.4)
(1) EBITDA refers to Earnings Before Interest, Tax, Depreciation and
Amortisation. EBITDA is calculated by adding back depreciation, amortisation,
profit or loss on disposals and impairment charges to operating profit. This
comprises 100% of the EBITDA from the Group´s subsidiaries, and the Group´s
proportional share of the EBITDA of its associates and joint ventures.
(2) Operating cash outflow in the exploration and evaluation segment was $49.9
million.
(3) During 2021, there was an exceptional item of $90.6 million which reflects
the recognition of a deferred tax asset at Antucoya (see Note 3).
(4) An impairment has been recognised as at 31 December 2021 in respect of the
$177.6 million of intangible assets and property, plant and equipment relating
to the Twin Metals project, presented as an exceptional item.
b) Entity wide disclosures
Revenue by product
( )
()
(1) These prior year figures have been re-presented to separately analyse
revenue from the sale of products and from the provision of shipping services.
Revenue by location of customer
Information about major customers
In the first half of 2022 the Group´s mining revenue included $363.4 million
related to one large customer that individually accounted for more than 10% of
the Group's revenue (six months ended 30 June 2021 - one large customer
representing $458.1 million; year ended 31 December 2021 - one large customer
representing $1,015.1 million).
Non-current assets by location of asset
The above amounts reflect non-current assets excluding financial assets and
deferred tax assets. The non-current assets shown above exclude $74.3 million
($7.2 million - 30 June 2021) of deferred tax assets, $56.2 million ($67.5
million - 30 June 2021) of receivables (being financial assets), and $6.4
million of equity investments ($9.8 million - 30 June 2021).
6. Revenue
Copper and molybdenum concentrate sale contracts and copper cathode sale
contracts 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 one to four months after shipment to the
customer. For sales contracts which contain provisional pricing mechanisms the
total receivable balance is measured at fair value through profit or loss.
Gains and losses from the mark-to-market of open sales are recognised through
adjustments to revenue in the income statement and to trade receivables 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 in the market price references for that commodity in the
majority of the Group's contracts.
With sales of concentrates, which are sold to smelters and roasting plants for
further processing into fully refined metal, the price of the concentrate
(which is the amount recorded as revenue) reflects the market value of the
fully refined metal less a "treatment and refining charge" deduction, to
reflect the lower value of this partially processed material compared with the
fully refined metal.
The shipping service represents a separate performance obligation, and is
recognised separately from the sale of the material over time as the shipping
service is provided.
An analysis of the Group's revenue is as follows:
(1)The Group sells a significant proportion of its products on Cost, Insurance
& freight (CIF) incoterms, which means that the Group is responsible for
shipping the product to a destination port specified by the customer.
(2)The transport division provides rail and road cargo transport together with
a number of ancillary services.
The categories of revenue which are principally affected by different economic
factors are the individual product types. A summary of revenue by product is
set out in Note 5.
The table above sets out the impact of provisional pricing adjustments,
derivative commodity instruments and treatment and refining charges for the
more significant products. The revenue from these products, along with the
revenue from other products and services, is reconciled to total revenue in
Note 5.
The revenue from the individual products shown in the above table excludes
revenue from sales of silver and the Transport division, which are presented
in the revenue by product table in Note 5 to reconcile to Group Revenue.
With sales of concentrates at Los Pelambres and Centinela, which are sold to
smelters and roasting plants for further processing into fully refined metal,
the price of the concentrate invoiced to the customer reflects the market
value of the fully refined metal less a "treatment and refining charge"
deduction, to reflect the lower value of this partially processed material
compared with the fully refined metal. For accounting purposes, the revenue
amount is the net of the market value of fully refined metal less the
treatment and refining charges. Under the standard industry definition of cash
costs, treatment and refining charges are regarded as an expense and part of
the total cash cost figure.
For the period ended 30 June 2021
$m $m $m $m $m $m $m $m
Los Pelambres Centinela Centinela Antucoya Los Pelambres Centinela Los Pelambres Centinela
Copper concentrate Copper concentrate Copper cathodes Copper cathodes Gold in concentrate Gold in concentrate Molybdenum concentrate Molybdenum concentrate
1,484.0 706.4 349.3 365.0 47.6 144.6 136.7
Provisionally invoiced gross sales 20.9
Revenue from freight services 26.3 20.1 1.9 2.3
1,510.3 726.5 351.2 367.3 47.6 144.6 136.7 20.9
Effects of pricing adjustments to previous year invoices
Reversal of mark-to-market adjustments at the end of the previous year (58.7) (26.8) 0.1 (0.5) - (0.9) 0.2 (0.3)
Settlement of sales invoiced in the previous year 175.1 74.7 1.8 1.5 (1.0) (4.0) 6.4 1.2
Total effect of adjustments to previous year invoices in the current period 116.4 47.9 1.9 1.0 (1.0) (4.9) 6.6 0.9
Effects of pricing adjustments to current period invoices
Settlement of sales invoiced in the current period 107.5 59.3 8.8 7.0 (1.0) (0.9) 19.9 2.4
Mark-to-market adjustments at the end of the current period (45.0) (21.2) (0.6) (0.9) - (0.2) 10.8 3.1
Total effect of adjustments to current period invoices 62.5 38.1 8.2 6.1 (1.0) (1.1) 30.7 5.5
Total pricing adjustments 178.9 86.0 10.1 7.1 (2.0) (6.0) 37.3 6.4
Realised losses on commodity derivatives - - (35.5) (38.0) - - - -
Treatment and refining charges (43.0) (26.6) - - (0.1) (0.3) (12.8) (3.8)
Revenue
1,646.2 785.9 325.8 336.4 45.5 138.3 161.2 23.5
The revenue from the individual products shown in the above table excludes
revenue from sales of silver and the Transport division, which are presented
in the revenue by product table in Note 5 to reconcile to Group Revenue.
