ANNUAL REPORT AND FINANCIAL STATEMENTS 2016
INTRODUCTION
Antofagasta is a Chilean copper mining group
with signifi cant by-product production and
interests in transport.
The Group creates value for its stakeholders
through the discovery, development and operation
of copper mining assets.
The Group is committed to generating value
in a safe and sustainable way throughout
the commodity cycle.
See page 2 for more information
CONTENTS
STRATEGIC REPORT
01-05
OVERVIEW
2016 highlights
At a glance
Letter from the Chairman
06-27
STRATEGY
Statement from the CEO
Question and answer
Investment case
Our new operating model
Our position in the market
Our strategy
Key performance indicators
Risk management
Principal risks
28-60
PERFORMANCE
Our business model
Creating value
Operating review
Key inputs and cost base
Key relationships
Our mining division
Growth projects and opportunities
The existing core business
Transport
1
2
4
8
9
10
11
14
16
18
20
23
30
32
35
38
40
44
50
Sustainability report
The Group’s approach to sustainability 52
Financial review
Delivering a strong set of results
60
GOVERNANCE
FINANCIAL STATEMENTS
66-119
Leadership
Chairman’s Governance Q&A
Senior Independent Director’s Q&A
Governance overview
Board of Directors
Executive Committee
Effectiveness
Board activities
Professional development
Effectiveness reviews
Accountability
120-187
Independent auditors’ report
Consolidated income statement
Consolidated statement
of comprehensive income
Consolidated statement of
changes in equity
Consolidated balance sheet
Consolidated cash flow statement
Notes to the financial statements
Parent company financial statements
68
70
71
72
76
78
80
82
Nomination and Governance Committee 85
Audit and Risk Committee
88
Sustainability and Stakeholder
Management Committee
Projects Committee
92
94
Remuneration
Committee Chairman’s
letter of introduction
Summary of the 2014 Directors’
remuneration policy
2016 remuneration report
2017 Directors’ remuneration policy
Relations with shareholders
Directors’ Report
Statement of Directors’ Responsibilities
96
99
100
112
115
117
119
188-204
OTHER INFORMATION
Five year summary
Dividends to ordinary shareholders
of the company
Ore reserves and mineral resources
estimates
Glossary and definitions
Shareholder information
Directors and advisors
122
127
128
128
129
130
131
181
188
189
190
200
204
ibc
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
2016
HIGHLIGHTS
Lost time injury
frequency rate
1.5
The Lost Time Injury Frequency
Rate of the Group was 1.5
accidents with lost time per million
hours worked.
See page 19 for more
information
2.5
2.0
1.9
1.7
1.5
Copper production
709.4K TONNES
709.6
721.2
704.8
709.4
630.3
‘12
‘13
‘14
‘15
‘16
Copper production of 709,400
tonnes, a 12.5% increase on 2015.
For more information go to
Financial Review
‘12
‘13
‘14
‘15
‘16
Net cash costs1
$1.20/LB
1.50
1.43
1.36
1.20
1.03
Revenue*
$3,621.7M
6,280.1
5,509.2
4,810.2
3,621.7
3,225.7
Net cash costs for the year,
20.0% lower than in 2015 due
to cost savings and higher
gold production.
See page 19 for more
information
‘12
‘13
‘14
‘15
‘16
Revenue of $3,621.7 million,
12.3% higher than 2015 due
to higher realised prices and
higher production.
For more information go to
Financial Review
Earnings per share*
12.1 CENTS
Earnings per share from
continuing operations increased
to 12.1 cents per share due
to higher realised prices,
sales volumes and lower unit
operating costs.
For more information go to
Financial Review
105.2
66.9
46.6
(0.5)
12.1
‘12
‘13
‘14
‘15
‘16
*Restated for discontinued operations.
Mineral resources2
18.7BN TONNES
(including ore reserves)
Mineral resources remained
similar due to the incorporation of
additional resources at Penacho
Blanco and Mirador offset by the
closure of Michilla.
For more information go to
Financial Review
‘12
‘13
‘14
‘15
‘16
*Restated for discontinued operations.
18.7
18.7
17.9
16.2
15.2
‘12
‘13
‘14
‘15
‘16
ANTOFAGASTA.CO.UK
1
1. Non IFRS measures, refer to the alternative performance measures in Note 39 to
the financial statements
2. Mineral resources relating to the Group’s subsidiaries on a 100% basis and
Zaldívar on a 50% basis.
AT A GLANCE
OUR
BUSINESS
TODAY
THE BUSINESS
Mining is the Group’s core business, representing over 95% of Group
revenue and EBITDA. The Group operates four copper mines in Chile, two
of which also produce significant volumes of by-products. The Group has
a portfolio of growth opportunities located predominantly in Chile.
In addition to mining the Group has a transport division that provides
rail and road cargo services in northern Chile predominantly to mining
customers, including to some of the Group’s own operations.
ANTUCOYA
− 70% owned
− 20-year mine life
− Produces copper cathodes.
CENTINELA
− 70% owned
− 42-year mine life
REVENUE
EBITDA1
Cu
8%
4%
Cu
Ag
37%
35%
− Produces copper concentrates containing gold
Au
Cu
and silver, and copper cathodes.
S
N
O
I
T
A
R
E
P
O
G
N
N
M
I
I
ZALDÍVAR
− 50% owned (and operator)
− 13-year mine life
− Produces copper cathodes.
LOS PELAMBRES
− 60% owned
− 21-year mine life
− Produces copper concentrates containing gold and
silver and a separate molybdenum concentrate.
TRANSPORT
The transport division operates the main cargo transport
system in the Antofagasta Region of Chile, moving goods and
materials such as sulphuric acid and copper cathodes to and
from mines by road and on its 900 km rail network.
Volume transported combined rail and road 6,496,000 tonnes.
GROUP
Cu
Cu
Au
Ag
Mb
5%
51%
57%
4%
5%
$3,621.7M
$1,626.1M
1. Non IFRS measures, refer to the alternative performance measures in Note 39 to the financial statements
2
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
OUR INVESTMENT CASE
OUR STRATEGY
HIGH-
QUALITY
ASSETS
COST
CONTROL
CAPITAL
DISCIPLINE
CASH
GENERATION
T
S
G
H
E
C
R
ORE B U S I N ES
WTH OF T H E C
WTH BEYON D T H E C
O
O
R E
R E
O
G
R
O
See page 16 for more information
See page 10 for more information
COPPER PRODUCTION (TONNES)
AND NET CASH COST1 ($/LB)
2016
66,200
$1.83/LB
2017
FORECAST
80-85,000
$1.60/LB
GROWTH POTENTIAL
236,200
$1.19/LB
220-230,000
$1.35/LB
CENTINELA SECOND CONCENTRATOR
− The Centinela Second Concentrator will produce
140,000 tonnes of copper, 150,000 ounces of gold and
2,800 tonnes of molybdenum.
51,700
$1.54/LB
55-60,000
$1.50/LB
355,400
$1.06/LB
330-345,000
$1.15/LB
LOS PELAMBRES INCREMENTAL EXPANSION
− Phase 1 will increase throughput capacity to 190ktpd.
The feasibility study was completed in early 2017.
− Phase 2 will further increase throughput capacity to
205ktpd and increase the mine life.
709,400
$1.20/LB
685-720,000
$1.30/LB
KEY
Cathodes
Concentrate
Road
Rail
ANTOFAGASTA.CO.UK
3
LETTER FROM THE CHAIRMAN
POSITIONING
FOR THE FUTURE
Dear shareholders,
Over the course of 2016 we saw
copper prices begin to stage a
recovery from the lows at the
beginning of the year and this has
continued into 2017. While this
is undoubtedly good news, we
must be careful as an industry
to guard against falling back
into complacency.
Despite considerable efforts – the
industry still has further to go
in order to put costs back on a
sustainable footing.
At Antofagasta, our response to
these challenges has been to renew
our focus on producing profitable
tonnes. This is an essential strand in
our strategy to ensure our business
will generate positive free cash flow
through the cycle and generate
decent returns on the capital we
invest. Our employees have worked
hard over the last 12 months to
improve the Company’s operating
performance and reliability,
achieving some notable milestones.
The Antucoya mine successfully
reached full production capacity
during 2016 and the Zaldívar
mine, in which we acquired a 50%
interest in December 2015, was
fully integrated into our operations
during the year.
As a result of these efforts, over the
course of 2016 costs have come
down, productivity improved and
OUR CORE VALUES
copper production has grown to
almost 710,000 tonnes. While we
anticipate prices will be stronger
in 2017 than in 2016, we must
continue to implement our strategy
of reducing costs sustainably
and producing only profitable
tonnes in a way that benefits all of
our stakeholders.
AN IMPORTANT
PILLAR IN CHILE’S
DEVELOPMENT
Despite the fall in prices over the
last few years, the copper industry
in Chile still has a vital role to play
both in the country’s development
and in the global markets. While
I believe that Chile needs to continue
to diversify its economy as the
country raises living standards for
all, we must not lose sight of the
very important role that the copper
industry has to play.
I believe that copper remains a
central pillar in Chile’s development.
The industry contributed some 8%
of Chile’s gross domestic product
last year. Approximately 50% of
this is reinvested back in to Chile’s
economy, securing jobs, supporting
local businesses and helping to
create the prosperity which drives
the country’s development. The
industry contributed $3 billion in
taxes during 2015, allowing the
government to invest in education,
social housing, roads, rail and other
vital infrastructure.
If managed properly, copper will
have a long-term role to play in
Chile’s development. The country
still has 30% of global copper
reserves. With the right incentives
in place and working with all the
stakeholders involved – employees,
communities, companies,
shareholders and local and regional
government – we can develop these
reserves safely and to the benefit of
future generations of Chileans.
WELCOMING OUR
NEW CEO
In April 2016 we welcomed
Iván Arriagada as CEO of the
Antofagasta Group. He has over
25 years of operating and financial
experience in the mining and oil and
gas industries, including leading the
Group’s mining division since early
in 2015. Iván is the right person
to succeed Diego Hernández,
having worked closely with him
in the preceding year. His focus
on cost discipline and operating
performance has proven very
effective in navigating the current
challenge of low copper prices. His
strong commitment and leadership
of our expansion initiatives has
enhanced our ability to grow
profitable production in the future.
On behalf of the Board, I would like
to take this opportunity to thank
Diego for his commitment and
dedication over these past four
years. Under his leadership the
Company and our management
have been well prepared to meet
the challenges ahead. I look forward
to his continued support, not
only of the Group, but also in the
development of the mining industry
in Chile in his new role as President
of Sonami.
A RESPONSIBLE
PARTNER IN THE
COMMUNITY
As we work to reduce our cost
base we must do so in a way
that reflects our responsibilities
to the communities – and the
environment – in which we operate.
I am delighted therefore with
the demonstrable progress that
Antofagasta has made to strengthen
its community relations during
2016. Chief among these is the
agreement we reached in April with
the Caimanes community which led
to the resolution of two court cases
relating to the Mauro tailings dam.
Los Pelambres and the Antofagasta
Group now move into a new era of
community engagement.
RESPECT
INNOVATION
SUSTAINABILITY
SAFETY AND HEALTH
EXCELLENCE
FORWARD THINKING
4
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
NEW LEASE OF LIFE
FOR MICHILLA
Last year we announced the closure
of Antofagasta’s first mine, Michilla.
As I said at the time, this was an
important moment both for the
Company and for me personally
– Michilla was the mine where
I completed my first internship
when I was just 18 years old.
I am delighted that during 2016 we
found a new owner for the mine,
another Chilean mining company,
which will be able to continue its
operations and help secure jobs in
the region.
SAFETY
The safety of our employees and
the communities in which we work
is our number one priority. Our
target is to achieve zero fatalities
at our operations. Therefore
I regret to report that during 2016
Antofagasta had two fatalities. On
behalf of the Board – and myself –
I would like to express our sincere
condolences to the families of our
departed colleagues.
BOARD CHANGES
During the year Hugo Dryland
retired from his position as Non-
Executive Director of the Company,
a position he has held since 2011.
I would like to thank Hugo for his
valuable insights and guidance on
a wide range of matters and for the
significant contribution he made
to the Company during his time
on the Board. Hugo was replaced
by Francisca Castro, who brings
with her extensive experience in
mining, energy and finance, in
Chile – where she has worked
for the government and Codelco
– and internationally. I know her
knowledge and expertise will be of
great benefit to Antofagasta.
In August we announced that Ollie
Oliveira, a Non-Executive Director of
Antofagasta, was appointed Senior
Independent Director. Ollie took over
from Bill Hayes who remains on the
Board. We also made several other
changes to the Board committees
with Ollie taking over as Chairman
of the Audit and Risk Committee,
and Vivianne Blanlot as Chairman of
the Sustainability and Stakeholder
Management Committee.
OUTLOOK
We made good progress in 2016,
reducing costs and increasing
production as the full impact from
the new assets in our portfolio
flowed through. This led to a
strong end to the year, which was
boosted by a marked strengthening
in copper prices on higher than
expected Chinese demand.
As we look ahead into 2017 we see
a market which is more driven by
supply considerations than demand
factors, some of them short term.
This may result in more supply
disruptions than originally expected
and the year ending in balance,
or possibly in deficit. In any event
the market should be in balance in
2018 and in 2019 we expect to see
supply constraints come through in
the market as the impact of project
deferrals is felt in the global market.
So, although prices and sentiment
are improving, some of the
challenges we have seen in the
market over the last two or three
years are expected to continue over
the next 12 months. We are now
seeing the return of inflationary
pressures on input prices and this is
one reason we remain committed to
our strategy of reducing costs and
putting them on a sustainably lower
footing, producing profitable tonnes
and delivering positive free cash
flow through the cycle. With this
approach we will maintain healthy
margins during periods of lower
prices and safeguard our financial
strength to the benefit of all of our
stakeholders – our employees,
communities, shareholders and the
government. This in turn sets us up
well to take full advantage of any
upturn in the market.
As a final note I would like to thank
all of our employees and managers
for their continued hard work.
I look forward to 2017 and beyond
with a greater degree of optimism
than I have had for some years.
JEAN-PAUL LUKSIC
CHAIRMAN
ANTOFAGASTA.CO.UK
5
STRATEGY
Statement from the CEO
Question and answer
Investment case
Our new operating model
Our position in the market
Our strategy
Key performance indicators
Risk management
Principal risks
8
9
10
11
14
16
18
20
23
ZALDÍVAR
Dynamic-heap leaching pad.
STATEMENT FROM THE CEO
EMERGING FROM
THE DOWNTURN
IN A STRONGER
POSITION
8
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
IVÁN ARRIAGADA, CEO
WE HAVE MADE SEVERAL STRUCTURAL
CHANGES TO OUR PORTFOLIO DURING THE
YEAR INCLUDING STARTING UP OUR NEW
ANTUCOYA MINE, TAKING OVER OPERATIONS
OF OUR NEWLY ACQUIRED ZALDÍVAR COPPER
MINE AND SELLING OUR FIRST OPERATING
ASSET, MICHILLA
Q
You took over as CEO in 2016 – how would you describe
your first year?
It has been an exciting year, both for me personally and for the Company.
Taking over as CEO of Antofagasta was a very proud moment for me.
Since taking up the role I have been working hard with the team at
Antofagasta, putting people and safety first, focusing on improving our
operating efficiency and rebasing our cost structure. I am convinced that
improvements in productivity are key for the long term success of the
Company and that we should regard them as an on-going process and part
of the culture of Antofagasta.
We will always look for ways to improve what we do, irrespective of the
copper price environment. In addition, we progressed down a path of
constructive and transparent engagement with the communities around
Los Pelambres, resolving the court cases relating to the Mauro tailings
dam, overcoming what has been a very important challenge to us. This
confirmed our belief that we can drive value creation for us and our
stakeholders by the way in which we address and find solutions to social
and environmental challenges. One of the things that first attracted me to
Antofagasta was its long history of entrepreneurialism. The Company has
grown from a single mine site at Michilla into one of the world’s largest
copper producers and a major contributor to Chile’s economy. We still seek
opportunities for innovation and 2016 saw us work hard to improve our
operations, sustainably reducing costs and maximising the extraction of
profitable tonnes.
While there is more to do, I’m pleased with what we’ve achieved in 2016.
Costs have come down, productivity and efficiency has improved and our
copper production rose. Against a challenging backdrop we’ve maintained
our focus on sustaining the foundations of our business that underpin our
ability to provide stable, long-term returns to our shareholders.
In this section
INVESTMENT
CASE
OUR NEW
OPERATING
MODEL
OUR POSITION
IN THE MARKET
OUR STRATEGY
P10
P11
P14
P16
KEY PERFORMANCE
INDICATORS
P18
ANTOFAGASTA.CO.UK
9
STATEMENT FROM THE CEO CONTINUED
INVESTMENT CASE
HIGH-
QUALITY
ASSETS
Strong and growing
production
Large resource base
Low cost and long-life
assets
Four mines in two
‘world-class’ mining
districts in Chile
COST
CONTROL
CAPITAL
DISCIPLINE
CASH
GENERATION
Cost and
Competitiveness
Programme
Technical innovation
Disciplined capital
allocation
Strong and flexible
balance sheet
Improving productivity
Low net debt policy
Consistent dividend
policy
Q
What were the operating
highlights during the year?
Can you talk us through some
of the numbers for 2016?
I think it was in 2016 that we
really started to see the underlying
performance of our operations
begin to come through in our
production numbers as we achieved
copper production of 709,400
tonnes, an increase of 12.5%
compared to 2015. While this was
in part driven by higher production
at Centinela, it also reflected
development milestones being
achieved at Antucoya and the full
integration of Zaldívar. Importantly
Antucoya reached full production
capacity during 2016 with
significant progress with the dust
issues having been achieved and
Zaldívar contributed its first full year
of production, adding to the Group
51,700 tonnes of copper cathode
production during the year.
At Los Pelambres production fell
slightly versus 2015, primarily due
to lower throughput as a greater
proportion of harder ore was
processed in the plant. For me, this
reduction in ore quality underlines
the real need to focus on operating
improvements and productivity,
which are the key drivers behind
Antofagasta’s efforts to reduce
costs sustainably and consistently
into the future.
Occasionally, this means we have
to make tough choices. As you
know, during the year a significant
forecast construction cost overrun
was announced at the Alto Maipo
hydroelectric project, in which
Los Pelambres held a 40%
interest, at a time when long-term
electricity prices in Chile had been
falling dramatically. We reviewed
our options and concluded that it
would be best for Antofagasta if we
disposed of our interest to benefit
from lower future sustainable
energy costs for Los Pelambres.
Actions like these are part of our
efforts to bring down the cost base.
And the success of our decision to
concentrate the Group’s efforts in
2016 on operating and capital cost
control has been another highlight
of the year. Improved productivity
and efficiencies have also begun to
bear fruit. As a result of our efforts
on costs, combined with increased
production and lower input prices,
we’ve been able to reduce our net
cash costs by 20% year-on-year, to
average $1.20/lb in 2016.
Away from our core copper
production, gold production was
270,900 ounces, 26.6% higher than
in 2015, reflecting better grades and
throughput at Centinela. Additionally,
as expected, molybdenum
production saw a 3,000 tonne
decrease for the full year as grades
and recoveries fell. Our transport
division saw increased customer
demand and improved performance
of the rolling stock and better fleet
utilisation, all contributing to a 6.3%
increase in transported volume to
6.5 million tonnes.
The Board has recommended a
final dividend for the year of 15.3
cents per share, bringing the total
dividend for the year to 18.4 cents
per share or $182 million. This
represents a total pay out ratio of
53% of net earnings, significantly
in excess of the Company’s policy
of paying out a minimum of 35% of
underlying net earnings.
IVÁN ARRIAGADA, CEO
IT WAS IN 2016 THAT YOU
REALLY STARTED TO SEE THE
UNDERLYING PERFORMANCE
OF OUR OPERATIONS BEGIN
TO COME THROUGH IN OUR
PRODUCTION NUMBERS
10
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
OUR NEW OPERATING MODEL
During 2016 the Group
created a new operating model
throughout its operations, with
the objective of strengthening
key processes and achieving full
production commitments.
The model improves operating
reliability and releases latent
capacity, resulting in a competitive
advantage for the Group’s
mining operations. It has been
supported by:
1. Operations – streamlining
operations to focus on safety,
production and costs. During
the year the Group conducted
a simplification exercise to
prioritise core functions carried
out by the operations and
established a solid support
structure at Group level to assist
operations in other activities.
2. Maintenance – ensuring in-
house capability and expertise
on maintenance issues within
the Group. Maintenance
managers were appointed at all
operations, with responsibility
for overseeing all maintenance
activity conducted by the Group
and its contractors. They will
share the lessons learned in
other operations to establish
more efficient, standardised
maintenance practices across
the Group.
3. Planning – focusing on near-term
and medium-term mine planning
in a single area, with the full
life of the operation in mind. A
new control and reconciliation
function encourages adherence
to plan, reducing the variability
of and deviation from production
plans to achieve maximum
potential performance.
4. Operating Excellence –
supporting continuous
improvement by implementing
standardised practices and
sharing experiences to ensure
that all operations work within an
established framework regarding
support services, asset integrity
and engineering standards.
OPERATIONS
MAINTENANCE
PLANNING
OPERATING EXCELLENCE
Strengthen operating discipline
and minimise process variability
Ensure optimum performance
and reliability of assets throughout
their life cycle
Develop challenging, high-
quality plans to successfully
fulfil commitments
Identify and exploit the maximum
potential of each productive asset
− Focus on leading KPIs and
clearer accountabilities
− Establish new operating
intelligence role through better
process management
− Combine reliability, planning
and execution in a single
functional area
− Strengthen reliability practices
− Implement new asset integrity
function, focusing on high-
impact risks
− Implement new control and
− Implement methodology to
reconciliation function, which
focuses on greater adherence
to plans
challenge and support different
areas and optimise
performance
− Conduct shorter and more
focused planning cycles
− Regularly report on the
value captured
Q
We hear a lot from mining
companies on the subject
of innovation – how has
Antofagasta added value
through innovation?
We have been making some
important progress over 2016 which
are associated to real innovation.
As I said earlier the entrepreneurial
spirit is a core element of
Antofagasta’s character. Let me
provide you with a couple of recent
examples where our innovations
have improved plant efficiency and
saved money.
At Centinela we have finally
commissioned three new paste
thickeners, which represent a new
water saving technology on the
biggest scale yet seen in copper
mining. They play a big role, not
only in improving our efficient use
of water, but also enabling us to
run the plant at our new increased
throughput capacity of 105,000
tonnes per day.
Elsewhere we have been working
on developing partnerships
with technology and specialist
engineering companies to improve
our training and safety systems.
At Antucoya we have been
trialling a state-of-the-art 360˚
training simulator for operators
of our trucks, shovels and other
mining equipment with the aim
of eliminating accidents through
loss of vehicle control. We’ve also
installed Collision Alert Systems in
all of our mining trucks at Centinela
and Antucoya and will roll this out
across the rest of the operations
in 2017.
These are just a few of the
ways that we are deploying new
technologies and procedures to
reduce our running costs, boost
plant uptime and improve safety
across our operations.
ANTOFAGASTA.CO.UK
11
STATEMENT FROM THE CEO CONTINUED
IVÁN ARRIAGADA, CEO
SAFETY REMAINS OUR
NUMBER ONE PRIORITY
Q
How do you work with
the community and other
stakeholders? What steps
have you taken to strengthen
community relations over the
past year?
We produce copper responsibly and
profitably, putting people and safety
first and working closely with our
local communities to ensure that our
mines are developed sustainably.
Our aim is to work in partnership
with all of our stakeholders to
provide jobs, prosperity and
opportunities to not just the local
population, but Chile as a whole.
Our belief is that this is the best
approach to ensure our continued
ability to deliver stable, long-term
returns to our shareholders.
During 2016 we made an important
step towards putting our relations
with the Caimanes community at
Los Pelambres on a sustainable
future. We reached a settlement
of the outstanding court cases
concerning the Mauro tailings
dam. As a result the Company is
now proceeding with the plans
agreed with the community and
courts as regards the future water
supply solutions, additional safety
measures, community development
projects, and to provide access
to benefits for families in
the community.
What will your focus for
safety be in 2017?
Q
Safety remains our number one
priority. During the course of 2016
Antofagasta tragically suffered
a fatal accident at Antucoya in
April and a further fatality at our
transport division in July. I, with
everyone at Antofagasta, offer
my sincerest condolences to the
affected families and friends.
It is not acceptable that we still have
fatalities and we are determined to
achieve our target of zero fatalities.
While overall our safety standards
have improved I am redoubling
our efforts to ensure that all of our
employees and contractors live in
a culture of safety every day. We
are building on our programme
of 2016, including enhancing our
Critical Safety Controls verifications
and “near-miss” incidence
reporting. Our executive team
continues to visit the Group’s mining
operations regularly as part of
our safety leadership programme,
demonstrating to employees and
contractors the importance of safety
and empowering employees to
ensure safety comes first.
VIRTUAL REALITY USED FOR
SAFETY AND HEALTH
INDUCTIONS
Antofagasta takes steps right at the
beginning of an employee’s training to
improve their knowledge of accident risk
and avoidance. Key to this approach is the
use of virtual reality Safety and Health
Inductions, using a system of lenses and
mobile devices to create realistic 360°
images of operating sites. This allows
employees to learn in the most tangible
way how to assess the risk of accidents or
fatalities in particular situations and the
use of critical controls.
12
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
NORDEA ANALYSTS VISIT ANTOFAGASTA MINERALS’ OPERATIONS
Nordea Asset Management (NAM)
is the largest asset manager in the
Nordics, with over €200 billion
under management. As part of
its mission statement – Returns
with Responsibility – it believes
that companies incorporating
environmental and social
considerations into their business
strategies represent better long-
term investment opportunities. After
several conference calls discussing
financial and non-financial results
over several months, the NAM
Responsible Investments team
decided to conduct a site visit to
the Group’s mining operations.
Nordea performs site visits to
develop an in-depth on the ground
knowledge of how companies are
addressing Environmental, Social
and Governance (“ESG”) issues
and to further understand how
companies are achieving their goals.
Nordea also develops short videos
for their clients to explain how
companies approach sustainability
issues. In October 2016, two Nordea
analysts and their cameraman
toured the Los Pelambres and
Centinela operations, meeting
several employees and members of
senior management during
their three-day visit.
They also met community members,
including representatives from the
Caimanes community, and visited
the tailings storage facility at El
Mauro. This included an overnight
stay at the campsite, a tour of
the mine and the opportunity to
appreciate the absolute importance
of safety.
At Centinela, they visited the
thermosolar plant and the innovative
thickened tailings deposit system
pioneered by the Group. In addition
to the mining operations, they
toured the equally progressive sea
water pumping facilities, where
the Group is the first company in
the world to use sea water without
desalination in a large-scale copper
mining process.
Sustainable development is an
essential component of the Group’s
business model. The Group
is committed to the continual
assessment and improvement of
safety, health, environmental and
social performance across all of
its operations.
The Nordea visit was an excellent
opportunity to showcase the Group’s
progress and achievements and to
demonstrate how it is addressing
challenges in ESG matters. It was
also the result of regular dialogue
with the Company’s shareholders
on the importance of issues such
as safety, community relations and
the environment.
SUSANNE RØGE LUND, SENIOR ESG ANALYST
The ultimate purpose of this visit was to
establish whether Antofagasta would be
investable for the Nordea Star Funds. Before
the equity investment team can invest in these
companies, they need to be approved by the RI
team from an ESG point of view. After we got
home, we assessed all the information that we
had gathered during our visit, and concluded
that Antofagasta plc is investable for the
Nordea Star Funds and we have subsequently
become a shareholder.
Our approval was based on the business
model, where copper plays an important part
in the transition to a low-carbon economy, and
on the management of ESG issues, which we
fi nd acceptable, given that mining is a high
risk sector.