With sales of concentrates at Los Pelambres and Centinela, which are sold to
smelters and roasting plants for further processing into fully refined metal,
the price of the concentrate invoiced to the customer reflects the market
value of the fully refined metal less a "treatment and refining charge"
deduction, to reflect the lower value of this partially processed material
compared with the fully refined metal. For accounting purposes, the revenue
amount is the net of the market value of fully refined metal less the
treatment and refining charges. Under the standard industry definition of cash
costs, treatment and refining charges are regarded as an expense and part of
the total cash cost figure.
For the year ended 31 December 2021
$m $m $m $m $m $m $m $m
Los Pelambres Centinela Centinela Antucoya Los Pelambres Centinela Los Pelambres Centinela
Copper concentrate Copper concentrate Copper cathodes Copper cathodes Gold in concentrate Gold in concentrate Molybdenum concentrate Molybdenum concentrate
2,966.6 1,685.3 824.3 749.7 93.3 354.8 322.1 38.4
Provisionally priced sales of products
Revenue from freight services 57.8 46.8 4.3 4.5 - - - -
3,024.4 1,732.1 828.6 754.2 93.3 354.8 322.1 38.4
Effects of pricing adjustments to previous year invoices
Reversal of mark-to-market adjustments at the end of the previous year (58.7) (26.8) 0.1 (0.5) - (0.9) 0.2 (0.3)
Settlement of sales invoiced in the previous year 175.1 74.7 1.8 1.5 (1.0) (4.0) 6.4 1.2
Total effect of adjustments to previous year invoices in the current period 116.4 47.9 1.9 1.0 (1.0) (4.9) 6.6 0.9
Effects of pricing adjustments to current period invoices
Settlement of sales invoiced in the current period 92.2 58.8 10.2 6.0 (1.1) (4.1) 30.6 5.8
Mark-to-market adjustments at the end of the current period 12.0 5.2 0.3 0.8 - 0.4 (5.7) (0.7)
Total effect of adjustments to current period invoices 104.2 64.0 10.5 6.8 (1.1) (3.7) 24.9 5.1
Total pricing adjustments 220.6 111.9 12.4 7.8 (2.1) (8.6) 31.5 6.0
Realised losses on commodity derivatives - - (62.6) (64.2) - - - -
Treatment and refining charges (90.2) (61.8) - - (0.2) (0.8) (24.4) (7.2)
Revenue
3,154.8 1,782.2 778.4 697.8 91.0 345.4 329.2 37.2
The revenue from the individual products shown in the above table excludes
revenue from sales of silver and the Transport division, which are presented
in the revenue by product table in Note 5 to reconcile to Group Revenue.
With sales of concentrates at Los Pelambres and Centinela, which are sold to
smelters and roasting plants for further processing into fully refined metal,
the price of the concentrate invoiced to the customer reflects the market
value of the fully refined metal less a "treatment and refining charge"
deduction, to reflect the lower value of this partially processed material
compared with the fully refined metal. For accounting purposes, the revenue
amount is the net of the market value of fully refined metal less the
treatment and refining charges. Under the standard industry definition of cash
costs, treatment and refining charges are regarded as an expense and part of
the total cash cost figure.
(i) Copper concentrate
The typical period for which sales of copper concentrate remain open until
settlement occurs is a range of approximately three to four months from
shipment date.
(ii) Copper cathodes
The typical period for which sales of copper cathodes remain open until
settlement occurs is approximately one month from shipment date.
(iii) Gold in concentrate
The typical period for which sales of gold in concentrate remain open until
settlement is approximately one month from shipment date.
(iv) Molybdenum concentrate
The typical period for which sales of molybdenum remain open until settlement
is approximately two months from shipment date.
As detailed above, the effects of gains and losses from the marking-to-market
of open sales are recognised through adjustments to revenue in the income
statement and to trade receivables in the balance sheet. The effect of
mark-to-market adjustments on the balance sheet at the end of each period are
as follows:
The trade and other receivables balance at 30 June 2022 was $366.5 million
compared with $1,146.1 million at 31 December 2021. This decrease reflected
lower sales volumes towards the end of the current period compared with the
end of 2021, as well as the impact of the negative mark-to-market adjustment
of $173.8 million at 30 June 2022 compared with a positive mark-to-market
adjustment of $12.3 million at 31 December 2021 as shown above.
7. Financial instruments
a) Categories of financial instruments
The carrying value of financial assets and financial liabilities is shown
below:
Six months ended 30.06.2021
At fair value through At fair value through other comprehensive income Held at amortised cost Total
profit and loss
Restated(1)
$m $m $m $m
Financial assets
Derivative financial assets 0.3 - - 0.3
Equity investments - 9.8 - 9.8
Trade and other receivables 541.9 - 107.4 649.3
Cash and cash equivalents (restated(1)) - - 778.5 778.5
Liquid investments (restated(1)) 3,461.4 - - 3,461.4
4,003.6 9.8 885.9 4,899.3
Financial liabilities
Derivative financial liabilities (51.4) - - (51.4)
Trade and other payables - - (1,018.4) (1,018.4)
Borrowings and leases - - (3,538.6) (3,538.6)
(51.4) - (4,557.0) (4,608.4)
1. The 30 June 2021 financial assets have been restated to
reclassify $481.5 million previously presented as cash and cash equivalents to
liquid investments and this resulted in a corresponding restatement of the "at
fair value through profit and loss" and "Held at amortised cost" columns in
the categories of financial instruments.
For the year ended 31.12.2021
At fair value through profit and loss At fair value through other comprehensive income Held at amortised cost Total
$m $m $m $m
Financial assets
Equity investments - 8.7
8.7 -
Trade and other receivables 1,011.7 83.3 1,095.0
-
Cash and cash equivalents - 743.4 743.4
-
Liquid investments 2,969.7 2,969.7
- -
3,981.4 826.7 4,816.8
8.7
Financial liabilities
Trade and other payables - (835.6) (835.6)
-
Borrowings and leases - (3,172.6) (3,172.6)
-
- (4,008.2) (4,008.2)
-
The fair value of the fixed rate bonds included within the "Borrowings and
leases" category was $877.8 million at 30 June 2022 (six months ended 30 June
2021- $483.6 million; year ended 31 December 2021 - $476.2 million) compared
with their carrying value of $985.1 million (six months ended 30 June 2021 -
$495.7 million; year ended 31 December 2021 - $496.1 million). The fair value
of all other financial assets and financial liabilities carried at amortised
cost approximates the carrying value presented above.
Fair value of financial instruments
An analysis of financial assets and financial liabilities measured at fair
value is presented below:
Six months ended 30.06.2021
Level 1 Level 2 Level 3 Total
Restated(1)
$m $m $m $m
Financial assets
Derivatives financial assets (a) - 0.3 - 0.3
Equity investments (b) 9.8 - - 9.8
Trade and other receivables (c) - 541.9 - 541.9
Liquid investments (d) - 3,461.4 - 3,461.4
9.8 4,003.6 - 4,013.4
Financial liabilities
Derivatives financial liabilities (a) - (51.4) - (51.4)
Trade and other payables - - - -
- (51.4) - (51.4)
1. The 30 June 2021 financial assets have been restated to
reclassify $481.5 million previously presented as cash and cash equivalents to
liquid investments and this resulted in a corresponding restatement of the "at
fair value through profit and loss" and "Held at amortised cost" columns in
the categories of financial instruments.
For the year ended 31.12.2021
Level 1 Level 2 Level 3 Total
$m $m $m $m
Financial assets
Equity investments (b) 8.7 - - 8.7
Trade and other receivables (c) - 1,011.7 - 1,011.7
Liquid investments (d) - 2,969.7 - 2,969.7
8.7 3,981.4 - 3,990.1
Financial liabilities
Derivatives financial liabilities (a) - - - -
Trade and other payables - - - -
Recurring fair value measurements are those that are required in the balance
sheet at the end of each reporting year.
a) Derivatives in designated hedge accounting relationships are valued
using a discounted cash flow analysis valuation model, which includes
observable credit spreads and using the applicable yield curve for the
duration of the instruments for non-optional derivatives, and option pricing
models for optional derivatives. These are level 2 inputs as described below.
b) Equity investments are investments in shares on active markets and
are valued using unadjusted quoted market values of the shares at the
financial reporting date. These are level 1 inputs as described below.
c) Provisionally priced metal sales for the period are
marked-to-market at the end of the period. Gains and losses from the
marking-to-market of open sales are recognised through adjustments to revenue
in the income statement and trade receivables in the balance sheet. Forward
prices at the end of the period are used for copper sales while period-end
average prices are used for molybdenum concentrate sales. These are level 2
inputs as described below.
d) Liquid investments are highly liquid current asset investments that
are valued reflecting market prices at the period end. These are level 2
inputs as described below. The HY 2021 comparative figures have been restated
to reclassify these amounts from level 1 to level 2 inputs.