Visit www.antofagasta.co.uk
for the full video of the
‘Nordea responsible
investments site visit’
ASSET MANAGEMENT
Nordea Asset Management
(NAM) is the largest asset
manager in the Nordic countries
with a growing European
presence and business. With
assets under management of
over €200 billion, Nordea is a
semi-captive asset manager
servicing Nordea Retail Banking,
Private Banking and Life &
Pensions, as well as Nordic
and international institutional
clients and third-party fund
distributors globally.
ANTOFAGASTA.CO.UK
13
STATEMENT FROM THE CEO CONTINUED
Q
You speak to end users in key
markets like China. What is
your sense of prices for the
year ahead and the outlook
for 2017 and beyond?
I do meet our customers on various
occasions during the year when I
am in China or at the LME Week in
London. What has surprised many
over the last year, and particularly
in the final quarter of 2016, was the
uptick we saw in copper demand
and the expectation that this would
continue. This year has started
strongly, bolstered by the continued
improvement in sentiment towards
copper and the production problems
at some of the biggest copper
mines. It seems that we are now in
a reflationary environment and this
is positive for commodities. As many
continue to adjust their forecasts
for China, we are confident that
consumption there will continue to
grow as they support their power
and infrastructure requirements.
The higher level of mine disruptions
we are experiencing since the
beginning of the year should
keep pressure on refined copper
availability and support the
fundamentals for copper in the
months to come. As a result we do
not see copper returning to the lows
of 2016.
Beyond that we expect to see
a steady shift from a market in
balance to a slight deficit, leading
to a further improvement in prices.
There are wild cards of course, but
these are more likely to be positive
for the copper price than negative.
Potential higher demand in the US
under the new administration is
one, increased disruptions to supply
is another.
But the key lesson our industry
has learnt over the last few years,
and one that Antofagasta has now
embedded in the way that we do
business, is that we must maintain
our cost discipline through the
cycle, not just at our operations
but also in how and when we
invest capital. Only by doing this
will we ensure that our operations
continue to generate cash, defend
our margins and deliver sustainable
returns for all of our stakeholders.
This is why, as I look into 2017,
my focus will continue to be on
improving our operating efficiencies
and reducing our costs sustainably
while continuing to work on our
options for growth. As I said at
the beginning of our conversation,
Antofagasta was established
and grew quickly because of its
entrepreneurial spirit, and I want
to embed that dynamism and
innovation further in the Company.
What gives me optimism about
the future is how far we’ve
come over the past few years.
Antofagasta is focused on the
responsible production of profitable
tonnes in a way that benefits all
of our employees, communities,
government, fellow citizens, and
of course, our shareholders.
IVÁN ARRIAGADA
CHIEF EXECUTIVE OFFICER
OUR POSITION
IN THE MARKET
GLOBAL COPPER SUPPLY AND DEMAND
PRIMARY
DEMAND
POSSIBLE
PROJECTS
PROBABLE
PROJECTS
HIGHLY PROBABLE
PROJECTS
BASE CASE
PRODUCTION
1992
1997
2002
2007
2012
2017
2022
2027
Source: Wood Mackenzie’s Q4 2016, Copper Outlook – December 2016
14
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
MARKET ENVIRONMENT
REFINED COPPER
2016 MARKET
PERFORMANCE
The average LME copper price
during 2016 was $2.21/lb, an 11.6%
decrease compared with the 2015
average. Prices were expected
to remain low during 2016 as the
market priced in lower growth for
key markets such as China, and
this reduced investment in the
sector depressed the copper price
even though the market was in
balance or showing only a small
surplus during the year. However,
by the fourth quarter of 2016
China was consuming at a much
higher rate than expected and in
October announced that it would
continue its programme of fiscal
stimulus into 2017. This, combined
with a reflationary and stimulatory
acceptance speech by President-
elect Trump, led to a rally in the
price of copper, which finished the
year strongly at over $2.50/lb.
Global mine production accounts
for some 82% of total refined
supply and grew during the year
as new production came on
stream, particularly from Peru. In
addition, fewer supply disruptions
occurred during the year, which
led to more copper in the market.
The balance of supply comes from
secondary sources, particularly in
the form of scrap, the availability
of which declined as falling prices
led to lower rates of recycling and
some scrap dealers limited their
trading activities.
On the demand side, the most
important market is China, which
accounted for approximately 47% of
global copper consumption in 2016.
Europe and North America also
remain the key consumers at 17%
and 8% respectively. An estimated
15-25% of Chinese consumption
is re-exported in products
manufactured in China.
The Group’s average realised price
in 2016 was above the average
LME price, reflecting a net positive
provisional pricing adjustment of
$153.6 million for the year.
MARKET OUTLOOK
The general consensus is that the
market will show a small surplus in
2017. An unexpectedly high level of
supply disruptions early in the year
may move this small surplus to a
small deficit. However, from 2018
the market will tighten as supply is
constrained by lack of investment
as greenfield and brownfield
projects across the world have been
postponed while demand continues
to grow. Demand growth will
continue to be linked to expected
Chinese consumption.
In early 2017, the consensus price
forecast for the year was $2.45/lb,
11% higher than in 2016 based on
expected higher consumption from
China and possible supply-side
disruptions arising from contested
labour negotiations in Chile, which
produces about one-third of the
world’s copper.
GLOBAL COPPER CONSUMPTION
BY SECTOR
CONSTRUCTION
CONSUMER
PRODUCTS
ELECTRICAL AND
ELECTRONIC
PRODUCTS
INDUSTRY
MACHINES
TRANSPORT
Source: Wood Mackenzie’s Q4 2016
Copper Outlook – December 2016
31%
24%
11%
23%
11%
COPPER CONCENTRATE
2016 MARKET
PERFORMANCE
There was good demand for
copper concentrates during the
year, and spot treatment and
refining charges (“TC/RCs”)
traded below the benchmark
price for annual contracts.
As new mines ramped up
production, particularly in Peru,
new smelters came on stream in
China absorbing this production.
Further increases in Chinese
smelting capacity are expected in
2017 and 2018.
MARKET OUTLOOK
Benchmark TC/RCs for 2016
have been agreed at $92.50 per
dry metric tonne of concentrate
and 9.25c/lb of refined copper.
This rate is some 5% lower than
the benchmark set for 2016 and
reflects a tighter market and
increased smelter capacity.
GOLD
The average annual gold price
increased by more than 7% in
2016, peaking in July at $1,366/
oz. Macroeconomic events such
as Brexit, rising interest rates in
the US and uncertainty related to
Chinese growth all impacted the
price of gold, which is considered
a safe haven investment. Prices
in the second half of the year
were further impacted by
demonetisation in India which
caused a fall in demand in
traditionally strong months.
Gold averaged $1,248/oz in 2016
compared with $1,160/oz in 2015
and closed the year at $1,148/oz.
The consensus price forecast for
2017 is $1,302/oz.
MOLYBDENUM
Molybdenum prices rebounded
in 2016 after reaching their
lowest levels for 12 years in
2015 due to lower demand from
the steel industry and increased
mine supply. The price averaged
$6.5/lb for the year compared
with $6.7/lb in 2015, and the
consensus is it will remain
around this level in 2017.
ANTOFAGASTA.CO.UK
15
OUR STRATEGY
APPLICATION OF
OUR STRATEGY
OUR VISION
To be an international mining
company based in Chile, focused
on copper and related by-products
and recognised for operating
effi ciency, value creation and as a
preferred partner in the global
mining industry.
T
H
E
S
C
ORE B U S I N ES
WTH OF T H E C
R E
O
G
R
O
G
R
O
WTH BEYOND T H E C
R E
O
1 THE EXISTING CORE BUSINESS
The fi rst pillar of the strategy is to optimise and enhance the existing core business:
Los Pelambres, Centinela, Antucoya and Zaldívar.
CURRENT STRATEGIC FOCUS:
− Continue deploying the Safety Model across
all operations to achieve zero fatalities.
− Identify and capture further cost savings
through the Cost and Competitiveness
Programme (CCP) to improve performance
and competitive position.
− Implement a New Operating Model to
enhance the operations’ performance.
− Cultivate a proactive and inclusive approach
to communities and other stakeholders to
strengthen sustainable development.
2016 IN REVIEW
Antofagasta regrets that there have been two
fatalities this year. The Group will continue
embedding its Safety Model and is certain that
the zero fatalities target will be achieved.
Copper production of 709,400 tonnes1,
representing a 12.5% increase compared
to 2015.
OBJECTIVES FOR 2017
Zero fatalities.
Improve safety standards through
strengthened application of the Safety Model.
Focus on cultural change within
the organisation.
Copper production of 685-720,0001 tonnes.
Work on the implementation of the New
Operating Model to improve operations’
reliability and release latent capacity.
Group net cash costs of $1.20/lb were lower
than the initial guidance for the year.
Maintain cash costs before by-product credits
at $1.55/lb, similar to 2016.
This was due to the successful
implementation of the CCP, which achieved
$176 million of mine cost savings, exceeding
its target of $160 million.
The highest-cost operation, Michilla, was sold.
Los Pelambres reached an agreement with
the Caimanes community regarding El Mauro
tailings dam and resolved the outstanding
court cases.
Capture an additional $140 million of cost
reductions under the CCP, focusing on
structural cost savings and productivity.
Cultivate strong relationships with
communities and local stakeholders.
1. Includes 50% of attributable production
from Zaldívar.
16
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
2 ORGANIC AND SUSTAINABLE GROWTH OF THE CORE BUSINESS
The second pillar of the strategy is to achieve sustainable, organic growth from
further developing the areas around the Group’s existing asset base in Chile:
Encuentro Oxides, Centinela Molybdenum Plant, Los Pelambres Incremental
Expansion and Centinela Second Concentrator.
CURRENT STRATEGIC FOCUS:
− Finalise and commission projects under
construction: Encuentro Oxides and the
Molybdenum Plant.
− Advance the feasibility studies and
permitting processes of the Group’s
main brownfield projects: Los Pelambres
Incremental Expansion and Centinela
Second Concentrator.
2016 IN REVIEW
Antucoya reached design capacity during
the year.
Zaldívar successfully integrated into the
Group.
Construction of Encuentro Oxides and
Molybdenum Plant slowed during 2016, to
focus on cash preservation.
Environmental approval obtained for Centinela
Second Concentrator project.
Environmental Impact Assessment (EIA)
submitted for Los Pelambres Incremental
Expansion project (Phase I).
Feasibility studies progressed for both
brownfield growth projects.
OBJECTIVES FOR 2017
Continue working on capturing synergies,
especially in operations in the north of Chile.
Commission Encuentro Oxides and
Molybdenum Plant projects.
Construction decision on Los Pelambres
Incremental Expansion by the end of the year
(Phase I).
Advance Centinela Second Concentrator
feasibility study.
Continue innovation programme to assess
value-capturing technologies at the
Group’s operations.
Complete Centinela Second Concentrator
feasibility study.
Centinela Concentrator plant reached design
capacity of 105,000 tpd.
Complete the ramp up of tailings thickeners
and stabilise throughput at Centinela.
3 GROWTH BEYOND THE CORE BUSINESS
The third pillar of the strategy is to seek growth beyond the Group’s existing
operations – both in Chile and internationally. The focus is on potential acquisitions
of both high-quality operating assets and high-potential early-stage developments.
CURRENT STRATEGIC FOCUS:
− Work to develop the long-term growth pipeline
beyond the Group’s existing operations.
− Continue the exploration programme focused
on the Americas to identify long-term
growth options.
− Monitor the current market to assess the
potential value of accretive acquisitions or
joint ventures.
2016 IN REVIEW
Rationalised international
exploration programme.
OBJECTIVES FOR 2017
Continue monitoring the market to identify
potential opportunities.
Refocus exploration programme on the
Americas, allocating more resources to
high-prospect targets.
Advanced studies relating to the Twin Metals
project in preparation for permit applications.
Seek confirmation of the mining properties
and advance permitting process.
ANTOFAGASTA.CO.UK
17
KEY PERFORMANCE INDICATORS
MEASURING OUR
PERFORMANCE
The Group uses KPIs to assess
performance in terms of meeting its
strategic and operating objectives.
Performance is measured against
the following fi nancial, operating
and sustainability objectives:
4. Water consumption relates to the
mining division only.
5. Total CO2 emissions per tonne of
copper produced. Data relates to
the mining division only.
Footnotes:
1. Non IFRS measures, refer to
the alternative performance
measures in Note 39 to the
financial statements
2. Mineral resources relating to the
Group’s subsidiaries on a 100%
basis and Zaldívar on a 50% basis.
3. The Lost Time Injury Frequency
Rate is the number of accidents
with lost time during the year per
million hours worked.
FINANCIAL KPIs
NET CASH/(DEBT)1
2,403
1,311
TBC
TBC
(2)
(1,024)
(1,072)
‘12
‘13
‘14
‘15
‘16
$(1,072)M
WHY IT IS IMPORTANT
Net Cash/Debt is a measure of the
financial position of the Group.
PERFORMANCE IN 2016
Net Debt rose by $48.2m in 2016 as
a result of new borrowings offset by
higher cash generation.
EBITDA*
3,748.4
2,625.8
2,102.9
WHY IT IS IMPORTANT
This is a measure of the Group’s
underlying profitability.
1,626.1
910.1
PERFORMANCE IN 2016
EBITDA rose in 2016 as a result of
higher production, higher realised
prices and lower unit operating costs.
‘12
‘13
‘14
‘15
‘16
$1,626.1M
* Restated for discontinued operations
EARNINGS
PER SHARE*
105.2
66.9
46.6
WHY IT IS IMPORTANT
This is a measure of the profit
attributable to shareholders
PERFORMANCE IN 2016
EPS rose due to higher profitability as
production and realised prices rose,
while operating cost fell.
‘12
‘13
‘14
(0.5)
‘15
12.1
‘16
12.1 CENTS
* Restated for discontinued operations
See page 23 for more information on
our fi nancial risks
An analysis of Financial KPIs is
included within the Financial
Review on pages 60 to 65.
18
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
OPERATING KPIS
COPPER
PRODUCTION
709.6
721.2
704.8
709.4
630.3
‘12
‘13
‘14
‘15
‘16
709,400
TONNES
NET CASH COSTS1
1.43
1.36
1.50
630.3
1.20
1.03
‘12
‘13
‘14
‘15
‘16
$1.20/LB
MINERAL
RESOURCES 2
18.7
18.7
17.9
16.2
15.2
‘12
‘13
‘14
‘15
‘16
18.7BN
TONNES
WHY IT IS IMPORTANT
Copper is the Group’s main product
and its production is a key operating
parameter. Includes all production from
Los Pelambres, Centinela, Antucoya
and 50% from Zaldívar.
PERFORMANCE IN 2016
Copper production increased by 12.5%
in 2016, primarily due to inclusion of
production from Antucoya and Zaldívar
and improved performance at Centinela.
WHY IT IS IMPORTANT
This is a key indicator of operating
efficiency and profitability.
PERFORMANCE IN 2016
Net cash costs decreased 20.0%
compared to 2015, reflecting cost
savings, higher copper and gold
production and lower input prices.
WHY IT IS IMPORTANT
Expansion of the Group’s mineral
resources base supports its strong
organic growth pipeline.
PERFORMANCE IN 2016
Mineral resources remained similar
due to the incorporation of additional
resources at Penacho Blanco and
Mirador was offset by the closure
of Michilla.
SUSTAINABILITY KPIS
LOST TIME INJURY
FREQUENCY RATE 3
2.5
2.0
1.9
1.7
1.5
WHY IT IS IMPORTANT
Safety is a key priority for the Group
with the LTIFR being one of the
principal measures of performance.
PERFORMANCE IN 2016
The LTIFR of the Group in 2016
declined to 1.5 accidents with lost time
per million hours worked.
‘12
‘13
‘14
‘15
‘16
1.5
WATER
CONSUMPTION 4
29.6
25.5
24.4
26.8
24.7
20.0
20.2
20.6
20.6
26.5
‘12
‘13
‘14
‘15
‘16
56.2M M3
EMISSIONS 5
3.67
3.24
2.92
3.09
2.98
‘12
‘13
‘14
‘15
‘16
3.67
TONNES
WHY IT IS IMPORTANT
Water is a precious resource and
the Group is focused on maximising
efficient use and utilising the
most sustainable sources as
production grows.
PERFORMANCE IN 2016
Consumption of water increased during
2016, as two new operations were
integrated into the Group, Antucoya
and Zaldívar.
CONTINENTAL
SEA
WHY IT IS IMPORTANT
The Group recognises the risks and
opportunities of climate change and
the need to measure and mitigate its
greenhouse gas (“GHG”) emissions.
The Group is investing in renewable
energy projects both to address rising
costs and to mitigate climate change.
PERFORMANCE IN 2016
Carbon emission intensity increased
from 2015 primarily due to
higher copper production at the
Group’s operations.
See page 190 for more information on
our Reserves and Resources
See page 24 for more information on
our operating risks
See page 26 for more information on our
sustainability risks
ANTOFAGASTA.CO.UK
19
RISK MANAGEMENT
RISK AND COMPLIANCE
MANAGEMENT
FRAMEWORK
Effective risk and compliance management is essential to
the Group’s operations and strategy. The accurate and timely
identifi cation, assessment and management of risks are key
to achieving the Group’s operating and fi nancial targets.
THE RISK AND COMPLIANCE MANAGEMENT DEPARTMENT:
— Provides guidelines, standards and best-
practice examples of risk and compliance
management at the corporate and business
unit levels
— Takes responsibility for the risk and
compliance management systems
— Maintains the Group’s risk register
— Organises and promotes risk and
compliance workshops
— Supervises the operations’ risk management
— Reviews the effectiveness of
mitigating actions
— Supports internal stakeholders in key
strategic decisions
— Ensures there are policies, guidelines
and procedures in place to support the
effectiveness of the Group’s internal controls
AREAS OF FOCUS AND
DEVELOPMENT DURING 2016
RISK
The focus was on the continued consolidation
of risk, compliance and internal control
management processes, which included
the following:
− Working to improve from maturity level four
to maturity level five, the top level of the Risk
Maturity Model¹
− Expanding risk analysis to incorporate new
business areas and widen coverage
− Improving key risk controls and taking action
to reduce the impact and/or probability of
identified risks, particularly through the use
of preventive action plans
− Updating, improving and testing the Disaster
Recovery Plans (DRP) and Business
Continuity Plans (BCP)
− Verifying the effectiveness and design of
key controls through the On Site Review
of operations
− Following up agreed actions for materialised
risks and action plans regarding the On Site
Review of operations
− Establishing risk management training
programmes for key users
− Systematising compliance processes
for the review of suppliers, gifts and
hospitality declarations and conflict of
interest statements
− Strengthening compliance training
COMPLIANCE
− Including the Modern Slavery Act in the
Compliance Model. All of the Group’s
suppliers were reviewed to ensure that
modern slavery is not occurring in the
business or its supply chains
− Reviewing more than 4,000 employees’
conflict of interest statements
− Implementing guidelines concerning business
relationships with companies employing
politically exposed persons (PEP)
− Strengthening compliance processes through
conflict of interest assessment and due
diligence of all business partners
− Updating key guidelines of the Compliance
Model to comply with amendments to
Chilean Law No. 20,393 (Criminal Liability for
Legal Entities)
programmes for employees and contractors
INTERNAL CONTROL
− Ensuring SAP transactions are
in full compliance with delegated
authority structures
− Ensuring that key in-built SAP automatic
controls are appropriate and effective
Further information about the Group’s Risk
Management Systems is given in the
Governance section on pages 88 to 91 and
in the Sustainability Report on pages 52 to
59. Further detailed disclosures in respect
of fi nancial risks relevant to the Group are
set out in Note 25 to the Financial
Statements.
1. In accordance with Risk Maturity Model processes
developed by Deloitte, based on COSO ERM, ISO
31000 and other Standards.
20
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
The Group’s risk and compliance management
framework can be divided into three tiers:
GOVERNANCE
RISK
MANAGEMENT
COMPLIANCE
Communicating the Group’s vision, strategy
and objectives throughout the organisation,
and putting in place appropriate governance
structures, policies and procedures to embed
key aims and objectives.
Ensuring that there are structures and processes
in place to identify and evaluate risks, and
developing appropriate controls and mitigation
techniques to address those risks.
Ensuring that key risks, and performance in
managing those risks, are reported on a timely
basis to the relevant parties.
Ensuring that the Group adheres to internal
policies, procedures and controls, as well as all
relevant laws and regulations.
GOVERNANCE
Further information on the Board and its Committees is given in the Governance section on
pages 68 to 119
The Board is responsible for determining the
nature and extent of the significant risks that
the Group will accept in order to achieve its
strategic objectives, and for maintaining sound
risk management and internal control systems.
The Board receives detailed analysis of key
matters for consideration in advance of Board
meetings. This includes reports on the Group’s
operating performance, including safety and
health, financial, environmental, legal and social
matters, key developments in the Group’s
exploration, project and business development
activities, information on the commodity
markets, updates on talent management and
analysis of financial investments. The provision
of this information allows the early identification
of potential issues and assessment of any
necessary mitigating actions.
Risk management reports are sent to
the Board quarterly.
The Audit and Risk Committee assists
the Board by reviewing the effectiveness of the
risk management process and monitoring key
risks and mitigation procedures. The Chairman
of the Audit and Risk Committee reports to
the Board following each Committee meeting
and, if necessary, the Board can discuss the
matters raised in more detail.
These processes allow the Board to monitor
effectively the Group’s major risks and
mitigation procedures, and to assess the
acceptable level of risk arising from the
Group’s operations and development activities.
The Code of Ethics sets out the Group’s
commitment to undertaking business in a
responsible and transparent manner. The Code
requires honesty, integrity and accountability
from all employees and contractors and
includes guidelines for identifying and managing
potential conflicts of interest. An Ethics
Committee comprising members of senior
management implements, develops and updates
the Code and monitors compliance. The Code
and other compliance matters form part of the
induction programme for all new employees.
RISK MANAGEMENT
See page 88 for more information on our risk management practises
The Risk and Compliance Management
Department is responsible for risk and
compliance management systems across the
Group. It maintains the Group’s risk register,
which specifies the strategic risks that
represent the most significant threats to the
Group’s performance and achievement of its
strategy, along with any necessary mitigation
activities. The risk register is regularly updated
and annual strategic risk workshops are held
at which senior management from across the
business review the Group’s key strategic risks
and related mitigation activities. The Risk and
Compliance Management Department reports
quarterly to the Audit and Risk Committee on
the overall risk management process, giving a
detailed update of key risks, mitigation activities
and actions being taken.
The General Managers of each of the
operations have overall responsibility for
leading and supporting risk management.
“Risk Champions” within each operation have
direct responsibility for the risk management
processes in their operations and for the
continuous update of individual business
risk registers, including relevant mitigation
activities. The owners of the risks and controls
at each business unit are identified, providing
effective and direct management of risk. Each
operation holds its own annual risk workshop
in which the business unit’s risks and mitigation
activities are reviewed in detail and updated
if necessary. Workshops are also used to
assess key risks that may affect relationships
with stakeholders, limit resources, interrupt
operations and/or negatively affect potential
future growth. Mitigation techniques for
significant strategic and business unit risks are
annually reviewed by the Risk and Compliance
Management Department.
The Board regularly reviews Group compliance
with all relevant laws and regulations, internal
policies, procedures and control activities. A
formal risk assessment is conducted at least
once a year at all the Group’s operations, and
all risks are reported and reviewed quarterly by
the Audit and Risk Committee.
ANTOFAGASTA.CO.UK
21
RISK MANAGEMENT CONTINUED
COMPLIANCE
See page 88 for more information
The Group’s Compliance Model applies to
both employees and contractors. It is clearly
defined and is communicated regularly
through internal communication channels,
as well as being available on the Group’s
website. All contracts with contractors include
clauses relating to ethics, modern slavery and
crime prevention to ensure adherence to the
Group’s Compliance Model.
− Investigating all reports made
by whistleblowers
− Assessing conflict of interest and due diligence
on all business partners
− Updating and reviewing all employees’ conflict
of interest statements
− Bolstering the compliance programme
and systems
− Overseeing third-party reviews of the Crime
The Compliance Model comprises five pillars:
Prevention Model
1 THE CODE OF ETHICS
This code sets out the Group’s values and
provides guidelines on behaviour for all
employees and contractors.
− Code of Ethics
− Conflict of Interest Guidelines
− Gifts and Hospitality Guidelines
− Modern Slavery Act
− Monitoring effectiveness of programme
− Annual Statement
Please see our Modern Slavery
Statement on page 59.
2 THE CRIME PREVENTION
MODEL
This model ensures compliance with the
anti-bribery and anti-corruption laws in the
United Kingdom and Chile. The Vice President
of Finance and Administration is responsible
for overseeing, defining and implementing
the model. As part of the model, the Group
regularly undertakes the following activities:
− Training on key risk areas (ethics,
anti-corruption, modern slavery and
antitrust matters)
− Implementing policies and processes to
ensure the proper management of any non-
compliance exposure
− Crime Prevention Handbook
− Anti-corruption clauses in contracts
− Due diligence process, including
global checking
− Antitrust – Politically Exposed Person (PEP)
Facilitation Fees Guidelines
3 WHISTLEBLOWING
Employees and external stakeholders can
report concerns of irregular conduct or ethical
issues through the Company’s intranet, by
email, or letter, or by using a dedicated hotline.
All complaints are investigated, findings are
reported to the Ethics Committee and action
taken if required. The security and confidentiality
of employees is ensured for the duration of the
process, safeguarding individuals and therefore
achieving greater transparency.
− Reporting channels (web, telephone
hotline, email)
− Methodology of complaints investigation
and reports
− Monitoring – analysis of complaints and
improving internal controls
4 COMMUNICATION AND
TRAINING PROGRAMME
The Group has a comprehensive training
programme to ensure that the policies
and procedures of the Compliance Model
are clearly understood and embedded
in the culture of the organisation. The
programme emphasises the right to know
and there are measures in place to enhance
the skills required to ensure its effective
implementation.
The Group updated its compliance training
programme in 2016, adding the concept of
modern slavery and examples of its use
to the new employee induction and
e-learning courses.
− Communications (news, intranet, posters)
− Training programme – induction of new
employees and e-learning
5 COMPLIANCE RISKS AND
CONTROL ASSESSMENT
The objective of the Compliance Risks and
Control Assessment is to identify, develop and
improve internal controls to prevent potential
risks. This assessment is performed at
least annually.
− Identification of risks and controls
− Assessment of risks and controls, and
improvement of the process
The model is reviewed regularly, both
internally and by third parties, and on matters
relating to corruption it has been certified
under Chilean anti-corruption legislation.
VIABILITY STATEMENT
To address the requirements of provision C.2.2
of the 2014 Corporate Governance Code, the
Directors have assessed the prospects of the
Group over a period of five years.
Mining is a long-term business and timescales
can run into decades. The Group maintains
life-of-mine plans covering the full remaining
mine life for each of the mining operations.
More detailed medium-term planning is
performed for a five-year time horizon (as well
as very detailed annual budgets). Accordingly,
a period of five years has been selected as the
appropriate period over which to assess the
prospects of the Group.
When taking account of the impact of the Group’s
current position on this viability assessment,
the Directors have considered in particular its
financial position, including its significant balance
of cash, cash equivalents and liquid investments
and the borrowing facilities in place, including
their terms and remaining durations.
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, capital expenditure
and financing plans. The Directors have taken
into consideration the Group’s principal risks
which could impact the prospects of the Group
over this period, with the most relevant to this
viability assessment considered to be risks to
the copper price outlook. Robust down-side
sensitivity analyses have been performed,
assessing the impact of a significant deterioration
in the copper price outlook over the five-year
period, along with the impact of the potential
occurrence of a number of the Group’s other
specific principal risks. 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. These
stress-tests all indicated results which could be
managed in the normal course of business.
Based on their assessment of the Group’s
prospects and viability, the Directors confirm
that they have a reasonable expectation that the
Group will be able to continue in operation and
meet its liabilities as they fall due over the next
five years.
GOING CONCERN
The Directors also considered it appropriate
to prepare the financial statements on the
going concern basis, as explained in the Basis
of preparation paragraph in Note 1 to the
financial statements.