The inputs to the valuation techniques described above are categorised into
three levels, giving the highest priority to unadjusted quoted prices in
active markets (level 1) and the lowest priority to unobservable inputs (level
3 inputs):
- Level 1 fair value measurement inputs are unadjusted quoted prices
in active markets for identical assets or liabilities.
- Level 2 fair value measurement inputs are derived from inputs other
than quoted market prices included in level 1 that are observable for the
asset or liability, either directly or indirectly.
- Level 3 fair value measurement inputs are unobservable inputs for
the asset or liability.
The degree to which inputs into the valuation techniques used to measure the
financial assets and liabilities are observable and the significance of these
inputs in the valuation are considered in determining whether any transfers
between levels have occurred. In the six months ended 30 June 2022, there were
no transfers between levels in the hierarchy.
b) Derivative financial instruments
The Group periodically 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 trading purposes. The Group
has applied the hedge accounting provisions of IFRS 9 Financial Instruments.
The effective portion of changes in the fair value of derivative financial
instruments that are designated and qualify as hedges of future cash flows
have been recognised directly in equity, with such amounts subsequently
recognised in profit or loss in the period when the hedged item affects profit
or loss. Any ineffective portion is recognised immediately in profit or loss.
Realised gains and losses on commodity derivatives recognised in profit or
loss are recorded within revenue. The time value element of changes in the
fair value of derivative options is recognised within other comprehensive
income. Derivatives embedded in other financial instruments or other host
contracts are treated as separate derivatives when their risks and
characteristics are not closely related to those of host contracts and the
host contracts are not carried at fair value. Changes in fair value are
reported in profit or loss for the year.
8. Net finance income/(expense)
In the six months ended 30 June 2022, amounts capitalised and consequently not
included within the above table were as follows: $14.5 million at Los
Pelambres (six months ended 30 June 2021 - $10.0 million; year ended 31
December 2021 - $12.1 million) and $0.4 million at Centinela (six months ended
30 June 2021 - $0.9 million; year ended 31 December 2021 - $2.1 million). The
interest expense shown above includes $3.1 million in respect of leases (six
months ended 30 June 2021 - $4.2 million; year ended 31 December 2021 - $7.9
million).
9. Taxation
The tax charge for the period comprised the following:
The rate of first category (i.e. corporate) tax in Chile is 27.0% (2021 -
27.0%).
In addition to first category tax and the mining tax, the Group incurs
withholding taxes on any remittance of profits from Chile. Withholding tax is
levied on remittances of profits from Chile at 35% less first category (i.e.
corporation) tax already paid in respect of the profits to which the
remittances relate.
The Group's mining operations are also subject to a mining tax (royalty).
Production from Los Pelambres, Antucoya, Encuentro (oxides), the Tesoro North
East pit and the Run-of-Mine processing at Centinela Cathodes is subject to a
rate of between 5-14%, depending on the level of operating profit margin, and
production from Centinela Concentrates and the Tesoro Central and Mirador pits
is subject to a rate of 5% of taxable operating profit.
Six months ended Six months ended Year ended Year ended
Excluding exceptional items In
cl
ud
in
g
ex
ce
pt
io
na
l
it
em
s
30.06.2022 30.06.2021 31.12.20201 31
.1
2.
20
21
$m % $m % $m % $m %
Profit before tax 679.6 1,783.5 3,654.7 3,477.1
Tax at the Chilean corporate tax rate of 27% (183.5) 27.0 (481.6) 27.0 (986.8) 27.0 (938.8) 27.0
Mining Tax (royalty) (41.0) 6.0 (128.5) 7.2 (243.8) 6.7 (243.8) 7.0
Deduction of mining royalty as an allowable expense in determination of first 11.7 (1.7) 36.0 (2.0) 67.8 (1.9) 67.8 (1.9)
category tax
Withholding tax (including subtitute tax at 30% rate) (32.0) 4.7 (111.3) 6.2 (195.0) 5.3 (195.0) 5.6
Items not deductible from first category tax (13.7) 2.0 (7.2) 0.4 (31.6) 0.9 (31.6) 0.9
Adjustment in respect of prior years (2.5) 0.4 0.8 - (12.1) 0.3 (12.1) 0.3
Tax effect of share of profit of associates and joint ventures 13.0 (1.9) 5.2 (0.3) 16.1 (0.4) 16.1 (0.5)
Impact of previously unrecognised tax losses on current tax 0.1 - - - 52.5 (1.4) 52.5 (1.5)
Impact of recognition of previously unrecognised tax losses on - - 24.7 (1.4) - - 90.6 (2.6)
deferred tax
Provision against carrying value of assets - - - - - - (48.0) 1.4
Tax expense and effective tax rate for the period (247.9) 36.5 (661.9) 37.1 (1,332.9) 36.5 (1,242.3) 35.7
The effective tax rate excluding exceptional items of 36.5% varied from the
statutory rate principally due to the mining tax (royalty) (net impact of
$29.3 million / 4.3% including the deduction of the mining tax (royalty) as an
allowable expense in the determination of first category tax), the withholding
tax relating to the remittance of profits from Chile (impact of $32.0 million
/ 4.7%), items not deductible for Chilean corporate tax purposes, principally
the funding of expenses outside of Chile (impact of $13.7 million / 2.0%) and
adjustments in respect of prior years (impact of $2.5 million / 0.4%), partly
offset by the impact of the recognition of the Group's share of profit from
associates and joint ventures, which are included in the Group's profit before
tax net of their respective tax charges (impact of $13.0 million / 1.9%).
The main factors which could impact the sustainability of the Group's existing
effective tax rate are:
· The government presented a tax reform bill to Congress on 7 July
and a new proposal for the mining royalty on 11 July. The royalty proposal
will be reviewed by the Senate before being passed to the lower house for its
consideration. Any future changes enacted to the Chilean tax and royalty
regimes as a result of this process could have a significant impact on the
Group's future effective tax rate.
· The level of future distributions made by the Group's Chilean
subsidiaries out of Chile, which could result in increased withholding tax
charges.
· The impact of expenses which are not deductible for Chilean first
category tax. Some of these expenses are relatively fixed costs, and so the
relative impact of these expenses on the Group's effective tax rate will vary
depending on the Group's total profit before tax in a particular year.
There are no significant tax uncertainties which would require critical
judgements, estimates or potential provisions.
10. Earnings per share
Basic earnings per share are calculated as profit after tax and
non-controlling interests, based on 985,856,695 (2021: 985,856,695) ordinary
shares.
There was no potential dilution of earnings per share in either year set out
above, and therefore diluted earnings per share did not differ from basic
earnings per share as disclosed above.
11. Dividends
The Board has declared an interim dividend of 9.2 cents per ordinary share for
the 2022 half year (2021 half year - 23.6 cents per ordinary share). Dividends
are declared and paid gross. Dividends actually paid in the period and
recognised as a deduction from net equity under IFRS were 118.9 cents per
ordinary share (2021 half year - 48.5 cents per ordinary share), representing
the final dividend declared in respect of the previous year.
The interim dividend will be paid on 30 September 2022 to ordinary
shareholders that are on the register at the close of business on 2 September
2022. Shareholders can elect (on or before 5 September 2022) to receive this
interim dividend in US Dollars, Pounds Sterling or Euro, and the exchange rate
to be applied to interim dividends to be paid in Pounds Sterling or Euro will
be set as soon as reasonably practicable after that date (which is currently
anticipated to be on 9 September 2022).
Further details of the currency election timing and process (including the
default currency of payment) are available on the Antofagasta plc website
(www.antofagasta.co.uk) or from the Company's registrar, Computershare
Investor Services PLC on +44 370 702 0159.
12. Intangible asset
The $150.1 million intangible asset reflects the value of Twin Metals' mining
licences assets included within the corporate segment. As explained in note 3,
an impairment provision was recognised in respect of this asset as at 31
December 2021.
13. Property, plant and equipment
During the six months ended 30 June 2022, $90.3 million of depreciation in
respect of assets relating to Los Pelambres, Centinela and Antucoya has been
capitalised within property, plant and equipment or inventories, and
accordingly is excluded from the depreciation charge recorded in the income
statement as shown in Note 5(a) (six months ended 30 June 2021- $47.6 million;
year ended 31 December 2021 - $17.9 million).
At 30 June 2022, the Group had entered into contractual commitments for the
acquisition of property, plant and equipment amounting to $915.0 million (30
June 2021 - $1,170.4 million; 31 December 2021 - $599.3 million).
Depreciation capitalised in property, plant and equipment of $34.3 million
related to the depreciation of assets used in mine development (operating
stripping) at Centinela, Los Pelambres and Antucoya (30 June 2021 - $37.8
million; 31 December 2021 - $72.0 million).
As explained in note 3, an impairment provision has been recognised in respect
of $27.5 million of property, plant and equipment relating to the Twin Metals
project.
14. Investment in associates and joint ventures
The investments which are included in the $904.3 million balance at 30 June
2022 are set out below:
Investment in associates
(i) The Group's 30% interest in ATI, which operates a
concession to manage installations in the port of Antofagasta.
Investment in joint ventures
(ii) The Group's 50% interest in Minera Zaldívar SpA
("Zaldívar").
(iii) The Group's 50% interest in Tethyan Copper Company
Limited ("Tethyan"), which is a joint venture with Barrick Gold Corporation in
respect of the Reko Diq project in the Islamic Republic of Pakistan
("Pakistan"). Tethyan has been pursuing arbitration claims against Pakistan
following the unlawful denial of a mining lease for the project in 2011.
Details in respect of the arbitration are set out in Note 20.
As the net carrying value of the interest in Tethyan is negative it is
included within non-current liabilities, as the Group is liable for its share
of the joint venture's obligations.