22
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
PRINCIPAL RISKS
Set out below are the Group’s principal risks
and related mitigation techniques. The Board
has carried out a robust assessment of the
principal risks.
FINANCIAL RISKS
RISK
Growth opportunities
The Group may fail to
identify attractive acquisition
opportunities or may select
inappropriate targets.
The long-term commodity price
forecast and other assumptions
used when assessing potential
projects and other investment
opportunities have a significant
influence on the forecast return
on investment and, if
incorrectly estimated, could
result in the wrong decisions.
Commodity prices
The Group’s results are heavily
dependent on commodity prices
– principally copper and, to a
lesser extent, gold and
molybdenum. The prices of
these commodities are strongly
influenced by a variety of
external factors, including
world economic growth,
inventory balances, industry
demand and supply, possible
substitution, etc.
Foreign currency
The Group’s sales are mainly
denominated in US dollars and
some of the Group’s operating
costs are in Chilean pesos.
The strengthening of the
Chilean peso may negatively
affect the Group’s financial
results.
MITIGATION
APPLICATION TO STRATEGY
The Group assesses a wide range of potential growth opportunities, both internal
projects and external opportunities. A rigorous assessment process is followed to
evaluate all potential business acquisitions, which are subjected to different stress
test scenarios for sensitivity analysis, and to determine the risks associated with the
project or opportunity.
The Group’s Business Development Committee reviews potential growth
opportunities and transactions, and approves or recommends them within authority
levels set by the Board.
Details of the Group’s growth opportunities are set out in the Operating Review on
pages 40 to 43
The Group considers exposure to commodity price fluctuations to be an integral part
of the business and its usual policy is to sell its products at prevailing market prices.
The Group monitors the commodity markets closely to determine the effect of price
fluctuations on earnings, capital expenditure and cash flows. Very occasionally,
when it feels it to be appropriate, the Group uses derivative instruments to manage
its exposure to commodity price fluctuations. The Group runs its business plans
through various different commodity price scenarios and develops contingency plans
as required.
The sensitivity of the Group’s earnings to movements in commodity prices is
set out in Note 25 to the Financial Statements
As copper exports account for over 50% of Chile’s exports, there is a correlation
between the copper price and the US dollar/Chilean peso exchange rate. This natural
hedge partly mitigates the Group’s foreign exchange exposure. However, the Group
monitors the foreign exchange markets and the macroeconomic variables that affect
them and on occasion implements a focused currency hedging programme to reduce
short-term exposure to fluctuations in the US dollar against the Chilean peso.
Details of the Group’s currency hedging arrangements are shown in Note
25 to the Financial Statements
2
3
1
2
3
1
ANTOFAGASTA.CO.UK
23
RISK MANAGEMENT CONTINUED
OPERATING RISKS
RISK
Strategic resources
Disruption to the supply of any
of the Group’s key strategic
inputs such as electricity, water,
fuel, sulphuric acid and mining
equipment could have a
negative impact on production.
Longer term, any restrictions
on the availability of key
strategic resources such as
water and electricity could
affect the Group’s opportunities
for growth.
A significant portion of
the Group’s input costs are
influenced by external
market factors.
Operating
Mining operations are subject
to a number of circumstances
not wholly within the Group’s
control. These include damage
to or breakdown of equipment
or infrastructure, unexpected
geological variations or
technical issues, extreme
weather conditions and natural
disasters, any of which could
adversely affect production
and/or costs.
Project management
Failure to effectively manage
the Group’s development
projects could result in delays
in the start of production and
cost overruns.
MITIGATION
APPLICATION TO STRATEGY
Contingency plans are in place to address any short-term disruptions to strategic
resources. The Group negotiates early with suppliers of key inputs to ensure supply
continuity. Certain key supplies are purchased from several sources to mitigate
potential disruption arising from exposure to a single supplier.
Technological and innovative solutions, such as using sea water in the Group’s
mining operations, can help mitigate exposure to potentially scarce resources.
The Group also utilises several sources of non-traditional energy such as wind and
solar power.
Information on the Group’s arrangements for the supply of key inputs is
included within the Key Inputs section on pages 32 to 34, and details of
signifi cant operating or cost factors related to key inputs are included within
the Operating Review on pages 38 to 51
Key risks relating to each operation are identified as part of the regular risk
review process undertaken by the individual operations. This process also
identifies appropriate mitigation techniques for such risks. Monthly reports to
the Board provide variance analysis of operating and financial performance, allowing
potential key issues to be identified in good time and any necessary actions, such as
monitoring or control activities, to be implemented to prevent unplanned downtime.
The Group has Business Continuity Plans and Disaster Recovery Plans for all key
processes within its operations in order to mitigate the consequences of a crisis
or natural disaster. The Group also has property damage and business interruption
insurance to provide protection from some, but not all, of the costs that may arise
from such events.
Details of the performance of each of the Group’s operations are included
within the Operating Review on pages 38 to 51
The Group has a project management system consisting of standards, manuals and
procedures containing the best practices applicable and enforceable in all phases
of project development. The project management system supports the decision-
making process by balancing risk versus benefit, increasing the likelihood of success
and providing a common language and standards. All geometallurgical models are
reviewed by independent experts.
During the project lifecycle, quality checks for each of the standards applied are
carried out by a panel of experts from within the Group. This panel reviews each
feasibility study to assess the technical and commercial viability of the project and
how it can be safely developed. Detailed progress reports on ongoing projects
are regularly reviewed, and include assessments of progress against key project
milestones and performance against budget.
Details of the progress of the Group’s projects are included within the
Operating Review on pages 40 to 43
1
2
1
2
3
24
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
RISK
MITIGATION
APPLICATION TO STRATEGY
Political, legal and regulatory
The Group may be affected
by political instability and
regulatory developments in
the countries in which it is
operating, pursuing projects
or conducting exploration
activities. Issues regarding
the granting of permits or
amendments to permits
already granted, and changes
to the legal environment or
regulations, could adversely
affect the Group’s operations
and development projects.
Identification of new
mineral resources
The Group needs to identify
new mineral resources to
ensure continued future growth
and does so through
exploration and acquisition.
There is a risk that exploration
activities may not identify
sufficient viable mineral
resources.
Ore reserves and mineral
resources estimates
The Group’s ore reserves and
mineral resources estimates
are subject to a number of
assumptions, including
geological, metallurgical and
technical factors, future
commodity prices and
production costs. Fluctuations
in these variables may result in
some reserves or resources
being deemed uneconomic,
which could lead to a reduction
in reserves and/or resources.
Political, legal and regulatory developments affecting the Group’s operations and
projects are monitored continually. The Group operates in full compliance with the
existing laws, regulations, licences, permits and rights in each country in which
it operates.
The Group assesses political risk as part of its evaluation of potential projects,
including the nature of any foreign investment agreements.
The Group monitors proposed changes in government policies and regulations and
belongs to several associations that consult with the government on these changes.
This helps to improve the Group’s internal processes and better prepare it to meet
any new regulatory requirements.
Details of any signifi cant political, legal or regulatory issues that impact
the Group’s operations are included within the Operating Review on pages
38 to 51
The Group conducts exploration programmes both in Chile and in other countries.
The Group has entered into early-stage exploration agreements and strategic
alliances with third parties in a number of countries and has also acquired equity
interests in companies with known geological potential. The Group focuses its
exploration activities on stable and secure countries to reduce risk exposure.
A review of the Group’s exploration activities is set out in the Operating
Review on pages 40 to 41
The Group’s reserves and resources estimates are updated annually to reflect
material extracted during the year, the results of drilling programmes and any revised
assumptions. The Group follows the Australasian Code for Reporting of Exploration
Results, Mineral Resources and Ore Reserves (“the JORC Code”) in reporting
its ore reserves and mineral resources. This requires reserves and resources
estimates to be based on work undertaken by a Competent Person, as defined by
the Code. In addition, the Group’s reserves and resources estimates are subject to a
comprehensive programme of internal and external audits.
The ore reserves and mineral resources estimates, along with supporting
explanations, are set out on pages 190 to 197
1
2
1
2
3
1
2
3
ANTOFAGASTA.CO.UK
25
RISK MANAGEMENT CONTINUED
SUSTAINABILITY RISKS
RISK
MITIGATION
APPLICATION TO STRATEGY
Community relations
Failure to identify and manage
local concerns and expectations
can have a negative impact on
the Group. Relations with local
communities and stakeholders
affect the Group’s reputation
and social licence to operate
and grow.
Safety and health
Safety and health incidents
could result in harm to the
Group’s employees, contractors
or to local communities.
Ensuring their safety and
wellbeing is first and foremost
an ethical obligation for the
Group, as stated in the Group
Core Values.
Poor safety records or serious
accidents could have a
long-term impact on the
Group’s morale, reputation
and production.
The Group has a dedicated team that establishes and maintains relations with local
communities. These are based on trust and mutual benefit throughout the mining
lifecycle, from exploration to final remediation. The Group seeks to identify early
any potentially negative operating impacts and minimise these through responsible
behaviour. This means acting transparently and ethically, prioritising the safety and
health of its employees and contractors, avoiding environmental incidents, promoting
dialogue, complying with commitments to stakeholders and establishing mechanisms
to prevent or address a crisis. These steps are undertaken in the early stages of
each project and continue throughout the life of each operation.
The Group contributes to the development of communities in the areas in which it
operates, particularly through human capital development – the education, training
and employment of the local population. The Group endeavours to communicate
clearly and transparently with local communities, in line with the established
Community Relations Plan, including the use of a grievance management process,
local perception surveys, and local media and community engagement.
Details of the Group’s community relations activities are included in the
Sustainability Report on pages 52 to 59
The Group is seeking continuous improvement of its safety and health risk
management procedures, with particular focus on the early identification of risk and
preventing fatalities.
The corporate Safety and Health department provides a common strategy to the
Group’s operations and co-ordinates all safety and health matters. The Group has a
Significant Incident Report system which is an important part of the overall approach
to safety.
The Group’s goal of zero fatalities and minimising the number of accidents requires
all contractors to comply with the Group’s Occupational Health and Safety Plan.
This is monitored through monthly audits and supported by regular training and
awareness campaigns for employees, contractors, employees’ families and local
communities, particularly with regard to road safety.
Critical controls and verification tools are regularly strengthened through the
verification programme and regular audits of critical controls for high potential
safety risks.
Further information about the Group’s activities in respect of safety and health is
set out in the Sustainability Report on pages 52 to 59
Environmental management
An operating incident that
damages the environment
could affect both the Group’s
relationship with local
stakeholders and its reputation,
undermining its social licence
to operate and to grow.
The Group operates in
challenging environments,
including the Atacama Desert,
where water scarcity is a key
issue.
The Group has a comprehensive approach to incident prevention. Relevant risks are
assessed, monitored and controlled in order to achieve the goal of zero incidents
with significant environmental impact. The Group works to raise awareness among
employees and contractors and provides training to promote operating excellence.
Potential environmental impacts are key considerations when assessing project
viability, and the integration of innovative technology in the project design to mitigate
these effects is encouraged. The Group strives to ensure maximum efficiency
in water use, pioneering the use of sea water for mining operations in the arid
Antofagasta Region of Chile and installing capacity to produce thickened tailings at
Centinela, thus achieving high rates of reuse and recovery.
Further information in respect of the Group’s environmental activities is set out in
the Sustainability Report on pages 52 to 59
1
2
3
1
2
3
1
2
3
26
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
RISK
MITIGATION
APPLICATION TO STRATEGY
Talent management and
labour relations
The Group’s highly skilled
workforce and experienced
management team are critical
to maintaining current
operations, implementing
development projects,
achieving long-term growth
and preserving current
operations without major
disruption. Managing talent and
maintaining a high-quality
labour force is a key priority for
the Group and any failures in
this respect could have a
negative impact on the
performance of the existing
operations and future growth.
Corruption activities
The Group’s projects or
operations around the world
may be affected by risks related
to corruption or bribery,
including operating disruptions
or delays resulting from a
refusal to make “ facilitation
payments”. Such risk depends
on the economic or political
stability of the country in which
the Group is operating.
The Group maintains good relations with its employees and unions, founded on trust,
continuous dialogue and good working conditions. The Group is committed to safety,
non-discrimination and compliance with Chile’s strict regulations on labour matters.
There are long-term labour agreements in place with employee unions at each of the
Group’s mining operations, which help to ensure labour stability.
The Group seeks to identify and address labour issues that may arise throughout the
period covered by existing labour agreements and to anticipate any potential issues
in good time. Contractors are an important part of the Group’s workforce and under
Chilean law are subject to the same duties and responsibilities as the Group’s own
employees. The Group’s approach is to treat contractors as strategic associates and
its goal is to build long-term mutually beneficial contractor relationships. The Group
maintains constructive relationships with its employees and the unions that represent
them through regular communication and consultation. Union representatives are
regularly involved in discussions about the future of the workforce.
The Group develops the talents of its employees through training and development,
invests in initiatives to widen the talent pool and focuses on maintaining good
relationships with employees, unions and contractors.
The Group’s Employee Performance Management System is designed to attract and
retain key employees by creating reward and remuneration structures and personal
development opportunities. The Group has a talent management system to identify
and develop internal candidates for key management positions, as well as identifying
suitable external candidates where appropriate.
Details of the Group’s relations with its employees and contractors are set out
within the Sustainability Report on pages 52 to 59 and within the Operating
Review on pages 32 to 37
The Group employs procedures and controls against any kind of corruption, including
open channels of communication that any employee or external party can use in
order to raise any concerns or complaints.
In addition, the Group has Ethics Committees (composed of senior executives)
at each of its operations, responsible for investigating complaints and taking any
necessary measures. They in turn report such investigations to the Corporate Ethics
Committee, which decides whether any further action is required.
All employees in the Group receive training on the Group Compliance Model which is
subject to external certification.
There are also control procedures in place that help to prevent corruption, covering
such issues as conflicts of interest, suitability of suppliers, receiving and giving of
gifts and hospitality, and facilitation payments.
1
2
1
2
3
ANTOFAGASTA.CO.UK
27
PERFORMANCE
Our business model
Creating value
Operating review
Key inputs and cost base
Key relationships
Our mining division
Growth projects and opportunities
The existing core business
Transport
30
32
35
38
40
44
50
Sustainability report
The Group’s approach to sustainability 52
Financial review
Delivering a strong set of results
60
CENTINELA
Copper concentrate crushing plant,
SAG and ball mills.
OUR BUSINESS MODEL
CREATING VALUE
CREATING VALUE THROUGH THE MINING LIFECYCLE
PU T S
IN
A T ION
R
XPL O
E
I O N
T
A
VAL U
E
R U C TION
ONS T
C
I O N
T
C
TR A
X
E
Resources
Relationships
Chile
International
The Group’s mining
operations depend on
a range of key inputs
such as energy, water,
labour and fuel. The
management of these
inputs has a significant
impact on operating costs,
so ensuring the long-
term availability of key
resources is a vital part
of supply management.
To secure the future of
the business in the long
term, the Group must
increase the size of its
mineral resource base.
It undertakes exploration
activities in Chile and
abroad. Exploration
programmes outside
Chile are generally
carried out in partnership
with other companies
in order to benefit from
their local knowledge
and experience.
Los Pelambres
Incremental Expansion
Centinela
Second Concentrator
Twin Metals
Effective project
evaluation and design
maximise value at this
stage of the mining cycle.
The Group’s wealth of
experience in both areas
helps to make the best use
of mineral deposits.
The Group integrates
sustainability criteria
into design processes
and project evaluation,
developing innovative
solutions for challenges
such as water and
energy supplies and
community relations.
Encuentro oxides
Los Pelambres
Centinela
molybdenum plant
Centinela
Antucoya
Zaldívar
Once a project has been
approved by the Board,
construction begins.
This stage requires
significant input of capital
and resources. Effective
project management and
cost control maximise
a project’s return
on investment.
The Group has a
co-operative approach
to developing projects.
Typically, after the
feasibility stage, and into
the construction phase,
the Group seeks a partner
for its projects, generating
an immediate cash return
while diversifying risk and
providing broader access
to funding.
The Group’s four
operations in Chile are:
Los Pelambres, Centinela,
Antucoya and Zaldívar.
The world-class Los
Pelambres and Centinela
districts have long-life
operations with large
mineral resources and
produce significant
volumes of gold, silver
and molybdenum as
by-products. In 2015,
the Group completed the
construction of Antucoya
and acquired a 50%
interest in the Zaldívar
copper mine and became
the operator. All of the
Group’s mines are open
pit mining operations.
Safety and health are key
elements of operating
efficiency and remain a
top priority for the Board
and management team.
Further information on
page 32.
Further information on
page 40.
Further information on
page 42.
Further information on
page 43.
Further information on
page 44-49.
3-5 YEARS
5 YEARS
3-5 YEARS
20+ YEARS
GROUP CORE VALUES
RESPECT
SAFETY AND HEALTH
30
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
INVESTMENT VERSUS INCOME
Mining is a long-term business and timescales can run into decades. The period from initial
exploration to the start of production often exceeds ten years, and, depending on the nature of the
project and market conditions, it may take more than fi ve years of operation to recoup the initial
investment. If possible, mines exploit higher-grade areas towards the start of the mine life in
order to maximise returns. As a result, average ore grades may decline over time, with production
volumes decreasing along with revenues.
I N G
S
ROC E S
P
I N G
T
AR K E
M
A T ION
R
EST O
R
S
T
UTP U
O
CORE OPERATIONS
The Group mines both
copper sulphide and
copper oxide ores,
which require different
processing routes:
Los Pelambres and
Centinela Concentrates
Mined sulphide ore is
milled to reduce its
size before passing to
flotation cells where it is
upgraded to a concentrate
containing some 25-35%
copper. This concentrate
is then shipped to a
smelter operated by a
third party and converted
to copper metal.
Centinela Cathodes,
Antucoya and Zaldívar
Mined oxide ore is
combined with leachable
sulphide, crushed,
piled into heaps and
then leached with
sulphuric acid, producing
a copper sulphate
solution. This solution
is then put through a
solvent extraction and
electrowinning (“SX-EW”)
plant to produce copper
cathodes, which are sold
to fabricators around
the world.
During the operation of
a mine, its impact on
the environment and the
neighbouring communities
is carefully managed.
At the end of its life, a
mine must be closed
and the surrounding
habitats restored to their
original state.
A closure plan for each
mine is maintained and
updated throughout its life
to ensure compliance with
the latest regulations and
a sustainable closure.
The marketing team builds
long-term relationships
with the smelters and
fabricators who purchase
the Group’s products,
with approximately
75% of output going to
Asian markets.
As well as copper, a
number of the Group’s
mines produce significant
volumes of gold,
molybdenum and silver as
by-products. Gold is sold
for use in industrial and
electronic applications
and in jewellery making.
Most copper and
molybdenum sales
are made under annual
contracts or longer-term
framework agreements.
Sales volumes are
agreed each year, which
guarantees offtake.
The Group’s mining
operations create
significant economic and
social value for a wide
range of stakeholders.
Local communities
benefit from job
creation and improved
infrastructure, while
the Chilean government
and local municipalities
receive tax payments and
royalties. There are also
benefits to society in
general, with the copper
the Group produces being
used across many sectors,
from industrial to medical.
The copper and
by-products from the
Group’s mines go on to
be further processed
for use in end markets,
including property, power,
electronics, transport and
consumer products.
Further information on
pages 44-49.
Further information on
pages 44-49.
Further information on
pages 52.
Further information on
pages 61.
SUSTAINABILITY
INNOVATION
EXCELLENCE
FORWARD-THINKING
ANTOFAGASTA.CO.UK
31
OPERATING REVIEW
KEY INPUTS
AND COST BASE
The Group’s mining operations depend on key inputs, including
energy, water, labour and fuel. For cathode producers such as
Centinela, Antucoya and Zaldívar, which use the SX-EW process,
sulphuric acid is also a key input.
Concentrate producers such as Los Pelambres and Centinela require other
substantial inputs, for example reagents and grinding media. The availability
and cost of these inputs are central to the Group’s cost management
strategy, which focuses on cost control and security of supply.
The Group’s two largest operations, Los Pelambres and Centinela, are
already competitively positioned on the copper industry cost curve and the
acquisition of Zaldívar and its successful integration into the Group has
unlocked valuable synergies in several areas, including that of cost.
The initiatives below have been implemented by the Group’s procurement
department, reducing the unit cost of each operation and allowing them to
remain profitable even as mine grades decline.
$
COST AND
COMPETITIVENESS
PROGRAMME
The Group introduced the Cost and Competitiveness Programme (CCP) in
2014, with the aim of reducing the cost base and improving the Group’s
competitiveness within the industry. Since then, the Group has achieved
savings in mine site costs of $359 million, approximately $176 million
of which were made during 2016. These savings in mine site costs are
equivalent to 11 cents per pound. The Group target for 2017 is set at
an incremental $140 million. Together with exploration, evaluation and
corporate cost savings, total savings since 2014 were over $500 million.
The programme focuses on four areas:
1
2
3
4
Services productivity: Improving the productivity and quality of
contracts while reducing costs
Operating and maintenance management: Improving the
performance of critical processes and the implementation of standard
maintenance management practices
Corporate and organisational effectiveness: Reducing costs and
restructuring the Group’s organisational framework
Energy efficiency: Optimising energy efficiency and lowering energy
contract prices
EXAMPLES OF SAVINGS INITIATIVES
ANNUAL SAVINGS PER INITIATIVE
− Bringing electric shovel
maintenance in-house
− Consolidation of mechanical
maintenance contracts for
concentrator plant
− Modifying peak consumption
patterns to reduce power costs
− Improving productivity by changing
the contractor business model for
mine equipment rental and reducing
maintenance unit cost by 10%
to 15%
− Optimising waste in the blasting
pattern to reduce
explosives consumption by
approximately 10%
− Using existing loading capacity
to replace shovel rental with a
maintenance and repair contract
− Optimisation of the
organisational structure
<$5 MILLION
$5-10 MILLION
$10-15 MILLION
32
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
In 2012, Los Pelambres was facing
an energy market with limited
availability of long-term PPAs
indexed to more stable fuel input
prices, leaving it exposed to volatile
spot energy prices. To mitigate this,
the Group improved Los Pelambres’
security of supply by investing
in several power generation
projects. These include an equity
interest in a wind-power plant,
El Arrayán, which now provides
some 20% of Los Pelambres’
energy requirements.
Los Pelambres has signed
long-term PPAs with two solar
power providers for a total of
50MW of power. The first solar
PPA commenced in 2015 and
the second came online in 2016.
During 2015, Los Pelambres also
started to receive power under a
long-term PPA from a coal-fired
power plant and in 2016 replaced
the remaining exposure to the
spot market by a short-term fixed
price PPA. These PPAs, together
with those signed with Alto Maipo,
will fulfil Los Pelambres’ energy
requirements at competitive and
stable prices.
All the Group operations located on
the SING benefit from long-term
contracts, mostly indexed to the
price of coal. The first of these to
expire will be the PPA supplying
100% of Zaldívar’s power until
2020. The other PPAs continue until
2026-2028.
INPUTS
ENERGY
The Group sources its energy from
the two electricity grids in Chile:
the northern grid (SING), which
supplies the Centinela, Antucoya
and Zaldívar mines, and the
central grid (SIC) which supplies
Los Pelambres. The SING has
an installed capacity of 5.0 GW,
supplied to the grid from coal-fired
power stations and renewable
sources such as wind and solar.
The SIC’s installed capacity is 17.4
GW, primarily from hydroelectric
plants. Due to this reliance on
hydroelectric power, the cost
of energy on the SIC fluctuates
depending on precipitation levels,
whereas on the SING costs tend to
be more stable.
In 2014, the Government began a
process to connect the SING and
SIC power grids to increase the
reliability of the national power
system. This should be completed
in 2018. The new integrated grid
will supply 99% of national demand,
increasing customer access to a
range of power generation sources.
Approximately 13% of the Group’s
operating costs are energy related.
To manage price fluctuations, the
Group aims to procure medium
and long-term electricity contracts
called Power Purchase Agreements
(PPAs) at each operation. Pricing,
in most cases, is linked to the
cost of electricity on the Chilean
grids or the generation costs of a
supplier, the latter being subject to
adjustments for inflation and fuel
input prices.
WATER
LABOUR
Water is a precious commodity
in the regions where the Group’s
mines operate, so the recycling of
water is extremely important.
Water for each operation is sourced
either from the sea or from surface
and underground sources. Each
operation has the necessary permits
for the long-term supply of water at
current production levels.
The Group optimises water
efficiency by reducing demand,
using untreated sea water and
encouraging recycling across its
operations. Water reuse rates
depend on a range of factors
and the Group seeks to achieve
a rate of 70–85% depending on
circumstances at each operation.
The Group has pioneered the use of
untreated sea water at its Chilean
operations, and the technique is
used at Centinela and Antucoya.
In 2016, sea water accounted for
47.2% of total Group water use.
Secure labour supply is key to
the Group’s success. Labour
agreements with unions are in
place at all of the Group mining
operations, generally lasting for
three years. In 2016, the Group
successfully renewed labour
agreements with the unions at
Zaldívar, Antucoya, and with
a new supervisors’ union at
Los Pelambres. The Group
continues to foster good working
relationships with its employees and
labour unions and to date there has
been no industrial action.
Contractors account for
approximately 71% of the workforce
across Group operations, and
they are responsible for labour
negotiations with their own
employees. The Group maintains
strong relations with all contractors
to ensure operating continuity and
expects all contractors to adhere to
the same standards expected of its
own workforce, particularly in the
areas of safety and health.
ANTOFAGASTA.CO.UK
33
SULPHURIC ACID
The sulphuric acid market
weakened during 2016, mainly
due to lower consumption in the
fertiliser industry. This lowered the
regional deficit and caused prices
to drop by the end of the year.
The Group secures most of its
sulphuric acid requirements under
contracts for a year or longer at
prices normally agreed in the latter
part of the previous year. Therefore,
the decline in demand is likely
to benefit the acid procurement
programme in 2017.
EXCHANGE RATE
Costs are affected by the Chilean
peso to US dollar exchange rate, as
approximately 35-40% of the mining
division’s operating costs are in
Chilean pesos. However, this often
acts as a natural hedge as over
half of Chile’s foreign exchange is
generated from copper sales, so an
increase in the copper price tends
to weaken the Chilean peso and
vice versa. During 2016, the Chilean
peso weakened by 3.5% from
Ch$654/$1 in 2015 to Ch$677/$1.
During the first two months of 2017
it averaged Ch$652/$1.
OPERATING REVIEW CONTINUED
OIL PRICE
Fuel represents less than 5% of
total operating costs and is used in
trucks transporting ore and waste
at the mine sites. Nevertheless,
improving fuel efficiency is a
priority, with the amount of fuel
consumed per tonne of material
extracted being a key measure. Fuel
is supplied by Chile’s two largest
suppliers to avoid sole supplier risk.
Generally, the oil price also affects
the spot price of energy, shipping
rates for supplies and products, and
the cost of items such as tyres and
conveyor belts, which contain oil-
based products. The oil price rose
by approximately 45% during 2016,
following the reduction of output
agreed by oil producing nations at
the end of the year.
to be taken during the coming
years as part of the Cost and
Competitiveness Programme.
Opportunities to improve major
service contracts in areas such as
productivity and costs are under
review by external consultants.
Once identified and analysed, these
can lead to contract renegotiations.
In total, the Group has over
1,500 contracts for goods and
services. Key contracts, such as
tyres, grinding media, mining and
mobile equipment, chemicals,
explosives, camp administration
and maintenance, are under
long-term agreements. Price
adjustment formulas reflect market
variations of key cost elements,
such as steel, petrol and Consumer
Price Index (CPI). Contracts are
normally negotiated between the
operation and the supplier, but
tenders and negotiations are mostly
co-ordinated, and sometimes
led, by the Central Procurement
Department in order to maximise
leverage and benefits.