1. The prior period comparatives have been restated to reflect the net
position in respect of deferred tax assets/liabilities ($410.5 million) and to
reclassify liquid investments which had been included within the cash and cash
equivalents line ($179.9 million).
The above summarised financial information is based on the amounts included in
the IFRS Financial Statements of the associate or joint venture (100% of the
results or balances of the associate or joint venture, rather than the Group's
proportionate share), after the Group's fair value adjustments.
15. Borrowings and leases
At 30 June 2022, $1,122.2 million (30 June 2021 - $682.3 million; 31 December
2021 - $642.7 million) of the borrowings has fixed rate interest and $2,247.4
million (30 June 2021 - $2,856.3 million; 31 December 2021 - $2,529.9 million)
has floating rate interest. The Group periodically enters into interest rate
derivative contracts to manage its exposure to interest rates.
In May 2022, Antofagasta plc issued a new corporate bond for $500 million with
a 10-year tenor with a base spread of Treasuries plus 287.5 bps and a coupon
of 5.625%.
16. Reconciliation of profit before tax to net cash inflow from operating
activities
17. Analysis of changes in net debt
Net cash/(debt)
Net cash/(debt) at the end of each period was as follows:
1. The 30 June 2021 comparative balances have been restated to
reclassify $481.5 million previously presented as cash and cash equivalents to
liquid investments. This has no impact on the combined total cash, cash
equivalents and liquid investments balance shown above. This also resulted in
a corresponding restatement of the "net (increase)/decrease in liquid
investments", "net cash used in investing activities" and "net
increase/(decrease) in cash and cash equivalents" lines in the cash flow
statement.
18. Related party transactions
a) Joint ventures
The Group has a 50% interest in Tethyan Copper Company Limited ("Tethyan"),
which is a joint venture with Barrick Gold Corporation over Tethyan's mineral
interests in Pakistan. During the six months ended 30 June 2022, the Group
contribution to Tethyan was nil (six months ended 30 June 2021 - $5.5 million;
year ended 31 December 2021 - $9.5 million).
The Group has a 50% interest in Minera Zaldívar, which is a joint venture
with Barrick Gold Corporation. During the six months ended 30 June 2022, the
Group has received dividends from Minera Zaldívar of $50 million (six months
ended 30 June 2021 - $65.0 million; year ended 31 December 2021 - $142.5
million).
b) Other related parties
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., BanChile Corredores de Bolsa S.A., ENEX S.A. and Compañía de
Inversiones Adriático S.A. These transactions were all on normal commercial
terms.
The Group holds a 51% interest in Antomin 2 Limited ("Antomin 2") and Antomin
Investors Limited ("Antomin Investors"), which own a number of copper
exploration properties. The Group originally acquired its 51% interest in
these properties for a nominal consideration from Mineralinvest Establishment,
a company controlled by the Luksic family, which continues to hold the
remaining 49% of Antomin 2 and Antomin Investors. The Group is responsible for
any exploration costs relating to the properties held by these entities.
During the six months ended 30 June 2022, the Group incurred $0.1 million (30
June 2021 - $0.1 million; 31 December 2021 - $0.1 million) of exploration
costs at these properties.
19. Tethyan arbitration award
In July 2019, the World Bank Group's International Centre for Settlement of
Investment Disputes ("ICSID") awarded $5.84 billion in damages (compensation
and accumulated interest as at the date of the award) to Tethyan Copper
Company Pty Limited ("Tethyan"), the joint venture held equally by the Company
and Barrick Gold Corporation, in relation to an arbitration claim filed
against the Islamic Republic of Pakistan ("Pakistan") following the unlawful
denial of a mining lease for the Reko Diq project in Pakistan in 2011.
In March 2022, the Company reached an agreement in principle with Barrick Gold
and the Governments of Pakistan and Balochistan on a framework that provides
for the reconstitution of the Reko Diq project, and a pathway for the Company
to exit the project. If definitive agreements are executed and the conditions
to closing are satisfied, a consortium comprising various Pakistani
state-owned enterprises will acquire an interest in the project for
consideration of approximately $900m to jointly develop the project with
Barrick, and Antofagasta would exit. If all the conditions are satisfied
during 2022, we would expect to receive the proceeds in 2023.
No amounts have been recognised as at 30 June 2022 pending satisfaction of the
conditions to closing and reasonable certainty over the receipt of the related
proceeds.
20. Litigation and contingent liabilities
The Group is subject from time to time to legal proceedings, claims,
complaints and investigations arising out of the ordinary course of business.
The Group cannot predict the outcome of individual legal actions or claims or
complaints or investigations. As a result, the Group may become subject to
liabilities that could affect the Group's business, financial position and
reputation. Litigation is inherently unpredictable and large judgments may at
times occur. The Group may incur, in the future, judgments or enter into
settlements of claims that could lead to material cash outflows. The Group
considers that no material loss to the Group is expected to result from the
legal proceedings, claims, complaints and investigations that the Group is
currently subject to. Provision is made for all liabilities that are expected
to materialise through legal claims against the Group.