The Group’s corporate procurement
team uses a variety of strategies,
including from full-price
competition, price auctions,
sourcing in China and working with
strategic suppliers, to reduce the
costs to each party and achieve a
sustainable, longer-term, lower-cost
base for future growth. To foster
this co-operative approach, the
Group has engaged productivity
experts to map operations,
understand value streams and
identify opportunities for the Group
to increase efficiency and
reduce costs.
SERVICE
CONTRACTS AND
KEY SUPPLIES
In 2014, the Group created a
central procurement department
to consolidate supply activities
for key purchases such as mining
equipment, tyres and reagents,
achieving synergies and economies
of scale across its operations. The
programme has expanded since
and has worked to standardise
procurement policies and
procedures across the Group. A
core of experts defines product and
service categories and negotiates
corporate-level agreements
to obtain price reductions and
discounts in high-spend areas.
In 2016, the procurement
team successfully:
− Implemented SAP to manage
inventory levels
− Centralised the procurement
of all goods, strategic
and operating
− Incorporated Zaldívar into
existing Group-wide contracts,
achieving significant savings
− Integrated Antucoya into the
Group procurement system and
negotiated new procurement
contracts for goods and services
not already covered under
Group contracts
− Automated and outsourced all
transactions under $5,000, which
account for approximately 60% of
all procurement transactions
The Group continually reviews
its procurement processes and
existing agreements, identifying
additional cost-saving opportunities
34
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
INPUTS
KEY
RELATIONSHIPS
The Group cannot run its business in isolation. The
business model is underpinned by relationships with
stakeholders at local, regional, national and international
level, which contribute to its long-term success.
The Group forms long-term partnerships with some suppliers,
while others are managed with a more short-term focus based
on market competition.
CUSTOMERS
Most copper and molybdenum
sales are made under annual
contracts or using longer-term
framework agreements with sales
volumes agreed for the coming
year. Gold is contained in the copper
concentrates and so is part of
copper concentrates sales.
The majority of sales are to
industrial customers who refine
or further process the copper –
smelters, in the case of copper
concentrate production, and copper
fabricators in the case of cathode
production. The Group’s marketing
team builds long-term relationships
with these core customers, while
also maintaining relationships with
trading companies that participate in
shorter-term sales.
Over 80% of the Group’s mining
sales are under contracts of a year
or longer and metals sales pricing
is generally based on prevailing
market prices.
Across the industry neither copper
producers nor consumers tend
to make annual commitments for
100% of their respective production
or needs, and producers normally
retain a portion to be sold on the
spot market throughout the year.
The prices realised by the Group
during a specific period will differ
from the average market price for
that period. This is because, in
line with industry practice, sales
agreements generally provide for
provisional pricing at the time of
shipment, with final pricing based
on the average market price for
the month in which settlement
takes place.
For copper concentrate, sales
remain open until settlement occurs,
on average three to five months
from the shipment date. Settlement
for the gold and silver content in
copper concentrate sales occurs
approximately one month from
shipment. Copper cathode sales
remain open for an average of one
month from shipment. Settlement
for copper in concentrate sales is
later than for copper cathode sales
as further refinement of copper in
concentrate is needed before sale.
Molybdenum sales generally remain
open for two or three months
from shipment.
STRUCTURE
OF SALES
CONTRACTS
Typically, the Group’s sales
contracts set out the annual
volumes to be supplied and the
main terms for the sale of each
payable metal, with the pricing of
the contained copper in line with
LME prices.
In the case of concentrate, a
deduction is made from LME prices
to reflect TC/RCs – the smelting
and refining costs necessary to
process the concentrate into copper
cathodes. These TC/RCs are typically
determined annually and in line
with terms negotiated across the
concentrate market.
A significant proportion of the
Group’s copper cathode sales are
made under annual contracts,
priced in line with LME prices.
In copper cathode transactions
a premium, or in some cases
a discount, on the LME price is
negotiated to reflect differences
in quality, logistics and financing
compared with the metal
exchange’s standard copper
contract specifications.
Similarly, the Group’s molybdenum
contracts are made under long-
term framework agreements, with
pricing usually based on Platts’
average prices.
ANTOFAGASTA.CO.UK
35
OPERATING REVIEW CONTINUED
KEY RELATIONSHIPS CONTINUED
SUPPLIERS
EMPLOYEES
Suppliers play a critical role in the
Group’s ability to operate, providing
a large range of products and
services from grinding media to
catering at the mine sites.
The Group currently works with
over 3,500 suppliers, focusing on
the top suppliers in each category
to ensure the most cost-effective
and efficient solutions across
all operations. As previously
mentioned, the corporate
procurement team has consolidated
procurement practices across all
operations and projects. The team
has also reduced the number of
suppliers in order to extract greater
benefits from selected suppliers
over a long period of time.
The Group openly encourages
suppliers to raise any issues or
concerns they may have about their
relationship with the Company, their
contracts or the workforce.
All suppliers are audited routinely
with regard to the workforce, to
ensure that they are complying with
the law and the Group’s stringent
policies and procedures. The Group
also monitors suppliers’ financial
health and ensures bank guarantees
are in place when necessary.
The Group employs approximately
5,400 people, who work alongside
approximately 13,100 contractors
at its corporate offices, operations
and projects. Mining operations are
inherently risky and ensuring the
safety and health of every employee
is an absolute priority. It is an
ethical obligation and is central to
the Group’s strategic objectives.
The Group has created a variety of
initiatives over the last few years
to secure and develop talent. In
particular, the Group seeks to
attract young professionals into the
mining industry and complement
their work experience with
workshops and seminars across
different functional areas.
Relationships with trade unions
are based on mutual respect and
transparency. This helps the Group
to retain employees and avoid
labour disputes, contributing to
greater productivity and business
efficiency. During 2016, the Group
renewed labour agreements with
employees at Antucoya and with
the supervisors at Los Pelambres
and Zaldívar. In the Chilean mining
industry labour agreements are
negotiated with each union every
three years and the next of the
Group’s negotiations will take
place during 2017.
During 2016 the Group successfully
implemented a functional
simplification programme to:
1. Focus the operations on core
business activities (safety,
production volume and cost)
and centralise all supporting
transactional activities.
2. Standardise processes and
foster best practice across
all operations by sharing and
leveraging the potential of SAP.
3. Increase the efficiency of
functional processes and
structures with a core team
responsible for these activities
across all operations.
4. Reduce costs as a consequence
of simplified functional models
and structures.
The programme covered Finance,
Supply, IT, Human Resources,
Legal, Internal and External Affairs
functions, eliminating approximately
100 positions across the Group and
achieving annual savings of around
$10 million.
See page 54 for more
information
CONTRACTORS
The number of contractors working
for Antofagasta varies according
to business needs and the level of
construction activity.
As at 31 December 2016, there
were approximately 13,100
contractors working at the Group’s
operations and projects. This was
some 5% lower than the same
time last year, principally due to
the completion of construction
at Antucoya.
Contractors are vital to mining
operations and the Group aims to
build long-term relationships with
contractor companies based on the
highest standards. Safety and health
targets are included in performance
agreements and compliance with
safety and human rights laws,
labour regulations and the Group’s
own safety and health standards are
assessed regularly by internal and
external audits.
The minimum wage paid by
Antofagasta to contractor
employees is 55% higher than
that required by Chilean law and
contractor staff have access to the
same mine camp facilities as the
Group’s own employees.
See page 54 for
more information
36
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
INPUTS
LOCAL
COMMUNITIES
It is crucial to have strong
relationships with local communities
in the areas where the Group
operates, as without mutual trust,
co-operation and understanding
it is not possible to run a
mine successfully.
Having clear social policies and
regular contact with community
members helps to manage potential
conflicts and maintains the Group’s
social licence to operate. During
2014, Los Pelambres adopted a new
community engagement initiative
called “Somos Choapa” (We Are
Choapa), after the region in which
it is located. In 2015, the Group
signed a framework agreement
with three municipalities under the
initiative, and has begun assessing a
portfolio of projects for sustainable
development in the region.
During 2016, the Group resolved
long-standing legal issues with
the Caimanes community, mainly
related to the El Mauro tailings dam.
This was achieved by open dialogue
with the community, prioritising
their needs and clarifying the
Company’s commitments. The
dialogue was monitored by the
Chilean chapter of Transparency
International to ensure the openness
and fairness of the process.
More information on
pages 54 and 55.
GOVERNMENT
RELATIONS
OTHER LOCAL
STAKEHOLDERS
Good relationships with other
stakeholders near the Group’s
operations and projects, such as
the local authorities, local media
and others, are fundamental to the
smooth operation and future growth
of the business. Each of the Group’s
operations has a manager who
oversees these relationships.
Political developments and changes
to legislation or regulations can
affect business, whether in
Chile, the UK, or other countries
where the Group has operations,
development projects or
exploration activities.
The Group monitors new and
proposed legislation in order to
anticipate, mitigate or reduce
possible effects and ensure
it complies with all legal and
regulatory obligations. It works
with industry bodies to engage with
governments on public policy, laws,
regulations and procedures that
may affect its business, including
such issues as climate change and
energy security.
The Group assesses political risk
when evaluating potential projects,
including existing foreign investment
agreements. It also utilises internal
and external legal expertise to
ensure its rights are protected.
See page 58 for
more information
ANTOFAGASTA.CO.UK
37
OPERATING REVIEW CONTINUED
OUR MINING
DIVISION
All of the Group’s operations are located in the
Antofagasta Region of northern Chile except for its
fl agship operation, Los Pelambres, which is in the
Coquimbo Region of central Chile.
In this section
TONNES OF COPPER
PRODUCED IN 2016
709,400
OUNCES OF GOLD
PRODUCED IN 2016
270,900
TONNES OF
MOLYBDENUM
PRODUCED IN 2016
7,100
NET CASH COSTS
IN 2016
$1.20/LB
GROWTH PROJECTS
AND OPPORTUNITIES
P40
LOS PELAMBRES
P44
CENTINELA
ANTUCOYA
ZALDÍVAR
P46
P48
P49
38
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
PERU
PACIFIC OCEAN
BOLIVIA
Esperanza port
Mejillones
Antucoya
Centinela
ANTOFAGASTA
Antofagasta
Region
Zaldívar
LA SERENA
Coquimbo
Region
Punta
Chungo port
ILLAPEL
LOS VILOS
Los
Pelambres
Antofagasta
Region
Coquimbo
Region
SANTIAGO
ARGENTINA
CHILE
Los Pelambres
Centinela
Antucoya
Zaldívar
Capital city
Cities and town centres
Ports
ANTOFAGASTA.CO.UK
39
OPERATING REVIEW CONTINUED
GROWTH PROJECTS
AND OPPORTUNITIES
The Group seeks to expand its copper production in
Chile and abroad by developing new projects and other
potential opportunities. Brownfi eld development within
the Group’s Los Pelambres and Centinela mining districts
in Chile remains the primary focus for maximising value
while managing associated risks.
The Group has a portfolio of longer-term growth options and continues
to assess opportunities that come to market. Long-term growth options
already within the portfolio are under evaluation in feasibility studies. Given
the early stage of some of these projects, their potential and timing is
uncertain and the following outline provides only a high-level indication of
potential opportunities.
The Group’s exploration and evaluation expenditure decreased by 56.5%
to $44.3 million in 2016 compared with $101.9 million in 2015. When
commodity prices decline and there is greater emphasis on cost control,
tighter focus on high-potential opportunities results in a decrease in overall
exploration expenditure.
EXPLORATION ACTIVITIES
The Group has an active early-stage
exploration programme beyond the
core locations of the Centinela and
Los Pelambres mining districts.
This is managed through its in-
house exploration team and utilises
partnerships with third parties to
build a portfolio of longer-term
opportunities across Chile and
the rest of the world. In response
to the depressed copper market
the Group reduced its exploration
and evaluation expenditure
from $101.9 million in 2015 to
$44.3 million in 2016.
CHILE
The Group focuses its exploration
activities on the main copper
porphyry belts in northern and
central Chile. During the year, as
part of its asset rationalisation
programme, the Group relinquished
low priority tenements and acquired
new tenements more closely
aligned with its target areas. First
stage drilling was initiated during
the year and progressed as planned
at targets located in the second and
third regions of Chile.
INTERNATIONAL
The Group’s international
exploration strategy is to identify,
secure and evaluate high-quality
copper exploration projects in
preferred jurisdictions such as
the Americas and Australia.
During 2016, the Group
downgraded Australia as a target
country, increasing its focus on the
Americas while refining its portfolio
of early-stage exploration projects
in key copper provinces in target
countries. Working in partnership
with selected companies, both
public and private, the Group drilled
and tested projects in Argentina,
Australia, Mexico and Zambia and
exited from projects in Portugal,
Finland and Canada. Exploration
efforts in Canada and Australia
generated new projects that will
be evaluated during 2017.
The Group’s strategy is to partner
with experienced junior exploration
companies, funding their exploration
programmes to earn an interest in
the projects while benefiting from
their local knowledge and expertise.
Further information regarding
Reserves and Resources is
included on pages 190 to 199.
40
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
EXPLORATION EVALUATION
GREENFIELD GROWTH PROJECTS
CENTINELA SECOND
CONCENTRATOR
The Centinela Mining District is a
key area for longer-term growth
and the Group continues to evaluate
options for its development.
was approved in 2016 and the
Group has commenced applications
for the additional permits required
for the project following certain
design modifications made during
the year. The feasibility study,
which is due for completion in 2017,
will include the testing of a pilot
hydraulic roll crushing system that
is being considered in preference
to conventional SAG.
Group is considering the possibility
and timing of such an expansion,
which could bring throughput
capacity to approximately 150,000
tonnes per day and increase
annual production to approximately
200,000 tonnes of copper, 170,000
ounces of gold and 5,500 tonnes
of molybdenum. Feasibility study
work is underway on certain critical
early-stage activities.
The second concentrator will be
built some 7 km from Centinela’s
current concentrator and is
expected to have an ore throughput
capacity of approximately 90,000
tonnes per day, with annual
production of approximately
140,000 tonnes of copper,
150,000 ounces of gold and
2,800 tonnes of molybdenum.
Ore will be sourced initially from
the Esperanza Sur deposit and,
once mining is completed at
Encuentro Oxides, additionally from
Encuentro Sulphides.
90,000 TONNES
PER DAY
THROUGHPUT
CAPACITY
The pre-feasibility study for this
$2.7 billion project was completed
at the end of 2015 and the feasibility
study is now underway. The EIA
A decision to proceed with the
project will depend on the market
outlook and the sequencing
of the project relative to the
Los Pelambres project. If approval is
granted in 2018, production would
be expected to begin in 2021.
The project team continues to
review options for reducing
the capital cost of the project.
These include the use of existing
infrastructure (power lines,
pipelines, concentrate shipping and
other facilities) as well as enhancing
the owner’s team capabilities,
to improve the project execution
strategy, management and control,
together with other initiatives.
There is scope to further increase
the plant capacity once the second
concentrator is completed. The
TWIN METALS
MINNESOTA
Twin Metals Minnesota LLC
(Twin Metals) is a wholly-owned
copper, nickel and platinum group
metals (PGM) underground
mining project holding the Maturi,
Maturi Southwest, Birch Lake and
Spruce Road copper-nickel-PGM
deposits located in north-eastern
Minnesota, US.
During 2016 the Group undertook
evaluation and optimisation
exercises on the pre-feasibility study
completed in 2014 and progressed
various activities in preparation for
submitting permitting applications.
As previously announced, on
15 December 2016 Twin Metals
was notified that the relevant U.S.
authorities had denied renewal of
two of its long-held federal mining
leases. Twin Metals’ leases had
been held in good standing by
the federal government for more
than 50 years, and had been twice
renewed without controversy.
Twin Metals has filed a federal
lawsuit seeking to secure its rights
to the two federal mineral leases
and believes denial of the leases
is inconsistent with federal law,
the terms of leases themselves
and the federal government’s
established precedent in supporting
and renewing the leases over
five decades.
While Twin Metals is assessing
the impact of the agencies’ lease
renewal decision, it will continue
progressing the project while also
pursuing legal avenues to protect
its contractual mineral rights.
Further information is set out
in Note 36 to the Financial
Statements.
ANTOFAGASTA.CO.UK
41
OPERATING REVIEW CONTINUED
BROWNFIELD
GROWTH PROJECTS
The Group is focused on controlling capital costs and optimising
production from existing operations with careful project management
and the constant monitoring of the effi ciency of its mines, plants and
transport infrastructure. Where possible, it conducts debottlenecking
and incremental plant expansions to increase throughput and improve
overall effi ciencies.
LOS PELAMBRES INCREMENTAL EXPANSION
The expansion project has been split into two phases in order to smooth
its progress, simplify permitting applications and spread the cost over a
longer period.
PHASE 1
This phase is designed to optimise
throughput within the limits of the
existing operating, environmental
and water extraction permits so
that it will thus need only relatively
simple updates. During this phase,
Los Pelambres will operate at an
average throughput of 190,000
tonnes per day with the addition of a
new grinding and flotation circuit to
mitigate the hard ore currently being
mined, and a 400 litres per second
desalination plant and pipeline.
Desalinated water will be pumped
to the tailings storage facility at El
Mauro where it will connect with
the recycling circuit returning water
to the Los Pelambres plant.
55,000 TONNES
ANNUAL COPPER
PRODUCTION
During the year 2016 the
Group submitted the EIA for the
desalination plant to the authorities
and expects to receive approval
in late 2017 or early 2018. The
feasibility study was completed
in early 2017 and detailed
engineering will be completed
once EIA approval is received. The
project will be subject to internal
review and should be presented
to the Board for construction
approval by the end of 2017. A
decision to proceed will be made
only in suitable market conditions
and with an approved EIA in place.
Production would commence in late
2020 at the earliest.
The feasibility study estimate of the
capital expenditure for this project
is approximately $1.05 billion,
with some $580 million allocated
to the additional crushing and
flotation circuits and the balance
to the desalination plant and water
pipeline. The expansion is estimated
to increase copper production by an
average of 55,000 tonnes per year
over a period of 15 years.
PHASE 2
In this phase the Group will seek
to increase throughput to 205,000
tonnes per day and to extend the
mine’s life beyond the currently
approved 21 years. As part of this
development a new EIA must be
submitted to increase the capacity
of the mine’s El Mauro tailings
storage facility and the mine waste
dumps. The Group is preparing
to commence the environmental
baseline study for the EIA in 2017.
21 YEARS
MINE LIFE
Capital expenditure for this phase
is estimated at approximately
$500 million, with the majority of
the expenditure being on mining
equipment, additional crushing and
grinding capacity and flotation cells.
The conveyors from the primary
crusher to the concentrator plant
will also have to be repowered to
support the additional throughput.
Critical studies on tailings and waste
storage capacity are underway in
parallel with the Phase 1 feasibility
study and should be completed
by the end of 2017. However, the
project will only proceed following a
decision on Phase 1 and will require
the submission of various permit
applications, including a new EIA.
First production from this phase
would be in 2022 at the earliest.
42
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
CONSTRUCTION
PROJECTS UNDER CONSTRUCTION
as Encuentro Oxides sits on top
of the much larger Encuentro
Sulphide deposit. The Encuentro
Oxides project will therefore
act as a funded pre-strip for
the sulphide deposit, opening
up the latter for development
as part of the Centinela Second
Concentrator project.
43,000 TONNES
ANNUAL COPPER
PRODUCTION
Pre-stripping started in August
2014 and full-scale construction
in early 2015. During 2016,
total expenditure incurred was
$149.2 million and by the end of
the year construction was over
79% complete, with first production
expected in late 2017. The total
construction budget for the project
is $636 million.
CENTINELA
During 2016, work continued on
optimising Centinela’s concentrator
plant in order to bring the level of
throughput to 105,000 tonnes per
day. Debottlenecking of the flotation
and concentrate circuit and the
installation of two paste thickeners
were completed during the year
and the plant achieved its design
capacity in November. The final
paste thickener was completed
in early 2017 allowing the plant
to produce tailings with a solids
content of approximately 67% on a
continuous basis, an improvement
in the solids content of some
four percentage points. The new
paste thickeners are the largest
application of this thickened tailings
technology in the world.
MOLYBDENUM
PLANT
This project will allow Centinela
to produce an average of 2,400
tonnes of molybdenum per year.
Completion is expected in 2017, and
the addition of another by-product
credit will lower Centinela’s unit net
cash costs.
$125 MILLION
CONSTRUCTION
BUDGET
At the end of December 2016, the
project was on time and on budget
with 71% total progress (including
design, engineering, procurement
and construction) achieved. The
total construction budget for the
project is $125 million.
ENCUENTRO OXIDES
The Encuentro Oxides deposit is
within the Centinela Mining District.
It is expected to produce an average
of approximately 43,000 tonnes
of copper cathode per year over
an eight-year period, utilising the
existing capacity at Centinela’s
SX-EW plant. Once the project is
completed, it will enable the plant to
produce at full capacity of 100,000
tonnes per annum for a number of
years, helping to offset a natural
decline in production due to falling
mined grades at Centinela’s existing
oxide pits.
The project entails the installation
of new crushing and heap-leach
facilities at the Encuentro Oxides
deposit, a pipeline to take the leach
solution for processing at the
existing SX-EW plant some 17 km
away, and the extension of the sea
water pipeline from Centinela to
Encuentro. Higher-grade ore will be
crushed and sent to the new heap-
leach facilities, while lower-grade
ore will be processed later on a
Run-of-Mine (ROM) leach pad.
This deposit is important for the
Group’s long-term development,
USE OF GEOGRAPHIC INFORMATION SYSTEMS
A Geographic Information System (GIS) is
a set of hardware and software that stores,
analyses and displays spatial geographic
information and delivers it to users in a way
that assists with the visualisation of the data.
This is particularly useful in areas such as
mining property, environmental management,
projects and exploration.
In 2016 Antofagasta was recognised, among 100,000 nominated
organisations, by the Environmental Systems Research Institute
(ESRI) for its contribution and commitment to improving industry
standards. The award cited its innovative use of GIS to solve
complex problems in the work environment, reducing risks and
improving safety.
ANTOFAGASTA.CO.UK
43
OPERATING REVIEW CONTINUED
THE EXISTING CORE BUSINESS
LOS PELAMBRES
Los Pelambres is a sulphide deposit in Chile’s Coquimbo Region,
240 km north of Santiago. It produces copper concentrate (containing
gold and silver) and molybdenum concentrate through a milling and
flotation process.
60%
OWNED
Coquimbo
Region
Los
Pelambres
2016 PRODUCTION
2016 FINANCIALS
2017 FORECAST
COPPER (TONNES)
355,400
MOLYBDENUM
(TONNES)
7,100
GOLD (OUNCES)
57,800
EBITDA
$921.0M
+23.0%
NET CASH COSTS
$1.06/LB
(13.8%)
COPPER (TONNES)
330-345,000
MOLYBDENUM
(TONNES)
8,500-9,500
GOLD (OUNCES)
45-55,000
MINE LIFECYLE POSITION
EXPLORATION EVALUATION CONSTRUCTION PRODUCTION
COPPER
PRODUCTION
(‘000)
403.7
405.3
391.3
363.2
355.4
‘12
‘13
‘14
‘15
‘16
355,400 TONNES
PRODUCED IN 2016
START OF OPERATION: 2000
REMAINING MINE LIFE: 21 YEARS
Capital expenditure is forecast at
approximately $260 million in 2017,
reflecting higher sustaining capital
expenditure compared to 2016.
2016 PERFORMANCE
OPERATING PERFORMANCE
EBITDA at Los Pelambres was
$921.0 million in 2016, compared
with $748.7 million in 2015,
reflecting significantly lower
operating costs. Realised copper
prices rose to $2.35/lb from
$2.24/lb, further supporting
EBITDA growth.
$1.06 /LB
CASH COST
PRODUCTION
Copper production was 355,400
tonnes in 2016, which was slightly
below production in 2015 of
363,200 tonnes. This decrease is
primarily due to lower throughput
as a greater proportion of harder
ore is processed in the plant, and
was only partly offset by higher
mined grades.
Molybdenum production for the year
was 7,100 tonnes, 29.7% lower than
in 2015, due to lower grades and
recoveries. Gold production was
12.5% higher in 2016 at 57,800
ounces, compared with 51,400
ounces in 2015.
CASH COSTS
Cash costs before by-product
credits at $1.36/lb were 9.3%
lower than in 2015, due to the
savings achieved through the Cost
and Competitiveness Programme
and changes in the estimating
method for deferred stripping
costs. Net cash costs for the
full year 2016 were $1.06/lb
compared with $1.23/lb in 2015.
This decrease is mainly due to
higher realised prices for gold and
molybdenum, slightly offset by lower
molybdenum production.
Total capital expenditure in 2016
was $215.3 million, which included
$99.4 million on mine development.
44
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
EXTRACTION PROCESSING
Los Pelambres had unlawfully
extended a waste-rock dump
(“Cerro Amarillo Waste Dump”) on
its property (which is adjacent to
Los Pelambres on the Argentinian
side of the Chile/Argentina border)
and that Los Pelambres had
violated several Argentinian laws
relating to the misappropriation
of land, unlawful appropriation of
water bodies and that people’s
health was in jeopardy from
the alleged contamination that
the Cerro Amarillo Waste Dump
might generate.
Los Pelambres continues to
exercise all available legal avenues
to defend its position. In January
2017, Los Pelambres finished
removing truck tyres that had
previously been stored on the Cerro
Amarillo Waste Dump – honouring a
commitment previously made to the
Province of San Juan in Argentina.
LEGAL UPDATE
Resolution of outstanding claims
relating to the Mauro tailings dam
Following the agreement reached
with the Caimanes community in
April 2016, long-running claims
relating to the Mauro tailings
dam were substantively resolved
during 2016.
Further information about the
agreement and the initiatives
that are being undertaken by
Los Pelambres in the region in
which Los Pelambres is located are
set out in the Sustainability section
of the Annual Report on page 54.
Cerro Amarillo Waste Dump
As previously announced, in 2014
Xstrata Pachón S.A. (“Xstrata
Pachón”), a subsidiary of Glencore
plc, filed civil and criminal claims
against Los Pelambres before
the Federal Courts of San
Juan, Argentina, alleging that
The Cerro Amarillo Waste Dump
is a pile of inert waste-rock and
any potential future environmental
impact could be easily prevented
with the implementation of an
environmental closure plan, which
is the accepted and recommended
practice.
Further details of
developments in relation to
these claims are set out in
Note 36 to the fi nancial
statements.
OUTLOOK
PRODUCTION
The forecast production for 2017
is 330–345,000 tonnes of payable
copper (slightly below the 355,400
tonnes produced in 2016), 8,500–
9,500 tonnes of molybdenum and
45–55,000 ounces of gold.
CASH COSTS
Cash costs before by-product
credits for 2017 are forecast to
increase to approximately $1.45/lb
and net cash costs to increase to
approximately $1.15/lb as the mine
grades decrease.
ANTOFAGASTA.CO.UK
45
OPERATING REVIEW CONTINUED
CENTINELA
Centinela was formed in 2014 from the merger of the Esperanza
and El Tesoro mining companies. Centinela mines sulphide and oxide
deposits 1,350 km north of Santiago in the Antofagasta Region, one of
Chile’s most important mining areas.
Centinela Concentrates produces copper concentrate (containing
gold and silver) through a milling and flotation process, and Centinela
Cathodes produces copper cathodes using a solvent extraction
electrowinning process (SX-EW).
70%
OWNED
2016 PRODUCTION
2016 FINANCIALS
2017 FORECAST
Centinela
Antofagasta
Region
COPPER (TONNES)
236,200
GOLD (TONNES)
213,000
EBITDA
$562.5M
+135.9%
NET CASH COSTS
$1.19/LB
(35.7%)
COPPER (TONNES)
220-230,000
GOLD (OUNCES)
140-150,000
COPPER
PRODUCTION
(‘000)
168.3
105.1
177.5
102.6
268.2
93.3
163.2
174.9
172.8
236.2
55.8
180.4
221.1
75.9
145.2
‘12
‘13
‘14
‘15
‘16
236,200 TONNES
PRODUCED IN 2016
COPPER IN CATHODES
COPPER IN CONCENTRATE
MINE LIFECYLE POSITION
EXPLORATION EVALUATION CONSTRUCTION PRODUCTION
START OF OPERATION: 2001
REMAINING MINE LIFE: 42 YEARS
2016 PERFORMANCE
OPERATING PERFORMANCE
EBITDA at Centinela was
$562.5 million, compared with
$238.4 million in 2015, reflecting
higher production and lower
operating costs. The realised
copper price was $2.32/lb in 2016,
remaining almost unchanged. The
realised gold price rose from $1,159/
oz in 2015 to $1,257/oz in 2016.
6.8%
COPPER PRODUCTION
PRODUCTION
Copper production for the full
year 2016 was 6.8% higher than
in 2015, primarily due to higher
sulphide grades and the completion
of the concentrator expansion
project. This was partly offset by
lower throughput in the Centinela
Cathodes plant and the expected
continued decline in oxide grades.
Copper in concentrate production
for the full year was 24.2% higher
year-on-year, mainly reflecting
expanded throughput capacity
following the installation of new
tailings thickeners and modifications
to the grinding and flotation circuits.
Higher grades and slightly higher
recoveries also helped increase
production during the year.
Gold production was 213,000
ounces, some 31% higher than
in 2015. This was mainly due to
higher throughput and grades, as
recoveries remained flat across the
two years.
Copper cathode production for the
year was 55,800 tonnes, 26.5%
lower than the previous year, as
grades declined as expected with
mining moving to the lower grade
zones of the Tesoro Central and
Tesoro Noreste pits.
46
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
EXTRACTION PROCESSING
Capital expenditure was
$534.7 million, including
$206.2 million on Encuentro
Oxides and the molybdenum
plant and $205.0 million on
mine development. Total capital
expenditure in 2017 is expected
to be similar to 2016, including
$170 million related to the
construction of the Encuentro
Oxides and molybdenum plant
projects and $240 million on
mine development.
OUTLOOK
PRODUCTION
Production for 2017 is forecast
at 220–230,000 tonnes of
payable copper and 140–150,000
ounces of gold. This includes
65–70,000 tonnes of cathodes and
155–160,000 tonnes of copper in
concentrate. The construction of
the Encuentro Oxides project is
expected to reach completion during
2017 and this will provide feed to
Centinela’s SX-EW plant, allowing
it to operate at near peak capacity
of 100,000 tonnes per annum
from 2018.
CASH COSTS
Cash costs before by-products for
2017 are forecast at approximately
$1.75/lb, similar to 2016, and
net cash costs at approximately
$1.35/lb.
In 2015, Centinela commenced
construction on a separate
molybdenum plant that will
produce approximately 2,400
tonnes per year of molybdenum
over the remaining life of the mine.
Commissioning is expected to
commence in 2017.
CASH COSTS
Cash costs before by-product
credits for the year were 22.9%,
or 52c/lb, lower than in 2015.
Savings achieved through the Cost
and Competitiveness Programme
reduced costs by 12c/lb and a
further 23c/lb was the result of a
change in the estimation method
for deferred stripping costs.
The balance was due to higher
production. Net cash costs for
2016 were $1.19/lb compared with
$1.85/lb in 2015. This decrease
is due to lower cash costs before
by-product credits and higher
production and realised prices
for gold.
36%
NET CASH COSTS
COLLISION ALERT SYSTEM
AND SLEEP AND FATIGUE
WARNING DEVICE
Research has shown that one of the
causes of loss of vehicle control is fatigue,
so Antofagasta has installed Collision
Alert Systems in all of its mining trucks
at Centinela and Antucoya and will do
the same at its other operations in 2017.
This technology constantly monitors the immediate environment
around a truck and sounds an alarm to alert the driver to the
presence of any obstacle in its path or near-by. If the obstacle
is another truck an alarm will also sound in this truck.
Fatigue Warning Devices use sensors in “Smartcaps” worn by
truck operators; these detect fatigue levels using readings from
the skin and issue appropriate alerts by sounding an alarm.
ANTOFAGASTA.CO.UK
47
OPERATING REVIEW CONTINUED
ANTUCOYA
Antucoya is approximately 1,400 km north of Santiago and 125 km
north-east of the city of Antofagasta, in Chile’s Antofagasta Region.
Construction of the project was completed in 2015 with full production
achieved in 2016. Antucoya mines and leaches oxide in order to
produce copper cathodes at an average rate of 85,000 tonnes per year.
70%
OWNED
Antucoya
Antofagasta
Region
2016 PRODUCTION
2016 FINANCIALS
2017 FORECAST
COPPER (TONNES)
66,200
EBITDA
$64.9M
COPPER (TONNES)
80-85,000
66.2
12.2
‘15
‘16
CASH COSTS
$1.83/LB
MINE LIFECYLE POSITION
EXPLORATION EVALUATION CONSTRUCTION PRODUCTION
START OF OPERATION: 2016
REMAINING MINE LIFE: 19 YEARS
2016 PERFORMANCE
OPERATING PERFORMANCE
EBITDA at Antucoya was
$64.9 million as the operation came
into commercial production in
April 2016.
PRODUCTION
The mine began commercial
production at the beginning of April
and produced 66,200 tonnes of
copper during the year, as expected,
reaching its design capacity
in August.
CASH COSTS
Cash costs from the start of
commercial production were
$1.83/lb.
Total pre-financing construction
cost of the project has been
$1.9 billion with $9.4 million spent
in 2016.
OUTLOOK
In 2017 cathode production is
forecast at approximately 80-85,000
tonnes and cash costs are expected
to decrease to $1.60/lb.
Total capital expenditure in 2017
is expected to be approximately
$85 million, which includes
$20 million related to mine
development costs.
360° SIMULATOR IN ANTUCOYA
As part of Antofagasta’s commitment to eliminating fatalities at its operations, it has
analysed the main causes of accidents and implemented technology-driven solutions
to minimise such risks.
For example, a significant factor in fatalities is loss of control of a vehicle. The solution
at Antucoya was to install a state-of-the-art 360° simulator, so that operators training
on a variety of mining equipment, such as trucks, shovels and front-end loaders, could
experience the most realistic situations possible to prepare them for the challenges faced
in the everyday working environment.
Antofagasta is planning to install simulators at all other operations during 2017 and 2018.
48
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
EXTRACTION PROCESSING
ZALDÍVAR
Zaldívar is an open-pit, heap-leach copper oxide mine operating at an
average elevation of 3,000 metres, approximately 1,400 km north of
Santiago and 175 km south-east of the city of Antofagasta. The Group
completed the acquisition of a 50% interest in the mine from Barrick
Gold Corporation on 1 December 2015 and is the operator of the mine.
50%
OWNED
Antofagasta
Region
Zaldívar
2016 PRODUCTION1
2016 FINANCIALS
2017 FORECAST
COPPER (TONNES)1
55-60,000
COPPER (TONNES)
51,700
51.7
EBITDA
$85.1M
CASH COSTS
$1.54/LB
4.4
‘15
‘16
MINE LIFECYLE POSITION
EXPLORATION EVALUATION CONSTRUCTION PRODUCTION
2016 PERFORMANCE
ACQUISITION
The Group’s acquisition of a 50%
interest in the Zaldívar mine from
Barrick Gold Corporation was
completed in December 2015. Total
consideration for the transaction,
after working capital adjustments,
was $950 million.
PRODUCTION
Total attributable production in
2016 was 51,700 tonnes of copper
cathodes. During the year there
was a significant increase in copper
recovery due to improved sulphide
leaching, using experience gained at
other Group operations.
$1.54 /LB
CASH COSTS
START OF OPERATION: 1995
REMAINING MINE LIFE: 13 YEARS
OUTLOOK
Attributable copper production in
2017 is forecast to be approximately
55–60,000 tonnes at a cash cost of
$1.50/lb.
Attributable capital expenditure
in 2017 is expected to be
approximately $50 million, of which
$25 million will be spent on mine
development.
CASH COSTS
Cash costs for 2016 were lower
than expected at $1.54/lb, partly
because leach recoveries and
grades were higher than anticipated
and partly due to synergic savings
made during the year following the
mine’s merger into the Group.
Attributable capital expenditure for
the 2016 full year was $57.5 million,
which includes approximately
$30 million with respect to mine
development. These amounts are
not included in the Group capital
expenditure figures.
1. 50% share of total mine production
ANTOFAGASTA.CO.UK
49
OPERATING REVIEW CONTINUED
TRANSPORT
100%
OWNED
The division, known as Ferrocarril de Antofagasta a Bolivia (FCAB),
provides rail and truck services to the mining industry in the
Antofagasta Region.
The transport division operates its own railway network, with access to
Bolivia and the two largest ports in the region at Mejillones and the city of
Antofagasta.
The port at Antofagasta is managed by Antofagasta Terminal Internacional
(ATI), which is minority owned by the Group.
2016 TONNAGE
TRANSPORTED
6.5M TONNES
(‘000)
6,587
1,543
6,390
1,341
6,229
1,278
6,113
1,180
5,044
5,048
4,951
4,933
6,496
1,186
5,310
2016 FINANCIALS
CUSTOMERS MAP
EBITDA
$87.7M
94.4
88.7
83.8
78.8
87.7
Tocopilla
map to
be provided
María Elena
Calama
Mejillones
Antofagasta
Taltal
‘12
‘13
‘14
‘15
‘16
‘12
‘13
‘14
‘15
‘16
ROAD
RAIL
* Restated to exclude FCA which
was sold in 2015
2016 PERFORMANCE
During the year, FCAB optimised
and expanded its business by
integrating and strengthening the
three key areas of sustainability,
productivity and cost management.
There was a positive effect on
revenue as sales associated with
spot services increased due to
higher utilisation of the fleet. The
railway agreed a tonnage increase
with one of its largest customers
and reached an important milestone
with the purchase of seven brand
new locomotives, with the object of
optimising the fleet and increasing
asset productivity.
OPERATING
PERFORMANCE
The division’s EBITDA was
$87.7 million in 2016, compared to
$78.8 million in 2015, reflecting tight
cost management which reduced
costs by 7.6% compared to the
previous year.
TRANSPORT TONNAGE
During 2016 the division transported
6.5 million tonnes, compared to
6.1 million tonnes in 2015. This
6.3% increase was due to increased
customer demand, improved
performance of rolling stock and
better fleet utilisation, which allowed
more acid and copper and other
concentrates to be transported.
This increase in tonnage
transported marks the reversal of
a downward trend since 2013 and
further growth is expected in the
medium term.
COSTS
Cost management was focused on
optimising the division’s business
processes to ensure the lasting
competitiveness of its services. This
was achieved by better utilisation
of the fleet resulting in greater
fuel efficiency, savings in the use
of third-party services, and other
organisational changes.
Sierra Gorda
Antofagasta
Region
Road Route
Rail Route
Bimodal Route
FCAB Customers
50
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
FCAB MANAGEMENT
MODEL
Costs
Productivity
Sustainability
OUTLOOK
The division will also develop
new business opportunities and
optimise the use of rolling stock and
utilisation of the fleet. One area of
emphasis will be on maintenance,
using knowledge gained from
the mining division. Maintenance
practice will be strengthened in
order to deliver more consistent
fleet availability, thereby improving
operating continuity and budget
compliance. This will ensure a
seamlessly integrated fleet and
more efficient use of assets
and resources.
In the medium term, copper
production in the Antofagasta
Region will change from metallic
copper output to concentrate,
increasing the mass to be
transported, and declining
ore grades will increase the
consumption of bulk supplies.
These factors present unique
opportunities for the transport
division and will drive revenue
growth in the medium to long term.
MARKETING
SUSTAINABILITY
Sustainability is an integral part of the division’s new management
model, as the safety and health of employees and engagement
with local communities are key to long-term success. It has been
incorporated into the systems of both the division and the Group
overall, enabling efficient co-ordination with the mining division’s
operations in the region.
Safety and health: As part of the management model a new Health,
Safety and Security role was created on the division’s Executive
Committee. Employees’ responsibility for their own and their
colleagues’ safety has been emphasised and improved risk and
accident reporting introduced as a result of lessons learned from
the first fatality in the division for five years.
This tragic fatality occurred in July 2016, a year that otherwise showed
an improvement in the Lost Time Injury Frequency Rate (LTIFR), which
fell by 55% compared to 2015. Incident reporting increased by 270%
over the same period, reflecting take-up of the new reporting metric.
Communities: A Sustainability and Public Affairs Manager was
appointed and internal and external baseline studies were conducted.
The division also began to work on strengthening its image in
the region.
In 2017, the focus will be on embedding the preventive safety and
health culture, with a clear emphasis on individual responsibility,
and deepening the interaction with local communities.
ANTOFAGASTA.CO.UK
51
SUSTAINABILITY REPORT
THE GROUP’S APPROACH
TO SUSTAINABILITY
For Antofagasta, sustainable mining means prioritising employees’
safety and health and taking responsibility for environmental
stewardship while engaging transparently with stakeholders.
Sustainable operation is an ongoing process in the face of increasingly demanding challenges. The Group is committed to the continuous
improvement of its social and environmental practices and its Board is responsible for ensuring that sustainability is embedded in all
decision-making throughout the mining cycle. This approach is closely aligned with its corporate values and the International Council
on Mining and Metals (ICMM) Principles.
In this section
SAFETY AND
HEALTH
P53
EMPLOYEES
P54
COMMUNITY
RELATIONS
P54
ENVIRONMENTAL
STEWARDSHIP
P56
2016 CHALLENGES AND OPPORTUNITIES
The Group’s sustainability priorities are determined both by business risks
and by the key concerns and expectations of its stakeholders. In 2016, the
Group focused on:
1 Striving to achieve zero fatalities while continuing to improve safety and
health performance. Regrettably, two employees lost their lives in fatal
accidents.
2 Addressing long-running claims by the Caimanes community. Following
an agreement reached with the community in April, the two outstanding
court cases were substantively resolved in favour of Los Pelambres in
November 2016.
3 Delivering on commitments made to communities as part of the Somos
Choapa engagement process and extending its principles and
methodology to other districts.
4 Pioneering the involvement of the Caimanes community in creating
an emergency preparedness plan for the El Mauro dam.
5 Progressing strategies to address climate change and biodiversity.
6
Integrating Zaldívar into the Group’s culture.
7 Strengthening corporate compliance procedures and increasing
internal awareness.
TRANSPARENT REPORTING ON PROGRESS
This section of the Annual Report summarises the Group’s sustainability
performance. More detailed information is provided in the annual
Sustainability Report, prepared in accordance with the GRI G4
reporting standards and the ICMM’s requirements, available at
www.antofagasta.co.uk.
Antofagasta answers the Carbon Disclosure Project’s (CDP) carbon and
water questionnaires and is a constituent of the FTSE4Good Index series,
the STOXX Global ESG Leaders Index and the ECPI Global Developed ESG
Best in Class Index.
The mining division is a member of Chile Transparente, the local chapter of
Transparency International.
Los Pelambres, Centinela and Zaldívar have ISO 9001 certifications.
Los Pelambres and Zaldívar also have ISO 14001 and OHSAS
18001 certifications.
Further information on the Board and its Sustainability and Stakeholder
Management Committee can be found on pages 92 to 93.
52
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
SAFETY AND HEALTH
The Group is fully committed to achieving zero fatalities and to reducing
the frequency and severity of accidents. Its safety and health strategy is
risk based, in line with international best practices. Unfortunately, despite
all efforts, two employees died in fatal accidents during the year, one at
Antucoya and the other in the transport division. Though new standards,
processes and tools are in place and the leadership is fully committed to
safety, there is still more to be done to make each and every employee safe
at work.
SAFETY IS A JOURNEY
Over the past three years the Group has implemented a corporate
framework to increase employee and contractor safety at all of its
operations. The first step was to define new standards and procedures.
Next came raising awareness through intensive training, senior leadership
on the ground and communications support. The biggest challenge today is
embedding this model with employees and contractors; as with all cultural
change, this will take time.
ADDRESSING KEY RISKS
Analysis of past accidents identified 15 types of risks that caused all of
the fatalities. In 2016 the tools and processes for on-site verification of
key safety controls were simplified on the basis of past experience, which
showed that simpler procedures were more effective than complex ones.
There are six causes of all major health risks. The Group has concentrated
on these risks by defining specific controls for each one.
In 2016 SAFEmap, a renowned international consultant, was hired to
review the mining division’s safety strategy and identify gaps. This review
included a safety culture survey answered by 3,500 employees. The
resulting recommendations and the plans to address them were reviewed
by the Board.
AWARENESS AND REPORTING
Safety reviews are conducted by the Executive Committee at every
operation and the Committee uses its monthly visits to verify that the key
controls for critical safety risks are being correctly applied at each site.
It also oversees the investigation of high-potential risk events and publicly
recognises employees for outstanding safe conduct. In 2016 the Group’s
Executive Committee conducted seven on-site safety verifications.
Safety performance is reported weekly to the Executive Committee and
monthly to the Board. The Sustainability and Stakeholder Management
Committee reviews fatal and serious accidents in detail.
Raising awareness and persuading all employees to fully commit to their
own and their colleagues’ safety remains a cultural challenge. Intensive
on-site supervision and training, near-miss reporting, wide dissemination
of information on the causes of severe accidents, site management meetings
focused on safety, and public recognition of committed employees are
among the many ways in which the Group’s safety practices are introduced
and reinforced.
All new employees must complete a safety and health induction course
and all existing employees and contractors regularly receive refresher
training. There are also regular refresher workshops on safety policies
and procedures, which consider best practices and lessons learnt from
near-miss incidents.
FOCUS ON CONTRACTORS’ EMPLOYEES
Contractor employees are a particularly important part of the Group’s safety
and health programme, as they represent some 70% of Antofagasta’s
total workforce. In 2016 the focus was on accelerating the adoption of the
corporate safety framework by contractors via the Corporate Security and
Health Regulations for Contractors and Subcontractors (RECSS), training,
data analysis and on-site audits.
The Group requires contractors to comply with its safety and health
procedures, providing them with technical support and training and closely
monitoring their safety performance, which is reported together with that
of the Group’s own employees.
PERFORMANCE IN 2016
The Group has continued to reduce the severity and frequency of accidents,
but has yet to eliminate fatalities altogether: in 2016 one worker died at
Antucoya and another employee was involved in a fatal accident at the
Group’s transport division. The Group is committed to improving compliance
with the safety standards and timely management of early warning
indicators. Compliance with the Safety model is audited twice a year
at each site.
LOST TIME INJURY FREQUENCY RATE (LTIFR)
Chilean mining industry
Mining division
Transport division
Group
2016
1.8
1.2
4.9
1.5
2015
2.0
1.2
10.9
2.0
ALL INJURY FREQUENCY RATE (AIFR)
Chilean mining industry
Mining division
Transport division
Group
NUMBER OF FATALITIES
Chilean mining industry
Mining division
Transport division
Group
2016
N/A
6.9
13.3
7.3
2016
18
1
1
2
2015
N/A
6.9
17.8
7.9
2015
16
1
–
1
2014
2.5
1.1
10.3
1.7
2014
N/A
5.0
22.2
6.1
2014
27
5
–
5
2013
2.6
1.1
10.3
1.9
2013
N/A
3.9
17.7
5.1
2013
25
2
–
2
2012
2.9
1.3
13.0
2.5
2012
N/A
5.4
28.6
7.8
2012
25
1
–
1
ANTOFAGASTA.CO.UK
53
SUSTAINABILITY REPORT CONTINUED
EMPLOYEES
SECURING KEY TALENT TO SUPPORT THE
BUSINESS
Antofagasta believes that committed employees are key to the operation
of a successful organisation, particularly in a challenging business
environment. The aim of its Human Resources model is to ensure
it has the organisational capability to achieve its strategy.
In 2016, the Group’s average total workforce was 18,600 people, of
which almost 5,500 were employees and 13,100 contractors, compared
with an average workforce of 19,200 in 2015. During the year a corporate
reorganisation, implemented as part of the Cost and Competitiveness
Programme, led to a reduction in the number of employees, mostly in
supervisory positions at the operations.
LABOUR RELATIONS
The Group recognises employees’ rights to union membership and collective
bargaining, with 68% of its employees holding union membership at its
mining operations. There are ten unions across the Group; Centinela has
four, including a supervisors’ union created in 2016, Los Pelambres has
three, Zaldívar has two, and Antucoya one.
Labour agreements cover matters such as salaries, shift patterns and
employment benefits and these are generally renegotiated with the unions
every three years in accordance with Chilean legislation. In 2016, labour
agreements were negotiated at Los Pelambres, Antucoya and Zaldívar for
the period through 2019.
Among other provisions, Chilean law prescribes the maximum number of
working hours and forbids child and forced labour.
The Group’s excellent labour relations are based on the provision of good
working conditions, mutual trust and ongoing dialogue, which have resulted
in fair labour agreements and the avoidance of strikes.
VALUE OFFER FOR EMPLOYEES
The Group’s mining division is the largest privately held mining group in
Chile. It seeks to attract and retain talented and committed employees by
offering opportunities to become part of a growing company with strong
corporate values. The Group is not only committed to the development of
its employees but to the development of the country, by setting examples
in innovation, safety and excellence. It offers employees a safe work
environment, quality accommodation, a fair salary and a good work/life
balance, along with opportunities to further develop their talents.
MANAGING TALENT AND SUCCESSION
The mining division has a talent management system designed to hire and
retain talented, committed people who take responsibility for their personal
safety and development in order to support business growth. The Group,
in turn, supports each employee within their present position, as well as
provides opportunities for horizontal and vertical development via training
and internal mobility. New positions are initially advertised internally
and there is a succession plan in place for key positions. Employees in
supervisory and managerial positions are offered periodic training to
develop leadership skills.
During 2016 the Group invested $1.5 million dollars in training, providing
an average of 2.5 hours of training per employee a month.
INCREASING GENDER DIVERSITY
In 2016 women represented 9% of the mining division’s workforce, of whom
60% were supervisors or above and 10% held senior management roles.
There are two female Board Directors and one Vice President.
CONTRACTORS – KEY PARTNERS
The Group aims to form stable, long-term relationships with key
contractors who share its values and good practices. Contractors constitute
over 70% of the mining division’s workforce, so keeping them aligned with
the Group’s safety, ethical and operating standards is key to the Group’s
success and reputation. Contractor companies are audited monthly to
ensure their compliance with Chilean labour legislation and with the Group’s
standards, which require contractors to offer their employees life insurance
and a minimum salary well above the country’s minimum wage, among
other benefits.
ZALDÍVAR’S SUCCESSFUL
INCORPORATION INTO THE
ANTOFAGASTA GROUP
Human Resources had an important role in easing Zaldívar‘s
employees into the Group’s structure and culture. Special efforts were
made to share corporate values and communicate Antofagasta’s Code
of Ethics. The Group’s performance management system was also
implemented and Zaldívar employees have also been incorporated into
the internal recruitment and mobility programme.
COMMUNITY RELATIONS
Sustainable management of the Group’s mining operations includes the
prevention and mitigation of negative impact on neighbouring communities
from the project stage until closure. The Group takes into account
community expectations and adopts an approach consistent with its
corporate values, human rights and the ICMM Principles.
SOMOS CHOAPA: ENGAGEMENT AND INVESTMENT
Antofagasta is a long-term neighbour, keen to understand local challenges,
and contributes to help solve these in conjunction with the community,
the government and other relevant stakeholders. The Group has been
innovative in its approach to resolving community issues at Los Pelambres,
where it developed a new engagement process called Somos Choapa.
This addressed both community engagement and investment under the
same five principles: dialogue, collaboration, traceability, excellence and
transparency. Somos Choapa is being developed into a platform for ongoing
communication between the mining company, communities, the government
and other stakeholders on local development and other issues of common
interest. It encourages neighbours to take an active role in the decisions
affecting their communities and is intended to become an integrated
roadmap for public-private investment. Having successfully developed this
approach at Los Pelambres, the Group now plans to expand it to the rest
of its mining operations.
Through Somos Choapa, neighbours voice expectations and concerns
regarding community development and the projects designed to advance it.
Los Pelambres funds an independent firm to design these projects, aided by
technical input from the municipalities. This co-ordinated approach produces
a better outcome based on a combination of public and private funds.
54
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
SUSTAINABILITY
In 2016 Los Pelambres, in partnership with a local educational provider,
endorsed the development of the Choapa’s first technical training centre to
be located in Los Vilos. This centre will give young people who live in the
area the opportunity to train in technical careers without the need to migrate
away from their homes. It will be the first establishment of its kind in the
province of Choapa.
SOMOS CHOAPA COMMUNITY MODEL
IDENTIFY
CONTROVERSIES,
CHALLENGES AND
OPPORTUNITIES WITH THE
COMMUNITIES AND OTHER
PUBLIC AND PRIVATE
STAKEHOLDERS
1
BUILD A SHARED VISION
OF SUSTAINABLE LOCAL
DEVELOPMENT
IDENTIFY A PORTFOLIO
OF PROJECTS AND
PROGRAMMES TO
ACHIEVE THIS VISION
2
3
SOCIAL RISKS AND IMPACTS
The mining division manages the impact of its operations on local
communities, from project inception to closure, and Somos Choapa
reflects the Group’s wish for this commitment to go beyond the mere
legal requirements.
PREVENTING CONFLICT
Water scarcity is a major community concern in Los Pelambres’ area of
influence. Besides operating the mine in a way to preserve water and being
an active participant in local water management initiatives, the Company is
leading the private-public Salamanca Agreement to assess other potential
long-term solutions, such as the construction of a new public desalination
facility and irrigation dams.
EMERGENCY RESPONSE
The Group’s dams and other facilities are designed to resist extreme
weather conditions and severe earthquakes. This was demonstrated in
September 2015 when Los Pelambres’ tailings dam, El Mauro, remained
unaffected after an 8.5 earthquake, whose epicenter was located some
50 km away. The dams have periodical revisions carried out by independent
experts to verify its structural integrity.
As legally required, all four of the Group’s mining operations follow
emergency procedures approved by the national mining authority and their
response plans are co-ordinated with public agencies and other authorities.
These plans include preventive and corrective operating measures at
each site.
INNOVATION, COMMUNITY AND
EMERGENCY PLAN
In 2016, using the approach developed as part of the Somos Choapa
programme, Los Pelambres and the residents of the neighbouring
Caimanes community discussed an agreed response procedure in
case of an emergency at the El Mauro tailings dam. As a result, the
legally required emergency procedure was supplemented with a
new Contingency Plan, which involved defining a new safety zone in
the community as well as measures to issue warnings and improve
evacuation procedures for any type of emergency. The implementation
of this plan started in 2016 and will be completed in 2017.
CAIMANES – FROM CONFLICT TO COLLABORATION
Since Los Pelambres began building the El Mauro tailings dam, some
13 km from Caimanes, it has faced over a decade of local protests involving
lawsuits, roadblocks and demonstrations. However, in May 2016, after nine
months of talks, an agreement between the mine and the community was
formally approved by 83% of the community and the pending court cases
were finally resolved.
The Group realised that the judicial path was not going to resolve the
conflict. Instead it needed a solution to the issues underlying the lawsuits
and this required engagement with all the parties involved. This process
was guided by the Somos Choapa Principles and involved:
− Thirteen open community meetings to discuss safety, water issues and
Los Pelambres’ contribution to local development.
− Full transparency during the meetings about the issues under discussion
and what was being agreed. Anyone could attend the meetings, which
were recorded in full and made available on the internet.
− Formal consultation with the community under the supervision of external
observers, including Chile Transparente.
− A formal vote on the written agreement by all adult members of the
community, which was approved by a vast majority.
The Caimanes Agreement covers:
− Additional works to ensure water availability for the Caimanes
community, even during severe drought, thus complying with the
Supreme Court’s ruling.
− Additional works suggested by the community to increase its confidence
in the safety of the El Mauro tailings dam.
− A fund to finance the development of the community and its
member families.
A committee made up of representatives from the community,
Los Pelambres and Chile Transparente oversees the implementation of
the Agreement.