RESPONSIBILITY STATEMENT
We confirm to the best of our knowledge:
a) the condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting;
b) the half yearly financial report includes a fair review of
the information required by DTR 4.2.7R (being an indication of important
events that have occurred during the first six months of the financial year,
and their impact on the half yearly financial report and a description of the
principal risks and uncertainties for the remaining six months of the
financial year); and
c) the half yearly financial report includes a fair review
of the information required by DTR 4.2.8R (being disclosure of related party
transactions that have taken place in the first six months of the financial
year and that have materially affected the financial position or the
performance of the Group during that period and any changes in the related
party transactions described in the last annual report that could have a
material effect on the financial position or performance of the Group in the
first six months of the current financial year).
By order of the Board
Jean-Paul
Luksic
Tony Jensen
Chairman
Senior Independent Director
Independent review report to Antofagasta plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed Antofagasta plc's condensed consolidated interim financial
statements (the "interim financial statements") in the half yearly financial
report of Antofagasta plc for the six month period ended 30 June 2022 (the
"period").
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
The interim financial statements comprise:
· the consolidated balance sheet as at 30 June 2022;
· the consolidated income statement and consolidated statement of
comprehensive income for the period then ended;
· the consolidated cash flow statement for the period then ended;
· the consolidated statement of changes in equity for the period then
ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the half yearly financial report
of Antofagasta plc have been prepared in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting' and the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' issued by the Financial Reporting
Council for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
We have read the other information contained in the half yearly financial
report and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the interim financial
statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on the review
procedures performed in accordance with this ISRE. However, future events or
conditions may cause the group to cease to continue as a going concern.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The half yearly financial report, including the interim financial statements,
is the responsibility of, and has been approved by the directors. The
directors are responsible for preparing the half yearly financial report in
accordance with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority. In preparing the half yearly
financial report, including the interim financial statements, the directors
are responsible for assessing the group's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to
liquidate the group or to cease operations, or have no realistic alternative
but to do so.
Our responsibility is to express a conclusion on the interim financial
statements in the half yearly financial report based on our review. Our
conclusion, including our Conclusions relating to going concern, is based on
procedures that are less extensive than audit procedures, as described in the
Basis for conclusion paragraph of this report. This report, including the
conclusion, has been prepared for and only for the company for the purpose of
complying with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into
whose hands it may come save where expressly agreed by our prior consent in
writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
10 August 2022
Alternative performance measures (not subject to audit or review)
This preliminary results announcement includes a number of alternative
performance measures, in addition to IFRS amounts. These measures are included
because they are considered to provide relevant and useful additional
information to users of the accounts. Set out below are definitions of these
alternative performance measures, explanations as to why they are considered
to be relevant and useful, and reconciliations to the IFRS figures.
a) Underlying earnings per share
Underlying earnings per share is earnings per share from continuing
operations, excluding exceptional items. This measure is reconciled to
earnings per share from continuing and discontinued operations (including
exceptional items) on the face of the income statement. This measure is
considered to be useful as it provides an indication of the earnings generated
by the ongoing businesses of the Group, excluding the impact of exceptional
items which are irregular or non-operating in nature.
b) EBITDA
EBITDA refers to Earnings Before Interest, Tax, Depreciation and Amortisation.
EBITDA is calculated by adding back depreciation, amortisation, profit or loss
on disposals and impairment charges to operating profit. This comprises 100%
of the EBITDA from the Group´s subsidiaries, and the Group´s proportional
share of the EBITDA of its associates and joint ventures.
EBITDA is considered to provide a useful and comparable indication of the
current operational earnings performance of the business, excluding the impact
of the historical cost of property, plant & equipment or the particular
financing structure adopted by the business.
For the six months ended 30 June 2022
For the six months ended 30 June 2021
Los Pelambres Centinela Antucoya Zaldívar Exploration and evaluation Corporate and other items Mining Railway and other transport services Total
$m $m $m $m $m $m $m $m $m
Operating profit/(loss) 1,214.4 549.0 112.1 - (52.3) (40.8) 1,782.4 18.2 1,800.6
Depreciation and amortisation 132.5 282.5 46.9 - - 5.6 467.5 15.0 482.5
Profit on disposals - - - - - - - 0.6 0.6
EBITDA from subsidiaries 1,346.9 831.5 159.0 - (52.3) (35.2) 2,249.9 33.8 2,283.7
Proportional share of the EBITDA from associates and JVs - - - 76.4 - (5.2) 71.2 2.2 73.4
Total EBITDA 1,346.9 831.5 159.0 76.4 (52.3) (40.4) 2,321.1 36.0 2,357.1
For the year ended 31 December 2021
Los Pelambres Centinela Antucoya Zaldívar Exploration and evaluation Corporate and other items Mining Railway and other transport services Total
$m $m $m $m $m $m $m $m $m
Operating profit/(loss) 2,240.5 1,260.6 238.3 - (280.8) (89.0) 3,369.6 31.8 3,401.4
Depreciation and amortisation 281.8 654.7 98.3 - - 13.0 1,047.8 30.9 1,078.7
Profit on disposals 3.7 4.0 0.5 - - - 8.2 1.0 9.2
Provision Provision against the carrying value of assets(1) - - - - 177.6 - 177.6 - 177.6
EBITDA from subsidiaries 2,526.0 1,919.3 337.1 - (103.2) (76.0) 4,603.2 63.7 4,666.9
Proportional share of the EBITDA from associates and JVs - - - 172.8 - (8.0) 164.8 4.5 169.3
Total EBITDA 2,526.0 1,919.3 337.1 172.8 (103.2) (84.0) 4,768.0 68.2 4,836.2
1. An impairment has been recognised as at 31 December 2021 in
respect of the $177.6 million of intangible assets and property, plant and
equipment relating to the Twin Metals project, presented as an exceptional
item.