ANTOFAGASTA.CO.UK
55
SUSTAINABILITY REPORT CONTINUED
ENVIRONMENTAL STEWARDSHIP
The Group endeavours to avoid environmental incidents and to comply with
its legal commitments under its operating permits. Environmental incidents
have the potential to damage the environment as well as community
relations. They can also result in sanctions and even the cancellation of
key permits.
The Group’s environmental stewardship priorities are:
− Ensuring compliance with all of its commitments under its operating
permits, also known as the Environmental Approval Resolution (RCA).
− Ensuring that all key environmental risk controls are in place.
− Enabling the environmentally sound development of mining projects
through the early identification and assessment of their potential
environmental impact.
− Developing adequate responses to the mitigation of climate change,
protection of biodiversity and ensuring the proper closure of
mining operations.
In 2016 Antofagasta updated its environmental management system.
The immediate goal was to get all four of its mining operations applying
the same standards to the assessment of environmental risk and to ensure
full compliance with their operating permits. A system to track the sites’
compliance with their operating permits and to issue automatic alerts in
case of breaches is under development.
ENVIRONMENTAL IMPACT ASSESSMENT (EIA)
In Chile, all mining projects undergo a stringent environmental and social
impact assessment (EIA) that is reviewed by the national Environmental
Assessment Service and includes formal consultation with local
communities and indigenous people. If the project is approved, its impact
prevention, mitigation and compensation commitments become legally
binding, contained in its RCA. The national Environmental Administration
department regularly reviews companies’ compliance with these
commitments and any failures can result in severe fines and eventually
the revocation of the RCA.
In April 2016, Los Pelambres submitted the EIA application for its
Incremental Expansion project and in December Centinela received approval
of its application for the Second Concentrator project, submitted in 2015.
ENVIRONMENTAL CONTEXT
The Group’s operations are located in two areas in Chile. Los Pelambres
is in the central Andean zone, at the head of the agricultural Choapa
valley. Its main environmental issues are water, air quality, biodiversity
and archaeology. Centinela, Zaldívar and Antucoya are further north,
in the Atacama Desert, with no agriculture nearby and only small local
communities as neighbours, none of which are in close proximity to
the sites.
The acquisition of Zaldívar and the ramping-up of Antucoya have increased
the Group’s water consumption, greenhouse gas (GHG) emissions and
mining waste production, although some of these increases were offset by
the closure of Michilla at the end of 2015. However, efforts are underway to
maintain efficiency indicators.
LOS PELAMBRES ENVIRONMENTAL COMPLAINT
In October 2016 Los Pelambres received notification of various charges
against it from the Chilean environmental authority (SMA). The Company
remains committed to full compliance and is working to address these
charges, some of which have been under discussion for several years.
The charges do not relate to the court cases that were resolved in 2016
nor to the protests regarding water availability in 2015. Los Pelambres
is analysing various alternatives and is confident that it can resolve the
situation in a manner acceptable to the SMA.
INNOVATION TO REDUCE THE IMPACT
OF MINING
The Group continues to seek and find new solutions to mining
challenges. It pioneered the use of untreated sea water at its Michilla
operation in the 1990s and later did the same, on a much larger scale,
at Esperanza (now Centinela) and then Antucoya. In 2016, Centinela
installed paste thickeners to increase the proportion of water being
recycled, depositing paste tailings and removing the need for a
conventional tailings dam.
In 2016 the Group participated in several research programmes
on tailings management, acidic water treatment, dust control, tyre
recycling and a plan to cover old tailings dams with endemic species
of vegetation.
WATER MANAGEMENT
Antofagasta minimises its use of continental water resources through
efficient consumption and by using sea water. Two of the Group’s newest
mines, Antucoya and Centinela Concentrates, use untreated sea water.
Centinela Cathodes, Zaldívar and Los Pelambres still use continental water.
However, a desalination plant will be built as part of the Los Pelambres
Incremental Expansion project to satisfy any increased water needs
at Los Pelambres and to supplement the mine’s requirements in case
of drought.
The Group has achieved high water reuse rates of up to 86%, with zero
discharge to waterways. The remainder of the water either evaporates or
remains in the tailings dam. In 2016 it consumed 56 million m3 of water,
53% of which was continental water and 47% was sea water.
All of the Group’s mining operations have water management plans.
Water quantity and quality are monitored respectively by the Chilean Water
Bureau and the Chilean Health Bureau. Local communities also participate
in this monitoring at Los Pelambres since 2012. The quality of sea water
is monitored at the port of Los Pelambres and at the dock that serves the
Centinela and Antucoya operations.
56
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
MINING WASTE
Waste at large-scale mining operations is in the form of rock, spent ore and
tailings. Tailings are the material remaining after the valuable portion of the
ore has been separated from the uneconomic portion. Los Pelambres and
Centinela Concentrates use a flotation process and deposit their mining
waste in licensed tailings storage facilities. Antucoya, Zaldívar and Centinela
Cathodes use leaching to produce copper and have fully-permitted spent
ore dumps.
Centinela was the first large-scale mine in the world to use water-efficient
thickened tailings technology that also makes tailings more stable and offers
better dust control. Its expansion project will also use thickened tailings.
Other solid industrial and domestic waste is separated and stored prior to
final disposal, in compliance with Chilean regulations for each type of waste.
The Group has pioneered the use of raw sea
water and thickened tailings technology to
reduce its consumption of continental water.
SUSTAINABLE ENERGY
The Group’s energy demands are rising as a result of higher throughput
at its operations. As production increases and grades decline, haulage
distances rise and a greater volume of water must be pumped from the
sea. As energy represents around 15% of the mining division’s total costs,
investing in new and clean energy sources has major commercial as well as
environmental benefits.
Over the past few years, the Group has secured renewable energy for
Los Pelambres from conveyor belt self-generation as well as several wind
and solar sources. Renewables accounted for 42% of Los Pelambres’ total
energy requirement during 2016 and this is expected to increase to 80%
on completion of the Alto Maipo hydroelectric project. Centinela, Antucoya
and Zaldívar have long-term fuel indexed supply contracts, secured prior
to renewable sources becoming available, but as the contracts expire the
Group expects to be able to benefit from increasing renewable supply.
The Group remains committed to the effi cient
use of energy to reduce consumption per unit
of production and increase the percentage of
energy generated from renewable sources.
SUSTAINABILITY
CLIMATE CHANGE
Chile is vulnerable to climate change, which has increased average
temperatures and reduced rainfall in the northern and central regions of the
country. The Chilean government has committed to a 30% reduction in GHG
emissions intensity by 2030, despite the country contributing only 0.2% to
global emissions.
The Group continues to work on limiting GHG emissions through improved
energy efficiency and renewable sourcing. The Group began reporting
its GHG emissions to the Carbon Disclosure Project (CDP) in 2009 and
developed its first integrated climate change strategy in 2015, the main
features of which are:
− Identifying risks and opportunities for the Group’s operations arising from
climate change.
− Encouraging innovation to improve energy efficiency and the use of
clean energy.
− Mitigating GHG emissions.
− Measuring progress and reporting results, including CO2 emissions, in
accordance with the CDP.
The Group’s production growth will increase
GHG emissions. However, it is committed to
offsetting this by improving energy effi ciency
and increasing its use of renewable energy.
Antofagasta has no signifi cant gaseous
emissions other than GHG.
CO2 EMISSIONS INTENSITY1
2.92
3.09
2.98
3.67
3.24
3.67
TONNES OF CO2
EQUIVALENT
‘12
‘13
‘14
‘15
‘16
1. Total CO2 emissions per tonne of copper
produced. Data relates to the mining
division only.
CO2 EMISSIONS BY LOCATION (TONNES OF CO2 EQUIVALENT)
MINING DIVISION
DIRECT EMISSIONS
INDIRECT EMISSIONS
SCOPE 1
SCOPE 2
TOTAL EMISSIONS1
CO2 EMISSIONS INTENSITY2
Los Pelambres
Centinela Concentrates
Centinela Cathodes
Antucoya
Zaldívar
Michilla
Corporate Offices
2016
172,227
232,811
125,322
99,918
165,590
–
124
2015
168,892
233,384
152,372
–
–
23,351
120
2016
493,065
801,590
139,930
199,524
364,689
–
1,210
2015
425,064
734,493
173,664
–
–
78,497
1,042
2016
665,292
1,034,401
265,252
299,442
530,279
–
1,334
2015
593,956
967,876
326,036
–
–
101,848
1,161
Total for Mining Division
795,994
578,118
2,000,010
1,412,760
2,796,004
1,990,878
2016
1.87
5.73
4.75
4.52
5.13
–
–
3.67
2015
1.64
6.67
4.29
–
–
3.47
–
3.24
1. Scope 1 + Scope 2
2. Total CO2 emissions per tonne of fine copper produced (scopes 1 and 2)
ANTOFAGASTA.CO.UK
57
SUSTAINABILITY REPORT CONTINUED
DUST CONTROL
Los Pelambres has developed a predictive model to anticipate local
weather affecting air quality around its operations. This information
is used to prevent critical dust episodes by rescheduling blasting and
even, at times, suspending some activities. The company also uses a
set of measures to prevent and mitigate dust emissions at the mine
and its facilities, which are also closely monitored by its neighbours.
This preventive approach has proved effective, allowing Los Pelambres
to operate below the legally permitted dust emission limits.
BIODIVERSITY
The Group has no operations in protected areas. Its biodiversity challenges
are concentrated around Los Pelambres, which is at the head of the Choapa
valley, one of the world’s top 25 biodiversity areas due to its varied native
vegetation. The Group’s conservation efforts began in 2000, when it
protected and rehabilitated an area previously used as an illegal waste dump
into what is now an internationally-recognised coastal wetland under the
Ramsar Convention. It also protects one of the last remaining Chilean palm
forests and in 2014 bought a 62.7-hectare site to ensure the conservation of
the rare temperate relict rainforest of Santa Ines.
In 2016 the Group produced its first Biodiversity Standard, developed with
the support of the Wildlife Conservation Society while incorporating the
ICMM’s policy guidelines on the subject. The Standard includes a hierarchy
of good practices to meet its objectives, in order to:
− Avoid or reduce as much as possible the impact of the Group’s operations
on biodiversity and associated ecosystems.
− Restore and/or compensate, as appropriate, when there is
unavoidable impact.
− Generate additional benefits to the environment.
− Increase biodiversity awareness within the organisation.
− Consider biodiversity in the decision-making process.
The main biodiversity challenges for Centinela, Antucoya and Zaldívar
are associated with the protection of the fauna occasionally found
near their sites. Los Pelambres and Centinela also monitor the marine
ecosystems at their port facilities for rapid detection of any impact on the
marine environment.
In order to update this information in line with the new Biodiversity
Standard, all four mining operations have now begun to assess their own
biodiversity performance.
For more information can be found in the Sustainability Report 2016.
CLOSURE PLANNING
Chilean legislation requires mining operations to have comprehensive
closure plans approved by the National Geology and Mining Service
(Sernageomin). These plans identify key issues and define risk control
measures that focus on preventing pollution and ensuring the permanent
stability of the tailings dams. Plans include budgeting for remediation
work on closure and providing the financial resources to implement them.
Closure plans must be submitted for all new mining projects as part of their
original application for environmental approval and must be updated every
five years.
In 2016 the Group approved a new corporate
closure standard that goes beyond what is
legally required and provides further guidance
on the management of environmental and social
issues at the time of closure.
SUSTAINABILITY GOVERNANCE
The Group’s Sustainability and Stakeholder Management Board Committee
oversees sustainability strategy and targets.
The Sustainability and Stakeholder Management Committee is one of five
committees supporting the Board and met four times in 2016. The Vice
President of Corporate Affairs and Sustainability oversees environmental,
communications and public affairs issues for the Group and in addition each
mining company and the transport division has a sustainability manager.
Further information on the Board and its Sustainability and Stakeholder
Management Committee can be found on pages 92 to 93.
ETHICS AND CORRUPTION PREVENTION
The Group’s Code of Ethics was updated in 2016 to include modern slavery
and to emphasise respect for human rights. It sets out the conduct expected
of directors, executives, employees and contractors, not just within the
Group but in their dealings with all stakeholders. It reflects the Group’s core
values of Respect, Safety and Health, Sustainability, Excellence, Innovation
and Forward Thinking.
The Crime Prevention Manual defines conflicts of interest and outlines
an anonymous whistleblowing procedure offering multiple methods
of communication. In 2016 all employees were asked to complete a
Declaration of Interest questionnaire in order to prevent potential conflicts
and approximately 1,000 workers participated in compliance workshops.
Contractor companies are also trained to adhere to the Group’s compliance
standards and are expected to report any unethical conduct.
Further information on the Group’s Code of Ethics and Crime
Prevention Manual can be found on the Group’s website,
www.antofagasta.co.uk.
PAYMENTS TO GOVERNMENTS
The Group makes payments to governments related to activities involving
exploration and the discovery, development and extraction of minerals. In
June 2016, in accordance with specific UK regulations and requirements,
the Group published a report detailing the mining division’s payments to
governments for the year ended 31 December 2015. These were primarily
taxes paid to national, regional and local governments, and mineral licence
fees. In 2015 these payments totalled $278 million, of which 99.9% were
paid in Chile.
The full report is available on the Group’s website at
www.antofagasta.co.uk.
Chilean law allows political contributions subject to certain requirements,
but the Group made none in 2016. However, it often contributes financing
for projects that benefit neighbouring communities, in alliance with the
municipalities and the government. These contributions are regulated by
specific laws and reviewed by the Chilean Internal Revenue Service.
58
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
COMPLIANCE AND SUPPLIERS
The Group’s risk management and compliance function is responsible for
the corporate compliance programme overseen by the Board’s Audit and
Risk Committee. Suppliers are required to provide specific information
on their procedures concerning safety, anti-corruption, antitrust, modern
slavery and other areas.
More information can be found in the Risk Management section on
page 20.
HUMAN RIGHTS
The Group’s respect for human rights is reflected in its commitments
to its employees, contractors and neighbouring communities:
− High safety and health standards
− Fair wages and good labour relations
− Prevention of discrimination, harassment and bullying
− Application of the UK Modern Slavery Act 2015
− Provision of quality accommodation, services and facilities at
the operations
− Opportunities for training and development
− Prevention of corruption and malpractice
− Prevention or mitigation of environmental and social impacts
− Respecting communities’ rights, culture and heritage
− Engaging in dialogue from exploration to closure
− Responding to grievances
− Supporting community development
Zaldívar is located 100 km from the Peine
indigenous community, with which it has
established a relationship and will make sure to
comply with the framework provided by Chilean
legislation, ILO Convention 169 and the ICMM’s
recommendations.
SUSTAINABILITY
MODERN SLAVERY ACT
Section 54 of the UK’s Modern Slavery Act 2015 requires any company
operating a business in the UK, which supplies goods or services and
has a total annual turnover of £36 million or more, to publish an annual
statement setting out the steps it has taken to ensure that slavery and
human trafficking are not occurring in its supply chains or in any part of
its business.
In 2016 the Group prepared and published a statement for the first
time. This statement has been approved by the Antofagasta plc Board.
A full copy of the statement is available on the Company’s website at:
www.antofagasta.co.uk.
Steps were also taken to ensure that slavery and human trafficking do not
occur in the Company’s supply chains or in any part of its business, and
it intends to build on these actions over the coming years. The following
actions were taken in 2016.
− Policies and Procedures: The Code of Ethics was reviewed and
updated to prohibit the exercise of any form of exploitation or other
behaviours constituting slavery or human trafficking. This includes the
requirement that all employees and suppliers must report any conduct
that is not in accordance with the Code of Ethics. All reported incidents
will be thoroughly investigated to determine whether further action
should be taken. All new contracts with suppliers include specific clauses
requiring them to comply with the Group’s compliance model.
− Due Diligence: Due diligence is performed on all new suppliers before
they are engaged and periodically thereafter. The process requires
suppliers to complete a questionnaire explaining their relevant internal
models and procedures and includes third-party background checks.
− Risk Assessment, Accountability and Results: As part of the Group’s
risk assessment process, all suppliers are reviewed, based on due
diligence analysis, the supplier’s location and the slavery index of
the country in which they operate. During 2016, none of the Group’s
reviewed suppliers had issues relating to forced labour, child labour or
human trafficking.
− Education and Training: During 2016 the new employee induction
training programme and the e-learning training courses for existing
employees and contractors were updated to include training to ensure
that slavery and human trafficking are not occurring in the Group or in its
supply chains.
In 2017 the Group plans to:
− Monitor the effectiveness of actions taken to ensure that slavery and
human trafficking are not occurring in the Group or in its supply chains.
− Engage external consultants to review its suppliers and the steps that
they have taken to ensure that slavery and human trafficking are not
occurring in their supply chains.
The Group’s current procedures, combined with these steps and the
continual improvement of its compliance model, confirms to the Board that
the likelihood of modern slavery taking place in its first-tier suppliers
or in any part of its business is low and that it took appropriate steps
in 2016 to confirm this and to extend the scope and effectiveness of its
supplier assessments.
ANTOFAGASTA.CO.UK
59
FINANCIAL REVIEW
DELIVERING A STRONG
SET OF RESULTS
ALFREDO ATUCHA, CFO
EBITDA IN 2016 INCREASED
BY 78.7% TO $1,626.1 MILLION,
DRIVEN BY HIGHER COPPER
SALES VOLUMES AND
REDUCED MINE
OPERATING COSTS
BEFORE
EXCEPTIONAL
ITEMS
$M
EXCEPTIONAL
ITEMS
$M
3,621.7
1,626.1
(2,100.0)
(598.1)
923.6
23.4
947.0
(71.1)
875.9
(313.5)
562.4
38.3
600.7
–
–
(241.0)
(215.6)
(456.6)
(134.7)
(591.3)
–
(591.3)
204.9
(386.4)
–
(386.4)
YEAR ENDED
31.12.2016
TOTAL
$M
3,621.7
1,626.1
(2,341.0)
(813.7)
467.0
(111.3)
355.7
(71.1)
284.6
(108.6)
176.0
38.3
214.3
YEAR ENDED
31.12.2015
(RESTATED)
TOTAL
$M
3,225.7
910.1
(2,349.1)
(587.6)
289.0
(5.8)
283.2
(40.4)
242.8
(154.4)
88.4
613.3
701.7
US CENTS
US CENTS
US CENTS
US CENTS
34.7
3.9
38.6
(22.6)
–
(22.6)
12.1
3.9
16.0
(0.5)
62.2
61.7
Revenue
EBITDA (including results from associates and joint ventures)
Operating costs excluding depreciation
Depreciation, loss on disposals and impairments
Operating profit from subsidiaries
Net share of results from associates and joint ventures
Total profit from operations, associates and joint ventures
Net finance expense
Profit before tax
Income tax expense
Profit from continuing operations
Discontinued operations
Profit for the year
BASIC EARNINGS PER SHARE
From continuing operations
From discontinued operations
Total continuing and discontinued operations
As a result of the disposal of Michilla in 2016, and the disposal of Aguas de Antofagasta (the Water division) and Empresa Ferroviaria Andina (the Bolivian
transport operation) in 2015 their net results are shown in the “Profit from discontinued operations” line. The 2015 comparatives have been restated to
present Michilla’s net result for 2015 in the discontinued operations line.
A detailed segmental analysis of the components of the income statement is contained in Note 5 to the financial statements.
60
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
The following table reconciles the change in EBITDA between 2015 and 2016:
OUTPUT
EBITDA in 2015
Revenue
Increase in copper volumes sold
Increase in realised copper price
Increase in tolling charges
Increase in revenue from copper sales
Increase in gold revenue
Increase in silver revenue
Decrease in molybdenum revenue
Increase in revenue from by-products
Increase in transport division revenue
Increase in Group revenue
Operating costs
Decrease in mine operating costs
Decrease in closure provisions
Decrease in exploration and evaluation costs
Decrease in corporate costs
Increase in other mining division costs
Decrease in operating costs for mining division
Decrease in transport division operating costs
Increase in EBITDA relating to associates and in joint ventures
Total EBITDA in 2016
$M
910.1
218.7
84.5
(7.0)
296.2
87.5
15.9
(11.4)
92.0
7.8
396.0
220.7
23.2
57.6
11.1
(70.6)
242.0
7.1
70.9
1,626.1
REVENUE
Revenue for the Group in 2016 was $3,621.7 million, 12.3% higher than in
2015. The increase of $396.0 million mainly reflected an increase in copper
sales volumes and the realised copper price, as well as higher gold and
silver revenue.
based on the average market price for future periods (normally about 30
days after delivery to the customer in the case of cathode sales and up to
150 days after delivery to the customer in the case of concentrate sales).
Realised copper prices also reflect the impact of realised gains or losses on
commodity derivative instruments hedge accounted for in accordance with
IAS 39 “Financial Instruments: Recognition and Measurements”.
REVENUE FROM THE MINING DIVISION
REVENUE FROM COPPER SALES
Revenue from copper concentrate and copper cathode sales increased by
$296.0 million, or 11.1%, to $2,961.6 million, compared with $2,665.6 million
in 2015. The increase reflected the impact of higher sales volumes and
slightly higher realised prices.
(I) COPPER VOLUMES
Copper sales volumes reflected within revenue increased from 590,400
tonnes in 2015 to 634,000 tonnes in 2016 increasing revenue by
$218.5 million. This increase was mainly due to Antucoya which achieved
commercial production on 1 April 2016, and which recorded sales volumes
of 54,900 tonnes reflected within revenue from that point onwards.
(II) REALISED COPPER PRICES
The Group’s average realised copper price increased by 2.2% to $2.33/lb in
2016 (2015 – $2.28/lb) despite the market price having fallen by 11.6%. This
was due to a significant year-end positive price adjustment of $153.6 million
with the copper price ending the year at $2.51/lb, compared with a decrease
of $291.2 million in 2015. The increase in the average realised price led to
an $84.5 million increase in revenue from copper sales.
Realised copper prices are determined by comparing revenue (gross of
tolling 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
Further details of provisional pricing adjustments are given in Note 6
to the fi nancial statements.
In 2016 revenue also includes a loss of $2.2 million (2015 – nil) relating to
commodity derivatives which matured during the year.
Further details of hedging activity in the period are given in Note 25 to
the fi nancial statements.
(III) TOLLING CHARGES
Tolling charges for copper concentrate increased by $7.0 million to
$301.0 million in 2016 from $294.0 million in 2015. Tolling charges are
deducted from concentrate sales when reporting revenue and hence the
increase in these charges has had a negative impact on revenue.
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 increased by $92.2 million or 22.6% to $499.9 million in 2016,
compared with $407.7 million in 2015.
Revenue from gold sales (net of tolling charges) was $339.7 million
(2015–$252.0 million), an increase of $87.7 million, which mainly reflected
an increase in volumes and a higher realised price. The realised gold
price was $1,256.1/oz in 2016 compared with $1,154.5/oz in 2015, with the
increase reflecting higher market prices. Gold sales volumes increased by
23.8% from 219,200 ounces in 2015 to 271,400 ounces in 2016, mainly due
to higher grades at Centinela.
ANTOFAGASTA.CO.UK
61
The Group’s proportional share of EBITDA from associates and joint
ventures included $85.1 million from Zaldívar (2015 – $6.8 million) and
$19.3 million from other associates and joint ventures (2015 – $26.7 million).
DEPRECIATION, AMORTISATION AND DISPOSALS
The depreciation and amortisation charge was largely in-line with the prior
year at $578.4 million (2015–$576.1 million). In addition, there were losses
on disposals of assets of $19.7 million (2015 – loss of $11.5 million).
EXCEPTIONAL IMPAIRMENT PROVISIONS
The Group recognised exceptional impairment provisions with a total
impact of $591.3 million before tax. After a corresponding tax credit of
$204.9 million the after tax impact was $386.4 million.
The majority of this relates to the Group’s 40% interest in Alto Maipo
SpA (“Alto Maipo”), which is developing two hydroelectric power stations
in Chile. The remaining 60% controlling interest is held by AES Gener
SA (“Gener”). The Group had been reviewing its options with respect to
its investment in Alto Maipo following the announcement of a significant
forecast cost overrun for the project. In January 2017 the Group entered
into an agreement with Gener to dispose of its stake in Alto Maipo to
Gener for a nominal consideration. Accordingly, an impairment provision
of $367.6 million has been recognised in respect of the total carrying value
relating to the project. This impairment provision resulted in a deferred tax
credit of $95.0 million and so the post-tax impact is $272.6 million.
An impairment review was also conducted in respect of the Antucoya mine.
Following the completion of construction, Antucoya achieved commercial
production in April 2016 and then reached full production capacity in August
2016. This process was slower than originally forecast so costs capitalised
during the ramp-up period were greater than originally forecast and net
depreciation of the assets commenced later than originally anticipated. The
achievement of commercial production and full capacity during the year has
allowed a final determination of the total capital cost of the project, including
costs capitalised during the ramp-up to commercial production, along with
an understanding of the actual operating performance of the mine. The
impairment review determined that the recoverable amount of Antucoya’s
assets was below their carrying value, and accordingly an impairment
provision of $215.6 million (on a pre-tax basis) has been reflected in respect
of Antucoya. This impairment provision resulted in a deferred tax credit of
$99.4 million and so the post-tax impact is $116.2 million.
In addition, the Group’s Energia Andina joint venture holds an investment
in the Javiera solar plant in Chile. In February 2017 the disposal of the
interest in Javiera was agreed. The terms of the sale agreement indicate a
recoverable value for the interest in Javiera which is $8.1 million below the
carrying value and accordingly an impairment provision for this amount has
been recognised. The sale agreement is subject to certain closing conditions,
and the transaction is expected to complete during the first half of 2017.
Further details are given in Note 4 to the fi nancial statements.
FINANCIAL REVIEW CONTINUED
Revenue from molybdenum sales (net of roasting charges) was
$94.0 million (2015–$105.3 million), a decrease of $11.3 million. The
decrease was mainly due to lower sales volumes of 7,200 tonnes (2015
– 9,900 tonnes), partly offset by an increased realised price of $6.8/lb
(2015–$5.7/lb).
Revenue from silver sales increased by $15.8 million to $66.2 million in
2016 (2015–$50.4 million). The increase was due to higher sales volumes
of 3.7 million ounces (2015 – 3.3 million ounces) and an increased realised
silver price of $17.5/oz (2015–$15.4/oz).
REVENUE FROM THE TRANSPORT DIVISION
Revenue from the transport division (FCAB) increased by $7.8 million or
5.1% to $160.2 million, mainly due to higher tonnages transported.
OPERATING COSTS (EXCLUDING DEPRECIATION, LOSS ON
DISPOSALS AND IMPAIRMENTS)
Operating costs (excluding depreciation, loss on disposals and impairments)
amounted to $2,100.0 million (2015 – $2,349.1 million), a decrease of
$249.1 million despite copper sales volumes having increased by 9.8%.
This was mainly due to lower mine operating costs and reduced exploration
& evaluation and corporate expenditure.
OPERATING COSTS (EXCLUDING DEPRECIATION, LOSS
ON DISPOSALS AND IMPAIRMENTS) AT THE MINING
DIVISION
Operating costs (excluding depreciation, loss on disposals and impairments)
at the mining division decreased by $242.0 million to $2,013.1 million in
2016, a decrease of 10.7%. Of this decrease, $220.7 million is attributable to
lower mine-site operating costs. This reduction in mine-site costs reflected
significant cost savings achieved during the year as well the impact of a
revised estimation of deferred stripping costs, partly offset by additional
costs resulting from the higher production volumes in the year. Reflecting
these decrease costs, weighted average unit cash costs excluding by-
product credits (which are reported as part of revenue) and tolling charges
for concentrates (which are deducted from revenue) decreased from
$1.58/lb in 2015 to $1.33/lb in 2016.
Exploration & evaluation costs decreased by $57.6 million to $44.3 million
(2015 – $101.9 million). This reflected a general decrease in exploration
activity, in particular at the Centinela District in Chile and the Twin Metals
project in the United States. Corporate costs decreased by $11.1 million
compared with 2015, and costs relating to the mine closure provisions
decreased by $23.2 million. These decreases were partly offset by a
$70.6 million increase in other expenses, largely relating to increased
community spend at Los Pelambres.
OPERATING COSTS (EXCLUDING DEPRECIATION AND
LOSS ON DISPOSALS) AT THE TRANSPORT DIVISION
Operating costs (excluding depreciation and loss on disposals) at the
transport division decreased by $7.1 million to $86.9 million, mainly reflecting
lower diesel prices and a decrease in services provided by third parties.
EBITDA
EBITDA (earnings before interest, tax, depreciation, amortisation) increased
by $716.0 million or 78.7% to $1,626.1 million in 2016 (2015–$910.1 million).
EBITDA includes the Group’s proportional share of EBITDA from associates
and joint ventures
EBITDA from the Group’s mining subsidiaries increased by 73.6% from
$876.6 million in 2015 to $1,521.7 million in this year. As explained above,
this was mainly due to the decrease in revenue, lower unit cash costs, and
lower exploration & evaluation and corporate costs.
EBITDA at the transport division increased by $8.9 million to $87.7 million
in 2016, reflecting the increased revenue and lower operating costs
explained above.
62
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
OUTPUT
OPERATING PROFIT FROM SUBSIDIARIES
As a result of the above factors, operating profit from subsidiaries increased
in 2016 by 61.6% to $467.0 million. Of the exceptional impairment provisions
outlined above $456.6 million was recorded within operating expenses, and
therefore excluding the exceptional impairment provisions, operating profit
was $923.6 million, a 219.6% increase compared to 2015.
SHARE OF RESULTS FROM ASSOCIATES AND JOINT
VENTURES
The Group’s share of results from associates and joint ventures was a loss
of $134.7 million in 2016, compared with a loss of $5.8 million in 2015.
This was largely a reflection of the exceptional impairment provisions. Of
the total impairment provision outlined above, $134.7 million was recorded
within the share of results from associates and joint ventures. Excluding the
impact of the exceptional impairment, the share of results from associates
and joint ventures was a profit of $23.5 million (2015 – loss of $5.8 million).
The improvement compared with the prior year mainly reflected a full year’s
contribution from Zaldívar.
NET FINANCE EXPENSE
Net finance expense in 2016 was $71.1 million, compared with $40.4 million
in 2015.
Interest expense increased from $33.7 million in 2015 to $86.1 million in
2016, mainly due to interest charges at Antucoya being expensed since
the start of commercial production on 1 April 2016. Additionally, there
was higher corporate interest expense reflecting a new long-term loan
of $500 million taken out during the period.
Other finance items comprised a loss of $11.9 million (2015 – loss of
$24.2 million) arising mainly from foreign exchange losses of $2.9 million
in 2016, compared with a loss of $14.8 million in 2015.
PROFIT BEFORE TAX
As a result of the factors set out above, profit before tax increased by
17.2% to $284.6 million (2015–$242.8 million). Excluding exceptional items,
profit before tax was $875.9 million, a 260.7% increase compared with the
prior year.
INCOME TAX EXPENSE
The tax charge for 2016 was $108.6 million and the effective tax rate was
38.2%. The exceptional impairment provisions had an impact on the overall
tax charge and the reconciliation of the effective tax rate. Excluding these
exceptional impairment provisions, the 2016 tax charge was $313.5 million
and the effective tax rate was 35.8%.
Investment income
Interest expense
Other finance items
Net finance expense
YEAR ENDED
31.12.16
$M
YEAR ENDED
31.12.15
$M
26.9
(86.1)
(11.9)
(71.1)
17.5
(33.7)
(24.2)
(40.4)
Interest income increased from $17.5 million in 2015 to $26.9 million in
2016 due to an increase in operating cash invested as a result of increased
revenue in 2016.
Profit before tax
Tax at the Chilean corporate tax rate of 24% (2015
– 22.5%)
Provision against carrying value of assets
(exceptional items)
Effect of increase in future first category tax rates
on deferred tax balances
Items not deductible from first category tax
Items not subject to first category tax
Carry-back tax losses resulting in credits at historic
tax rates
Mining tax (royalty)
Withholding taxes
Withholding taxes – adjustment to previous year
Tax effect of share of results of associates and
joint ventures
Net other items
31.12.2016
BEFORE
EXCEPTIONAL
ITEMS
%
–
$M
875.9
31.12.2016
AFTER
EXCEPTIONAL
ITEMS
%
$M
284.6
(210.2)
24.0
(68.3)
–
(24.6)
(23.7)
8.5
(5.4)
(60.1)
–
(3.8)
5.6
0.2
–
2.8
2.7
(1.0)
0.6
6.9
–
0.4
(0.6)
(0.0)
35.8
63.0
(24.6)
(23.7)
8.5
(5.4)
(60.1)
–
(3.8)
5.6
0.2
(108.6)
YEAR ENDED
31.12.2015
(RESTATED)
%
$M
242.8
(54.6)
22.5
–
(8.9)
(21.2)
4.1
(25.8)
(31.8)
(14.8)
–
(0.5)
(0.9)
(154.4)
–
3.7
8.7
(1.7)
10.6
13.1
6.1
–
0.2
0.4
63.6
24.0
(22.1)
8.6
8.3
(2.9)
1.8
21.1
–
1.3
(1.9)
(0.0)
38.2
Tax expense and effective tax rate for the year
(313.5)
This effective tax rate (excluding exceptional items) varied from the statutory rate principally due to the effect of increases in future first category tax rates
on deferred tax balances (impact of $24.6 million / 2.8%), the effect of expenses not deductible for Chilean corporate tax purposes (principally the funding
of expenses outside of Chile) and items not subject to first category tax (impact of $15.2 million / 1.7%), and the mining tax (impact of $60.1 million / 6.9%).
Further details are given in Note 10 to the fi nancial statements.
ANTOFAGASTA.CO.UK
63
FINANCIAL REVIEW CONTINUED
PROFIT FROM DISCONTINUED OPERATIONS
On 30 December 2016 the Group completed the disposal of Minera Michilla
and the resulting profit of $38.3 million has been reflected as a profit
from discontinued operations. In the prior year a profit from discontinued
operations of $613.3 million was recognised, mainly relating to the disposal
of Aguas de Antofagasta in that year.
NON-CONTROLLING INTERESTS
Profit for 2016 attributable to non-controlling interests was $56.3 million
(2015–$93.5 million). Before exceptional items the profit attributable to non-
controlling interests was $220.9 million.
EARNINGS PER SHARE
YEAR ENDED
31.12.16
$ CENTS
YEAR ENDED
31.12.15
$ CENTS
Total including exceptional items
Earnings per share from
continuing operations
Earnings per share from
discontinued operations
Total earnings per share from continuing
and discontinued operations
Excluding exceptional items
Earnings per share from
continuing operations
Earnings per share from
discontinued operations
Total earnings per share from continuing
and discontinued operations
12.1
3.9
16.0
34.7
3.9
38.6
(0.5)
62.2
61.7
(0.5)
62.2
61.7
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 $158.0 million compared with
$608.2 million in 2015, and total earnings per share from continuing and
discontinued operations was 16.0 cents per share (2015 – 61.7 cents
per share).
Profit from continuing operations and excluding exceptional items
attributable to equity shareholders of the Company was $341.5 million
compared with a loss of $5.1 million in 2015, and earnings per share from
continuing operations excluding exceptional items was 34.7 cents per share
(2015 – loss of 0.5 cents per share).
DIVIDENDS
Dividends per share declared in relation to the period are as follows:
Interim
Final
Total dividends to
ordinary shareholders
YEAR ENDED
31.12.16
$ CENTS
YEAR ENDED
31.12.15
$ CENTS
3.1
15.3
18.4
3.1
–
3.1
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 a final dividend of 2016 of 15.3 cents per ordinary
share, which amounts to $150.8 million and will be paid on 26 May 2017
to shareholders on the share register at the close of business on
28 April 2017.
The Board declared an interim dividend for the first half of 2016 of 3.1
cents per ordinary share, which amounted to $30.6 million and was paid
on 30 September 2016 to shareholders on the share register at the close
of business on 9 September 2016.
This gives total dividends proposed in relation to 2016 (including the interim
dividend) of 18.4 cents per share or $181.4 million in total (2015 – 3.1 cents
per ordinary share or $30.6 million in total).
CAPITAL EXPENDITURE
Capital expenditure decreased by $253.4 million from $1,048.5 million
in 2015 to $795.1 million in the year. This was mainly due to decreased
construction costs at Antucoya, which is now in operation, partly offset
by increased expenditure at Los Pelambres, relating mainly to capitalised
stripping costs.
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
exposure to commodity price movements. At 31 December 2016
the Group had entered into min/max contracts at Centinela for a notional
amount of 72,000 tonnes of copper production covering a period up to
31 December 2017, with an average minimum price of $2.25/lb and an
average maximum price of $2.84/lb. The Group also periodically uses
interest rate swaps to swap the floating rate interest for fixed rate interest.
At 31 December 2016 the Group had entered into contracts at Centinela
for a maximum notional amount of $70 million at a weighted average fixed
rate of 3.372 % maturing in August 2018. The Group had also entered into
contracts in relation to a financing loan at the FCAB for a maximum notional
amount of $90 million at a weighted average fixed rate of 1.634% maturing
in August 2019.
CASH FLOWS
The key features of the Group cash flow statement are summarised in the
following table.
Cash flows from continuing and
discontinued operations
Income tax paid
Net interest paid
Capital contributions and loans
to associates
Acquisition of joint ventures
Disposal of subsidiary
Acquisition of mining properties
Purchases of property, plant
and equipment
Dividends paid to equity holders of
the Company
Dividends paid to non-
controlling interests
Dividends from associates
Other items
Changes in net debt relating to
cash flows
Other non-cash movements
Exchange
Movement in net debt in the period
Net debt at the beginning of the year
Net debt at the end of the year
YEAR ENDED
31.12.16
$M
YEAR ENDED
31.12.15
$M
1,457.3
(272.6)
(31.9)
(10.1)
20.0
10.0
(7.0)
858.3
(427.1)
(27.6)
(112.0)
(972.8)
942.9
(78.0)
(795.1)
(1,048.5)
(30.6)
(127.2)
(260.0)
10.2
0.4
90.6
(149.0)
10.2
(48.2)
(1,023.5)
(1,071.7)
(80.0)
12.1
19.1
(1,040.8)
50.0
(31.1)
(1,021.9)
(1.6)
(1,023.5)
Cash flows from continuing and discontinued operations were
$1,457.3 million in 2016 compared with $858.3 million in 2015. This
64
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
reflected EBITDA from subsidiaries for the year of $1,521.7 million (2015 –
$876.6 million) adjusted for a net working capital increase of $64.4 million
(2015 – working capital increase of $32.4 million).
Cash tax payments in 2016 were $272.6 million, broadly in line with the
current tax charge for the year of $261.2m. However, within this amount the
payments on account for the current year were only $186.3m, as they were
based on the prior year’s profit levels. In addition to these payments on
account there were other tax payments of $194.6 million, mainly comprising
tax relating to the disposal of Aguas de Antofagasta S.A. in 2015, as well as
the recovery of $108.3 million relating to prior years.
In 2016 the disposal of subsidiary amount of $10.0 million related to the
disposal of Michilla (2015–$947.3 million related to the disposal of Aguas
de Antofagasta S.A.).
Contributions and loans to associates and joint ventures of $10.1 million
relate to the Group’s share of the funding of the costs of Tethyan Copper
Company and Energia Andina.
Cash disbursements relating to capital expenditure in 2016 were
$795.1 million compared with $1,048.5 million in 2015. This included
expenditure of $534.7 million at Centinela (2015 – $559.4 million),
$215.3 million at Los Pelambres (2015 – $203.1 million) and $9.4 million
at Antucoya (2015 – $143.4 million).
At 31 December 2016 dividends paid to ordinary shareholders of the
Company were $30.6 million, which related to the payment of the interim
dividend declared in respect of the current year (2015–$127.2 million).
Dividends paid by subsidiaries to non-controlling shareholders were
$260.0 million (2015 – $80.0 million).
FINANCIAL POSITION
Cash, cash equivalents and
liquid investments
Total borrowings
Net debt at the end of the period
AT 31.12.16
$M
AT 31.12.15
$M
2,048.5
(3,120.2)
(1,071.7)
1,731.6
(2,755.1)
(1,023.5)
At 31 December 2016 the Group had combined cash, cash equivalents and
liquid investments of $2,048.5 million (31 December 2015 – $1,731.6 million).
Excluding the non-controlling interest share in each partly-owned operation,
the Group’s attributable share of cash, cash equivalents and liquid
investments was $1,830.2 million (31 December 2015 – $1,410.8 million).
New borrowings in 2016 were $938.8 million (2015 – $725.9 million),
including new short-term borrowings at Los Pelambres of $312.0 million,
Centinela of $100.0 million, Antucoya of $30.0 million and new long-term
borrowings at Corporate of $496.8 million. Repayments of borrowings and
finance leasing obligations in 2016 were $724.4 million, relating mainly to
repayments at Los Pelambres of $373.1 million, Centinela $250.0 million,
Antucoya $66.1 million and the transport division of $31.5 million.
Total Group borrowings at 31 December 2016 were $3,120.2 million
(at 31 December 2015 – $2,755.1 million). Of this, $2,329.7 million (at
31 December 2015 – $1,936.2 million) is proportionally attributable to
the Group after excluding the non-controlling interest shareholdings in
partly-owned operations.
OUTPUT
CAUTIONARY STATEMENT ABOUT
FORWARD-LOOKING STATEMENTS
This Annual Report 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 speak 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: 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.
ALFREDO ATUCHA
CHIEF FINANCIAL OFFICER
The Strategic Report has been approved by the Board and signed on
its behalf by:
JEAN-PAUL LUKSIC
CHAIRMAN
13 March 2016
OLLIE OLIVEIRA
SENIOR INDEPENDENT
DIRECTOR
ANTOFAGASTA.CO.UK
65
GOVERNANCE
Leadership
Chairman’s Governance Q&A
Senior Independent Director’s Q&A
Governance overview
Board of Directors
Executive Committee
Effectiveness
Board activities
Professional development
Effectiveness reviews
Accountability
68
70
71
72
76
78
80
82
Nomination and Governance Committee 85
Audit and Risk Committee
88
Sustainability and Stakeholder
Management Committee
Projects Committee
92
94
Remuneration
Committee Chairman’s
letter of introduction
Summary of the 2014 Directors’
remuneration policy
2016 remuneration report
2017 Directors’ remuneration policy
Relations with shareholders
Directors’ Report
Statement of Directors’ Responsibilities
96
99
100
112
115
117
119
LOS PELAMBRES
Tailings thickeners.
LEADERSHIP
CHAIRMAN’S Q&A
HIGH GOVERNANCE
STANDARDS
JEAN-PAUL LUKSIC, CHAIRMAN
GOOD CORPORATE GOVERNANCE IS ABOUT
ESTABLISHING AND MAINTAINING EFFECTIVE
MANAGEMENT STRUCTURES SO THAT WE CAN
SHAPE AND PURSUE THE GROUP’S STRATEGY
TAKING INTO ACCOUNT THE INTERESTS OF ALL
STAKEHOLDERS.
Q What does good corporate
governance mean for the
Company?
Expanding on my statement
above, our aim is to have clearly
defined roles and responsibilities,
to promote and maintain a culture
that encourages innovation and
constructive challenge, to recruit and
motivate the best talent available,
to commit to regular, candid and
objective review processes and
to involve shareholders and other
stakeholders in our deliberations.
In my letter of introduction to
the 2015 Corporate Governance
Report, I explained that one of my
responsibilities as Chairman is to
promote good corporate governance
and as a Board, we continue
to believe that good corporate
governance is fundamental to the
Company’s success.
This Corporate Governance Report
sets out the framework that we have
worked hard to put in place and
that we believe is best suited to the
Group’s businesses and strategy.
Q What have been the main
changes in 2016?
We made a number of changes
during the year.
At the executive level, Iván Arriagada
succeeded Diego Hernández as CEO
now that Diego has completed his
task of management restructuring.
At Board level:
− Francisca Castro joined the Board
on 1 November 2016, following the
retirement of Hugo Dryland.
− Ollie Oliveira succeeded William
Hayes as Senior Independent
Director and Audit and Risk
Committee Chairman.
− A number of changes were
made to the Board Committees
with effect from 1 January 2017,
including the appointment of
Vivianne Blanlot as Sustainability
and Stakeholder Management
Committee Chairman.
We also conducted our second
externally-facilitated Board and
Board Committee effectiveness
review during the year. This exercise
has supported our view that
significant improvements have been
made in recent years. Further details
are set out on pages 82 to 83.
Q How do the Board and
management of the Company
differ from other UK listed
companies?
As noted in my introductory letter at
the beginning of this Annual Report,
Chile holds 30% of global copper
reserves, and the Group’s operations,
corporate headquarters and all of
our senior management are based
in Chile. Understanding the country
and, in particular, mining in Chile, is
essential for our Board.
The Board comprises a strong
mix of Chilean and international
Directors with mining experience in
Chile, and during 2016 all Directors
made a concerted effort to visit the
Group’s operations.
At the management level, the
Group competes for talent with
international and local businesses
in Chile. This means that our
approach to remuneration needs
to take into account local market
conditions and locally available
remuneration structures.
The Group CEO is not a director.
This is consistent with practice
in Chile where local law prohibits
CEOs of public companies from
being directors of those companies
Nevertheless, we voluntarily disclose
his remuneration as if he were a
member of the Board. Further details
are set out in the 2016 Remuneration
Report on pages 100 to 111.
Members of my family are also on
the Board and on the Executive
Committee. I am Non-Executive
Chairman of the Company, my
brother Andrónico Luksic C is a Non-
Executive Director and my nephew
Andrónico Luksic L is Vice President
of Development.
Members of the Luksic family
are interested in the E. Abaroa
Foundation, which is a controlling
shareholder of the Company under
the Listing Rules. Further details
of the Company’s substantial
shareholders are set out on page 70.
Q How does the absence of
an executive as a director
affect the interaction between
Non-Executive Directors and
management?
In practice, the interaction
between the Board and executive
management is as you would expect
between Non-Executive Directors
and management in a typical UK-
listed company.
Our Group CEO and Group CFO are
invited to attend all Board meetings,
our Group CEO is also invited to
attend all Committee meetings and
there is regular formal and informal
dialogue between management and
the Board.
The Board considers that there are
considerable benefits associated
with having a Board comprising
exclusively Non-Executive Directors.
Not only does it provide a broad
range of perspectives, but also
encourages robust debate with the
Group’s executive management.
We remain satisfied that the
current structure ensures rigorous
and effective oversight of the
management team and do not
currently expect it to change.
Q How would you describe the
Group’s culture?
As a Board, we actively promote the
values that have been developed and
set by our employees. These values
reflect our industry, the nature of our
Company and Chilean culture. They
include taking responsibility for safety
68
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
CORPORATE VALUES
RESPECT
INNOVATION
SAFETY AND
HEALTH
SUSTAINABILITY
EXCELLENCE
FORWARD
THINKING
UK CORPORATE GOVERNANCE CODE
COMPLIANCE STATEMENT
The UK Corporate Governance Code issued by the Financial Reporting
Council in September 2014 (available on the Financial Reporting
Council website at www.frc.org.uk) sets out the governance
principles and provisions that applied to the Company during the
2016 financial year.
The Company complied with all of the detailed provisions of the Code
in 2016.
and health, respecting one another
and being innovative in our approach
and processes.
It is the Board’s responsibility to
ensure that our values continue to
be relevant and aligned with the
expectations of our stakeholders.
During 2017, our human resources
team, under the supervision of
the Remuneration and Talent
Management Committee, will engage
further with our employees and
other relevant stakeholders to ensure
that our current values continue to
be embedded across the business
and that expected behaviours are
consistent with those values. Further
details are set out on page 74.
Q Are you satisfied with the
current Board composition?
Yes. We have a diverse Board
comprising Directors with a broad
and complementary spectrum of
skills, personalities and competencies.
As at the date of this report
the Board has 11 Directors,
comprising a Non-Executive
Chairman and ten Non-Executive
Directors, five of whom
are independent.
The Directors’ biographies
provide details of their Committee
memberships as well as other
principal directorships and external
roles, and demonstrate a detailed
knowledge of the mining industry,
significant international business
experience and a diversity of core
skills and experience, as well
as gender. All of the Directors
have confirmed that their other
commitments do not prevent them
from devoting sufficient time to their
roles. Further details are set out on
pages 72 to 74.
Q What drives the Board’s
approach to succession
planning?
With support from the Nomination
and Governance Committee,
the Board bases succession plans
on the need to maintain a broad and
complementary spectrum of skills,
personalities and competencies on
the Board.
To assist in this, the Board adopted
the skills matrix set out on page 73
during 2016. This was used to assist
with the recruitment process that
led to the appointment of Francisca
Castro and also to update the
succession plans for key Board
and Committee roles.
Q Will there be any further
changes to the Board and its
Committees in 2017?
We do not expect there to be any
major changes in 2017.
As always, I welcome questions or
comments from shareholders at the
Annual General Meeting.
JEAN-PAUL LUKSIC
CHAIRMAN
ANTOFAGASTA.CO.UK
69
LEADERSHIP
SENIOR INDEPENDENT DIRECTOR’S Q&A
Q How do you see your role as
Senior Independent Director?
It is my responsibility to support
the Chairman on a number of
levels. A major part is to ensure
that he has a direct channel of
communication to understand the
issues that are especially important
to the Board’s independent Non-
Executive Directors and to the
Company’s shareholders.
I am based in the UK which
allows me to keep in touch with
shareholders, directors at other
UK-listed companies and advisers,
to ensure that the Chairman,
the Board and the Group as a whole
receive independent and objective
feedback and challenge.
Q Are there any additional
responsibilities attaching
to this role given the
Company has a controlling
shareholder?
The Company has had a controlling
shareholder for 36 years. Although
the controlling shareholder’s track
record has been excellent and
speaks for itself, the Company’s
obligations towards all its
shareholders are always given the
highest level of importance. It is
part of my role to ensure that this
continues to be the case and to give
all shareholders a route by which
they can make their opinions known.
In addition to the regulatory
requirement for related party
transactions outside the ordinary
course of business to be subject
to independent assessment and
approval, the Company has for many
years presented any such proposed
related party transaction (regardless
of its size) between the Company
and the controlling shareholder
or its associates to a committee
of Directors who are independent
from the controlling shareholder
for approval.
In addition, as a Board, we are
satisfied that the balance of the
Board, in terms of background and
independence, limits the scope
for an individual or small group of
individuals to dominate the Board’s
decision-making.
Q What steps were taken by
the Board to provide for an
orderly succession to the
role of Senior Independent
Director?
I have been a Director of the
Company since 2011. Since
then, I have had a number of
opportunities to gather perspectives
on the Group from independent
Directors and shareholders and
other stakeholders.
Before my appointment as Senior
Independent Director, I was
approached by former Senior
Independent Director, William
Hayes, and the Chairman to discuss
the responsibilities and expectations
of the role. Together, we decided
that the transition should commence
with a number of meetings with
shareholders and proxy voting
advisers to gauge their views on the
change and also on management
and the Board. These meetings also
enabled us to continue to foster
the channels of communication
and relationships established by
Mr Hayes during his tenure as
Senior Independent Director.
OLLIE OLIVEIRA
SENIOR INDEPENDENT
DIRECTOR
OLLIE OLIVEIRA, SENIOR INDEPENDENT DIRECTOR
THE COMPANY’S OBLIGATIONS
TOWARDS SHAREHOLDERS
ARE ALWAYS GIVEN
THE HIGHEST LEVELS
OF IMPORTANCE
SUBSTANTIAL SHAREHOLDINGS
As at 31 December 2016 and 13 March 2017, the following significant
holdings of voting rights in the share capital of the Company had been
disclosed to the Company under Disclosure and Transparency Rule 5:
SHAREHOLDER
1 Metalinvest Establishment
2 Kupferberg Establishment
3 Aureberg Establishment
ORDINARY
SHARE
CAPITAL %
PREFERENCE
SHARE
CAPITAL %
TOTAL
SHARE
CAPITAL %
50.72
9.94
4.26
94.12
–
–
58.04
8.27
3.54
Metalinvest Establishment and Kupferberg Establishment are both
controlled by the E. Abaroa Foundation (“Abaroa”), in which members
of the Luksic family are interested. As explained in Note 37 to the
Financial Statements, Metalinvest Establishment is the immediate
Parent Company of the Group and the E. Abaroa Foundation is the
ultimate Parent Company. Aureberg Establishment is controlled by the
Severe Studere Foundation that, in turn, is controlled by Jean-Paul
Luksic, the Chairman of the Company.
RELATIONSHIP AGREEMENT
Abaroa is a controlling shareholder of the Company under the Listing
Rules and certain other shareholders of the Company (including
Aureberg Establishment) are also treated as controlling shareholders.
In 2014 the Company entered into relationship agreements in respect
of each controlling shareholder, which contain the mandatory
independence provisions required by the Listing Rules. The Company
has complied and, so far as the Directors are aware, each controlling
shareholder and its associates has complied, with the mandatory
independence provisions at all times during 2016. So far as the
Directors are aware, Abaroa has procured of that each of Metalinvest
Establishment and Kupferberg Establishment have also complied with
these provisions.
70
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
HOW WE ARE GOVERNED
ANTOFAGASTA PLC BOARD
NOMINATION
AND GOVERNANCE
COMMITTEE
AUDIT AND RISK
COMMITTEE
SUSTAINABILITY
AND STAKEHOLDER
MANAGEMENT
COMMITTEE
PROJECTS
COMMITTEE
REMUNERATION
AND TALENT
MANAGEMENT
COMMITTEE
GROUP CEO
EXECUTIVE COMMITTEE
MINING DIVISION
TRANSPORT DIVISION
OPERATING
PERFORMANCE
REVIEW
COMMITTEE
BUSINESS
DEVELOPMENT
COMMITTEE
DISCLOSURE
COMMITTEE
PROJECT
STEERING
COMMITTEES
ETHICS
COMMITTEE
ANTOFAGASTA
PLC BOARD
The Board is collectively responsible
for the long-term success of the
Group. It is responsible for its
leadership and strategic direction,
for the oversight of the Group’s
performance, risk and internal
control systems and for ensuring
that the Company acts in the
best interests of all shareholders
and has regard for the interests
of stakeholders.
KEY RESPONSIBILITIES
− Strategy
− Governance
− Internal controls and
risk management
− Approving material transactions
− Financial and
performance reporting
− Shareholder engagement
Matters which need to be
decided by the Board are
set out in the Schedule of
Matters Reserved for the
Board, which is available
on the Company’s website
at www.antofagasta.co.uk
BOARD
COMMITTEES
The Board is assisted in the
fulfilment of its responsibilities
by five Board Committees. The
Board has delegated authority to
the Committees to perform certain
activities as set out in their terms
of reference.
The Chairman of each Committee
reports to the Board following
each Committee meeting, allowing
the Board to understand and
discuss matters considered in detail
by the Committees and to consider
their recommendations.
In 2016, the terms of reference for
each Committee were reviewed, and
where necessary, amended. They
are available on the Company’s
website at www.antofagasta.co.uk.
KEY RESPONSIBILITIES
The key responsibilities of each
Committee are set out on page 84.
A summary of the activities of
each of the committees during
the year is set out on pages 85
to 98.
GROUP CEO
AND EXECUTIVE
COMMITTEE
The Board has delegated
responsibility for implementing the
Group’s strategy to the Company’s
CEO, Iván Arriagada.
Mr Arriagada is not a Director of
the Company but is invited to attend
all Board and Committee meetings
and is supported by the members of
the Executive Committee who each
have executive responsibility for
their functions. Mr Arriagada chairs
the Executive Committee.
The Executive Committee reviews
significant matters and approves
capital expenditure within
designated authority levels.
The Executive Committee
leads the annual budgeting and
planning processes, monitors
the performance of the Group’s
operations and investments, and
promotes the sharing of best
practices and policies across
the Group.