c) Net Earnings
Net Earnings represent profit for the period attributable to the owners of the
parent
d) Cash costs
Cash costs are a measure of the cost of operational production expressed in
terms of cents per pound of payable copper produced.
This is considered to be a useful and relevant measure as it is a standard
industry measure applied by most major copper mining companies which reflects
the direct costs involved in producing each pound of copper. It therefore
allows a straightforward comparison of the unit production cost of different
mines, and allows an assessment of the position of a mine on the industry cost
curve. It also provides a simple indication of the profitability of a mine
when compared against the price of copper (per lb).
With sales of concentrates at Los Pelambres and Centinela, which are sold to
smelters and roasting plants for further processing into fully refined metal,
the price of the concentrate invoiced to the customer reflects the market
value of the fully refined metal less a "treatment and refining charge"
deduction, to reflect the lower value of this partially processed material
compared with the fully refined metal. For accounting purposes, the revenue
amount is the net of the market value of fully refined metal less the
treatment and refining charges. Under the standard industry definition of cash
costs, treatment and refining charges are regarded as an expense and part of
the total cash cost figure.
d) Cash costs (continued)
The totals in the tables above may include some small apparent differences as
the specific individual figures have not been rounded.
e) Attributable cash, cash equivalents & liquid investments,
borrowings and net debt
Attributable cash, cash equivalents & liquid investments, borrowings and
net debt reflects the proportion of those balances which are attributable to
the equity holders of the Company, after deducting the proportion attributable
to the non-controlling interests in the Group's subsidiaries.
This is considered to be a useful and relevant measure as the majority of the
Group's cash tends to be held at the corporate level and therefore 100%
attributable to the equity holders of the Company, whereas the majority of the
Group's borrowings tend to be at the level of the individual operations, and
hence only a proportion is attributable to the equity holders of the Company.
Production and Sales Statistics (not subject to audit or review)
a) Production and sales volumes for copper, gold and
molybdenum
b) Cash costs per pound of copper produced and realised
prices per pound of copper and molybdenum sold
Notes to the production and sales statistics
(i) For the Group's subsidiaries, the production and
sales figures reflect the total amounts produced and sold by the mine, not the
Group's share of each mine. The Group owns 60% of Los Pelambres, 70% of
Centinela and 70% of Antucoya. For the Zaldívar joint venture, the production
and sales figures reflect the Group's proportional 50% share.
(ii) Los Pelambres produces copper and molybdenum
concentrates, Centinela produces copper concentrate and copper cathodes and
Antucoya and Zaldívar produce copper cathodes. The figures for Los Pelambres
and Centinela are expressed in terms of payable metal contained in concentrate
and in cathodes. Los Pelambres and Centinela are also credited for the gold
and silver contained in the copper concentrate sold. Antucoya and Zaldívar
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,
with sales of concentrates at Los Pelambres and Centinela, which are sold to
smelters and roasting plants for further processing into fully refined metal,
the price of the concentrate invoiced to the customer reflects the market
value of the fully refined metal less a "treatment and refining charge"
deduction, to reflect the lower value of this partially processed material
compared with the fully refined metal. For accounting purposes, the revenue
amount is the net of the market value of fully refined metal less the
treatment and refining charges. Under the standard industry definition of cash
costs, treatment and refining charges are regarded as an expense and part of
the total cash cost figure. Cash costs are stated net of by-product credits.
Cash costs exclude depreciation, financial income and expenses, hedging gains
and losses, exchange gains and losses and corporate tax for all four
operations.
(iv) Realised copper prices are determined by comparing
revenue from copper sales (before deducting treatment and refining charges for
concentrates) with sales volumes for each mine in the period. Realised
molybdenum and gold prices are calculated on a similar basis. Realised prices
reflect gains and losses on commodity derivatives, which are included within
revenue.
(v) The totals in the tables above may include some small
apparent differences as the specific individual figures have not been rounded.
(vi) The production information and the cash cost
information is derived from the Group's production report for the second
quarter of 2022, published on 20 July 2022.
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