Executive Committee
biographies are set out on
pages 76 and 77.
SUBCOMMITTEES
OF THE EXECUTIVE
COMMITTEE
The Executive Committee is
assisted in the performance of its
responsibilities by the Operating
Performance Review Committee,
the Business Development
Committee, the Disclosure
Committee and, from time to time,
Project Steering Committees.
Members of the Executive
Committee also sit on the
boards of the Group’s operating
companies and report to the Board,
Mr Arriagada and the Executive
Committee on the activities of
those companies.
The Disclosure Committee was
formally established following
the introduction of the EU Market
Abuse Regulation and is responsible
for identifying and managing
the disclosure of information
to investors.
The Ethics Committee is responsible
for implementing, developing and
updating the Group’s Code of Ethics
and monitoring compliance.
Executive Committee
members’ roles are set
out on pages 76 and 77.
ANTOFAGASTA.CO.UK
71
LEADERSHIP
BOARD OF DIRECTORS
STRINGENT OVERSIGHT
BOARD
BALANCE
INDEPENDENCE
5
1
CHAIRMAN
INDEPENDENT
5
NON-
INDEPENDENT
GENDER DIVERSITY
2
MALE
FEMALE
9
3
3
TENURE
5
1–3 YEARS
4–7 YEARS
8–10 YEARS
+10 YEARS
NATIONALITY
1
1
1
CHILE
USA
8
CANADA
UK
In addition, “A Report into the
Ethnic Diversity of UK Boards”
(Sir John Parker, The Parker Review
Committee, 2 November 2016),
identified seven Directors as being
from an ethnic minority background
(which includes individuals with
South American heritage).
From left to right: Jorge Bande, Juan Claro, Gonzalo Menéndez,
Francisca Castro, Jean-Paul Luksic, Vivianne Blanlot, Ollie Oliveira,
Tim Baker, William Hayes, Andrónico Luksic C, Ramón Jara.
JEAN-PAUL LUKSIC
Chairman, 52
OLLIE OLIVEIRA
Senior Independent Director, 65
GONZALO MENÉNDEZ
Non-Executive Director, 68
Independent: No
Appointed to the Board 1990
Appointed Chairman 2004*
Over 25 years’ experience with
Antofagasta, including responsibility
for overseeing development of the
Los Pelambres and El Tesoro
(Centinela Cathodes) mines.
* Non-Executive since 2014.
Independent: Yes
Appointed to the Board 2011
Appointed Senior Independent
Director 2016
Chartered accountant, management
accountant and economist with over
35 years of strategic and operating
experience in the mining industry
and corporate finance.
PREVIOUS ROLES
− Senior executive positions within
the Anglo American group,
including Executive Director
Corporate Finance and Head of
Strategy and Business
Development of De Beers S.A.
Independent: No
Appointed to the Board 1985
Commercial engineer and
economist with extensive
experience in commercial and
financial businesses across
South America.
CURRENT POSITIONS
− Chairman of the Board of
Directors of Banco
Latinoamericano de Comercio
Exterior S.A. (Bladex)
− Director of Quiñenco S.A. and
other listed companies in the
Quiñenco group, including Banco
de Chile
PREVIOUS ROLES
− CEO of the Group’s
mining division
CURRENT POSITIONS
− Chairman of the Consejo Minero,
the industry body representing
the largest mining companies
in Chile
− Non-Executive Director of
Quiñenco S.A. and other listed
companies in the Quiñenco
group, including Banco de Chile
and Sociedad Matriz SAAM S.A.
9/9
Meeting
attendance
9/9
Meeting
attendance
9/9
Meeting
attendance
COMMITTEES
Audit and Risk
Nomination and Governance
Projects
Sustainability and Stakeholder Management
Remuneration and
Talent Management
Chairman
72
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
BOARD SKILLS MATRIX
DIRECTOR
Jean-Paul Luksic
Ollie Oliveira
Gonzalo Menéndez
Ramón Jara
Juan Claro
William Hayes
Tim Baker
Andrónico Luksic C
Vivianne Blanlot
Jorge Bande
Francisca Castro
E
C
N
E
I
R
E
P
X
E
O
E
C
ü
ü
ü
ü
ü
ü
ü
E
C
N
E
D
N
E
P
E
D
N
I
ü
*
ü
ü
ü
ü
E
C
N
E
I
R
E
P
X
E
I
G
N
N
M
I
S
N
O
I
T
A
R
E
P
O
E
C
N
E
I
R
E
P
X
E
E
C
N
A
N
R
E
V
O
G
D
R
A
O
B
I
G
N
N
M
I
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
T
E
K
R
A
M
K
U
ü
ü
N
O
I
T
A
S
N
E
P
M
O
C
E
V
I
T
U
C
E
X
E
N
A
C
I
R
E
M
A
N
I
T
A
L
E
C
N
E
I
R
E
P
X
E
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
Y
T
I
L
I
B
A
N
A
T
S
U
S
I
ü
ü
ü
ü
T
N
E
M
E
G
A
N
A
M
T
C
E
J
O
R
P
ü
ü
ü
ü
ü
ü
N
O
I
T
A
C
I
N
U
M
M
O
C
ü
ü
ü
ü
ü
ü
ü
ü
ü
T
N
E
M
N
R
E
V
O
G
S
N
O
I
T
A
L
E
R
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
Y
G
R
E
N
E
ü
ü
ü
ü
ü
L
A
G
E
L
ü
L
A
I
C
N
A
N
I
F
ü
ü
ü
ü
ü
ü
ü
ü
* The Board reviews the independence of all Directors annually. On 24 January 2017, the Board determined that Mr Hayes should be re-designated as a non-independent
Director on the basis that, as at the date of the 2017 Annual General Meeting, Mr. Hayes will have served on the Board for ten years following the date of his first election by
shareholders. In reaching this decision, the Board noted that apart from length of service, none of the other indications of non-independence set out in Provision B.1.1. of the UK
Corporate Governance Code apply to Mr. Hayes.
RAMÓN JARA
Non-Executive Director, 63
JUAN CLARO
Non-Executive Director, 66
WILLIAM HAYES
Non-Executive Director, 72
TIM BAKER
Non-Executive Director, 64
Independent: No
Appointed to the Board 2003
Lawyer with considerable legal and
commercial experience in Chile.
CURRENT POSITIONS
− Chairman of the Fundación
Minera Los Pelambres
(charitable foundation)
− Director of the Fundación
Andrónico Luksic A
(charitable foundation)
9/9
Meeting
attendance
Independent: No
Appointed to the Board 2005
Extensive industrial experience in
Chile, including an active role
representing Chilean industrial
interests nationally
and internationally.
Independent: No*
Appointed to the Board 2006
Extensive financial and operating
experience in the copper and gold
mining industries, in Chile, Latin
America, North America and
South Africa.
PREVIOUS ROLES
− Chairman of the Sociedad de
PREVIOUS ROLES
− Senior executive with Placer
Dome Inc.
− Chairman of the Consejo Minero,
the industry body representing
the largest mining companies
operating in Chile
− Chairman of the Gold Institute in
Washington DC
CURRENT POSITIONS
− Chairman of Royal Gold Inc
9/9
Meeting
attendance
Fomento Fabril (Chilean Society
of Industrialists)
− Chairman of the Confederación
de la Producción y del Comercio
(Confederation of
Chilean Business)
− Chairman of the Consejo
Binacional de Negocios
Chile-China (Council for Bilateral
Business Chile-China)
CURRENT POSITIONS
− Chairman of Coca-Cola Andina
S.A. and Energía Coyanco S.A.
− Director of several other
companies in Chile, including
Empresas Cementos Melon
and Agrosuper
− Member of the governing board
of Centro de Estudios Públicos, a
Chilean not-for-profit foundation
9/9
Meeting
attendance
Independent: Yes
Appointed to the Board 2011
Geologist with significant mining
operations experience across North
and South America and Africa,
which has included managing mines
in Chile, the United States, Tanzania
and Venezuela and geological and
operating roles in Kenya and Liberia.
PREVIOUS ROLES
− Vice President and Chief
Operating Officer at Kinross
Gold Corporation
− General Manager of Placer
Dome Chile
CURRENT POSITIONS
− Chairman of Golden
Star Resources
− Director of Sherritt
International Corporation
− Director of Rye Patch
Gold Corporation
9/9
Meeting
attendance
ANTOFAGASTA.CO.UK
73
LEADERSHIP
BOARD OF DIRECTORS CONTINUED
ANDRÓNICO LUKSIC C
Non-Executive Director, 62
VIVIANNE BLANLOT
Non-Executive Director, 62
JORGE BANDE
Non-Executive Director, 64
FRANCISCA CASTRO
Non-Executive Director, 54
Independent: Yes
Appointed to the Board 2016
Commercial engineer with over 25
years’ experience in industries
including mining, energy, finance
and public/private infrastructure
projects in the US and in Chile.
PREVIOUS ROLES
− Business Development Manager
at Codelco
− Various roles within the
Chilean Government
− World Bank, Washington
1/1
Meeting
attendance
Independent: No
Appointed to the Board 2013
Extensive experience across a
range of business sectors
throughout Chile, Latin America
and Europe.
CURRENT POSITIONS
− Chairman of Quiñenco S.A. and
Compañía Cervecerías Unidas
S.A., Vice Chairman of Banco de
Chile and Compañía
Sudamericana de Vapores S.A.,
and a director of Tech Pack S.A.,
all of which are listed companies
in the Quiñenco group
− Director of Nexans S.A., a
company listed on NYSE
Euronext Paris.
7/9
Meeting
attendance
Independent: Yes
Appointed to the Board 2014
Economist with extensive
experience across the energy,
mining, water and environmental
sectors in the public and private
sectors in Chile.
PREVIOUS ROLES
− Executive Director of the
Comisión Nacional de Medio
Ambiente (Environmental Agency
in Chile)
− Undersecretary of Comisión
Nacional de Energía (National
Energy Commission in Chile)
− Minister of Defence
CURRENT POSITIONS
− Director of Colbún S.A., an
energy company listed in Chile
− Director of ScotiaBank Chile
− Member of the Consejo para la
Transparencia (Transparency
Council), the Chilean body
responsible for enforcing
transparency in the public sector
9/9
Meeting
attendance
Independent: Yes
Appointed to the Board 2014
Economist with over 30 years’
experience in the mining industry.
PREVIOUS ROLES
− Co-founder and Executive
Director of Copper and Mining
Studies (“CESCO”),
an independent not-for-profit
think tank focused on mining
policy issues
− Vice President of Development
and later director of Codelco
− CEO of AMP Chile
− Adviser to the World Bank
− Member of the Global Agenda
Council for Responsible Minerals
Resource Management at the
World Economic Forum
− Director of Edelnor S.A.,
Electroandina S.A. (now E-CL
S.A.) and Bupa Chile S.A.
CURRENT POSITIONS
− Director of CESCO, Inversiones
Aguas Metropolitanas S.A.
− Professor of the International
Post-Graduate Programme in
Mineral Economics at the
University of Chile
− Member of the Experts
Committee for Copper Prices for
the Chilean Ministry of Finance
9/9
Meeting
attendance
CULTURE CASE STUDY
A steering committee was established in 2013 under the supervision of the
Remuneration and Talent Management Committee to engage with employees to develop
and adopt a charter of values and leadership model for the Group. 75% of the Group’s
employees participated in the process and in the Group’s 2014 engagement survey,
90% of employees confirmed their understanding and alignment with these values.
A management committee has been established in 2017 to design and implement a
cultural reinforcement process in consultation with employees and key stakeholders.
This committee will:
− Review existing data to understand the current state of development of the Group’s
organisational culture.
− Analyse the results to identify key areas for improvement.
− Propose action plans to the Executive Committee.
− Present results to the Remuneration and Talent Management Committee for
discussion at the Board.
− Monitor and reinforce the effectiveness of the Group’s organisational
culture assessment.
74
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
LEADERSHIP
THE BOARDROOM
CHAIRMAN
GROUP CEO
NON-INDEPENDENT DIRECTOR
INDEPENDENT DIRECTOR
EXECUTIVE COMMITTEE MEMBERS
SECRETARY TO THE BOARD/
COMPANY SECRETARY
SENIOR INDEPENDENT DIRECTOR
ROLES
CHAIRMAN
Jean-Paul Luksic
Non-Executive Chairman
SENIOR INDEPENDENT DIRECTOR
Ollie Oliveira
NON-EXECUTIVE DIRECTORS
Ramón Jara
Andrónico Luksic C
Gonzalo Menéndez
Juan Claro
William Hayes
The Board does not consider these
Directors to be independent because
they do not meet one or more of the
independence criteria set out in the
UK Corporate Governance Code.*
INDEPENDENT NON-EXECUTIVE DIRECTORS
− Leads the Board and ensures its effectiveness in all aspects of its duties.
− Promotes the highest standards of integrity, probity and corporate governance.
− Sets the agenda for Board meetings in consultation with the Secretary to the
Board, other Directors and members of senior management.
− Chairs meetings and ensures that there is adequate time available for discussions
of all agenda items with a focus on strategic, rather than routine, issues.
− Promotes a culture of openness and debate within the Board by facilitating the
effective contribution of all Directors.
− Oversees Director development, induction, performance review and relations
with shareholders.
− Provides a sounding board for the Chairman and supports the Chairman in the
delivery of his objectives as required.
− Where necessary, acts as an intermediary between the Chairman and the other
members of the Board or the Group CEO.
− Acts as an additional point of contact for shareholders, focusing on the Group’s
governance and strategy, and gives shareholders a means of raising concerns
other than with the Chairman or senior management.
− Provide a range of outside perspectives to the Group and encourage robust debate
with, and challenge of, the Group’s executive management.
− Ensure that no individual or small group of individuals can dominate the Board’s
decision-making.
Tim Baker
Ollie Oliveira
Vivianne Blanlot
Jorge Bande
Francisca Castro
GROUP CEO
These Directors meet the
independence criteria set out in the
UK Corporate Governance Code and
the Board is satisfied that they
are independent.
− No connection with the Group or any other Director which could be perceived to
compromise independence.
− Provide a range of outside perspectives to the Group and encourage robust debate
with, and challenge of, the Group’s executive management.
− Ensure that no individual or small group of individuals can dominate the Board’s
decision-making.
Iván Arriagada
Not a Director
− Leads the implementation of the Group’s strategy set by the Board.
− Leads the Executive Committee and ensures its effectiveness in all aspects of
its duties.
− Provides information to the Board and participates in Board discussion in
connection with day-to-day activities of the Group.
EXECUTIVE COMMITTEE MEMBERS
See pages 76 to 77
Not Directors
− Present proposals, recommendations and information to the Board within their
areas of responsibility.
SECRETARY TO THE BOARD / COMPANY SECRETARY
Sebastián Conde
− Provides a conduit for Board and Committee communications and provides a link
Julian Anderson
between the Board and management.
− Ensures Board members have access to the information they need to perform
their roles.
− Based in London. Works closely with the Secretary to the Board to provide a
conduit between shareholders, the Board and management in connection with UK
Corporate Governance and listing obligations.
* Ramón Jara provides advisory services to the Group. Andrónico Luksic C is the brother of Jean-Paul Luksic, the Chairman of the Company and is Chairman of Quiñenco
S.A. and Chairman or a Director of Quiñenco’s other listed subsidiaries. Jean-Paul Luksic and Gonzalo Menéndez are also Non-Executive Directors of Quiñenco and some of
its listed subsidiaries. Like Antofagasta plc, Quiñenco is controlled by a foundation in which members of the Luksic family are interested. Juan Claro and William Hayes have
served on the Board for more than nine years from the date of their first election. The Board re-designated William Hayes as a non-independent Director on 24 January 2017.
ANTOFAGASTA.CO.UK
75
LEADERSHIP
EXECUTIVE COMMITTEE
AN EXPERIENCED
MANAGEMENT TEAM
3
6
9
1
4
7
2
5
8
KEY TO COMMITTEES
Operating Performance Review Committee
Business Development Committee
Ethics Committee
Disclosure Committee
1 IVÁN ARRIAGADA
Group CEO
Joined the Group in 2015
Commercial engineer and
economist with over 20 years’
experience in the mining and oil and
gas sectors.
PREVIOUS ROLES
− Chief Financial Officer of Codelco
− Various positions at BHP Billiton,
including President of Pampa
Norte (Spence and Cerro
Colorado), Vice President
Operations and Chief Financial
Officer of the Base
Metals division
− Over 15 years of international
experience with Shell in Chile,
the United Kingdom, Argentina
and the United States
6 ANDRÓNICO LUKSIC L.
Vice President of Development
Joined the Group in 2006
Business administrator with broad
mining experience in sales,
exploration, development and
general management.
PREVIOUS ROLES
− Corporate Manager at
Antofagasta Minerals
− Director, Antofagasta Minerals
Toronto Office
− Various positions at Banco
de Chile
76
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
2 ALFREDO ATUCHA
Group CFO
3 HERNÁN MENARES
Vice President of Operations
4 RENÉ AGUILAR
Vice President of Corporate Affairs
and Sustainability
5 PATRICIO ENEI
Vice President of Legal
Joined the Group in 2013
Accountant and economist with
over 30 years of financial
experience in the mining, metals,
energy and fast moving consumer
goods sectors.
PREVIOUS ROLES
− 10 years’ service at BHP Billiton
as Vice President of Finance for
Minera Escondida and Senior
Manager of Base Metals
Major Projects
− Finance and Administration
Manager at Chilquinta Energía
(part of Sempra Energy and
PSG Group)
− CFO at Reckitt Benckiser in
Spain, Brazil and Chile
− Tax Planning and Treasury at
British American Tobacco
Joined the Group in 2008
Mining engineer and mineral
economist, with 30 years’
experience in mining.
PREVIOUS ROLES
− Project Development Manager for
the Centinela District
− Operating and business planning
roles at Codelco
− Various positions at Compañía
Minera del Pacífico and
Compañía Minera Huasco S.A.
Joined the Group in 2017
Industrial psychologist with 20
years’ experience in mining,
including in sustainability, safety,
human resources and
corporate affairs.
Joined the Group in 2014
Lawyer with over 20 years’
experience in mining, including roles
at some of the largest international
copper companies operating
in Chile.
PREVIOUS ROLES
− Group Head of Safety at Anglo
American plc, London
− Vice President of Corporate Affairs
and Sustainability at Codelco, Chile
PREVIOUS ROLES
− General Counsel at Codelco
− Corporate Affairs Manager of
Minera Escondida
− Senior lawyer at BHP Billiton
− Health and Safety Director at
in Chile
International Council on Mining and
Metals (ICMM), London
− Chief Legal Counsel at Minera
Doña Inés de Collahuasi
− Lawyer at the Instituto de
Normalización Previsional and in
private practice
7 ANA MARÍA RABAGLIATI
Vice President of Human Resources
8 GONZALO SÁNCHEZ
Vice President of Sales
Joined the Group in 1996
Civil engineer with over 25 years’
experience in marketing and
hedging metals.
PREVIOUS ROLES
− Deputy Commercial Director,
Antofagasta Minerals
− Copper sales at Codelco
Joined the Group in 2013
Human resources specialist with
more than 25 years’ experience in
international companies across a
range of sectors, including financial
services, industrials and oil and gas.
PREVIOUS ROLES
− Corporate Human Resources
Manager at Masisa
− Country Human Resources Vice
President at Citigroup
− Human Resources Manager at
the Lafarge Group in Chile
− Various positions at Shell,
including Human Resources
Manager at the Lubricants
Business of Shell Oil
Latin America
9 FRANCISCO VELOSO
Vice President of
Institutional Relations
Joined the Group in 1993
Lawyer with over 20 years’
experience with Antofagasta
Minerals, including oversight of
critical phases of development at
Los Pelambres.
PREVIOUS ROLES
− Vice President of Corporate
Affairs and Sustainability at
Antofagasta Minerals
− Vice President of Legal and
Corporate Affairs at
Antofagasta Minerals
− Vice President of Human
Resources at
Antofagasta Minerals
− General Counsel at
Los Pelambres
− Legal Manager at VTR
− Chief lawyer at Michilla
ANTOFAGASTA.CO.UK
77
EFFECTIVENESS
BOARD ACTIVITIES
THE BOARD’S
ACTIVITIES
2016 BOARD ACTIVITIES*
STRATEGY AND MANAGEMENT
− Held a standalone strategy day with particular focus on operating
OPERATIONS AND MATERIAL TRANSACTIONS
− Approved key steps in the Group’s growth plans
strategy, risk management, Board decision-making, competitiveness and
costs, and culture
− Reviewed the Group’s mining, transport and energy strategies, including
projects and business development opportunities
− Reviewed and monitored the implementation of strategy and the
performance of each Executive Committee members’ team during
the year
− Met consultants and experts to discuss copper market fundamentals and
expectations for the future
− Reviewed the Group’s labour relations strategy following the
implementation of new labour legislation in Chile
INTERNAL CONTROLS AND RISK MANAGEMENT
− Oversaw a review of the Group’s internal control and risk
management systems
− Oversaw the successful implementation of SAP, the new Group
enterprise resource planning (“ERP”) system
− Oversaw the resolution of challenges with thickeners at Centinela and
dust control at Antucoya
− Oversaw the resolution of a long-running disputes with the Caimanes
community at Los Pelambres
− Oversaw enhancement of the Group’s maintenance, organisation and
reliability strategy
− Approved the sale of Michilla
− Approved the transfer of the Group’s 40% interest in the Alto Maipo
project to AES Gener
− Visited the Group’s operations and projects
FINANCIAL AND PERFORMANCE REPORTING
− Approved the Group’s annual and half-year results
− Reviewed the Group’s ongoing capital management strategy and
approved the interim dividends paid out to shareholders during 2016
− Reviewed the Group’s performance against KPIs, including
− Oversaw the continued optimisation of the Group’s corporate structure
safety indicators
− Reviewed and monitored the Group’s operating and
project performance
− Supported and encouraged management in cutting costs, both generally
and as part of the Cost and Competitiveness Programme
− Approved the Group’s 2016 budget, scorecard, commercial and financial
parameters, and base case and development case production scenarios
− Incorporated a captive insurance company to optimise the Group’s
insurance coverage and costs
− Reviewed compliance with financial, regulatory and
environmental commitments
GOVERNANCE AND STAKEHOLDER ENGAGEMENT
− Met shareholders and proxy advisers to discuss corporate
governance issues
− Facilitated an external review of the Board’s effectiveness
− Following implementation of the EU Market Abuse Regulation, approved
amendments to the Group’s systems and procedures, including formally
establishing the Disclosure Committee
BOARD AND SENIOR MANAGEMENT STRUCTURE
− Approved the appointment of Francisca Castro as an independent
Non-Executive Director
− Reviewed succession plans for all Directors and members of
senior management
− Oversaw the CEO transition from Diego Hernández to Iván Arriagada
− Implemented the functional simplification project to minimise
inefficiencies and focus the Group’s operating companies on safety,
achieving production targets and cost control
* The Board met nine times during the year. Each Director withdrew from any meeting when his or her own position was being considered. All Directors then in office
attended the 2016 Annual General Meeting.
78
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
BOARD AND COMMITTEE MEETING INFORMATION FLOWS
CHAIRMAN
AGREES
AGENDA WITH
OTHER DIRECTORS
1
ACTION LISTS
PREPARED, AND
UPDATED AS KEY
ACTIONS ARE
COMPLETED
5
PAPERS
CIRCULATED
IN ADVANCE OF
MEETINGS
2
MINUTES
PREPARED,
CIRCULATED AND
APPROVED
BOARD AND
COMMITTEE
MEETINGS
4
3
2017 BOARD CALENDAR
TOPICS*
Q1
Q2
− 2016 Q4 production report
− 2016 full-year results
− Q1 production report
− Operations base case
− 2016 performance
scorecard results
− Compliance report
− Insurance strategy and
risk review
− Conflicts of interest review
− Risk strategy and principal
− Projects strategy and risk review
− Exploration strategy and
risk review
− Sustainability strategy and
risk review
− Human resources strategy and
risk review
− Resources and reserves
risk review
− Competitiveness and costs
programme – 2017
− Sustainability report
− Safety and health strategy and
− Legal strategy
− AGM agenda
risk review
− Group strategy and risk review
− Development case
Q3
Q4
− Q2 production report
− Sulphuric acid strategy and
− Q3 production report
− Financing strategy and
− Half-year financial report
− 2018 sales strategy and
risk review
− Commercial and financial
budget parameters
risk review
− Compliance report
− Energy strategy and risk review
− 2018 board calendar and
risk review
− 2018 budget
− Talent/succession plans
agenda topics
− 2018 performance scorecard
− Human resources update
* These are the standing topics to be considered by the Board in 2017. Each Board meeting starts and ends with a short session without management present to allow Directors
to set expectations for the meeting and to reflect and evaluate the session at the end of the meeting.
ANTOFAGASTA.CO.UK
79
EFFECTIVENESS
PROFESSIONAL DEVELOPMENT
INFORMATION
AND PROFESSIONAL
DEVELOPMENT
All new Directors receive a thorough induction on joining
the Board. This typically includes meetings with the
Chairman, other Directors and senior executives, briefi ngs
on the Group’s operations and projects, and visits to the
Group’s operations. All Directors receive detailed briefi ngs
on legal, regulatory and other developments that are
relevant to directors of UK-listed companies.
All Directors have access to management and to such further information as
is needed to discharge their duties and responsibilities fully and effectively.
Executives present to the Board and its Committees on operating and
development matters, allowing close interaction between Board members
and a wide range of executive management.
All Directors are entitled to seek independent professional advice concerning
the affairs of the Group at the Company’s expense. The Company has
appropriate insurance in place to cover Directors against any claims that
may be made against them.
SITE VISITS
Directors are actively encouraged to visit the Group’s operations.
This ensures that there is a strong connection between the strategic
decisions being made by the Board and the realities and challenges
being faced day-to-day in the Group’s operations. In 2016, individual
Directors attended the Group’s operations and projects, including the
new operations Zaldívar and Antucoya. The Projects Committee also
visited Los Pelambres and Centinela to see first-hand the challenges
associated with the Los Pelambres Incremental Expansion Project,
the Centinela Second Concentrator Project, the Centinela Molybdenum
Plant and the Encuentro Oxides Project.
The Company provides Directors with the necessary resources to maintain
and enhance their knowledge and capabilities. Directors are regularly
updated on the Group’s businesses, the competitive and regulatory
environment in which they operate and other changes affecting the Group
as a whole. In 2016, this included a Board strategy session and briefings
from industry experts on copper market dynamics and key changes to the
regulatory and legal environment impacting the Group.
Directors based outside Chile visit Chile regularly to attend Board and
Committee meetings and for other meetings with management. All Directors
come to the UK at least once a year to attend the Company’s Annual General
Meeting in London.
The Board and its Committees receive briefing materials in advance of
each meeting. Directors also receive regular reports including analysis of
key metrics in respect of safety, operating, financial, environmental and
social performance, as well as key developments in the Group’s exploration,
projects and business development activities, information on the commodity
markets, the Group’s talent management activities and analysis of the
Group’s financial investments.
Regular topics to be covered in Board meetings are agreed at the beginning
of each year as shown on page 79. The CEO provides timely updates to
the Board on emerging issues. Materials are sent to Board and Committee
members a week in advance of each meeting. Each presentation has a
summary sheet setting out the objective, background, proposal, justification
and risk analysis, and next steps. Materials include the CEO’s report, an
open and candid summary of his views on evolving challenges, changes
in risk assessments and emerging issues, as well as a management
report, with detailed information on the Group’s performance against key
performance indicators. Directors receive flash reports monthly with key
monthly and year-to-date production and financial results, ensuring that
the Board is continuously updated on the Group’s performance. The Board
and each Committee maintain an action list that is reviewed at the beginning
of each meeting to ensure that Directors’ enquiries and concerns are clearly
identified and addressed.
80
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
FRANCISCA CASTRO, NON-EXECUTIVE DIRECTOR
MY THOROUGH INDUCTION
HAS ENABLED ME TO
UNDERSTAND THE GROUP’S
BUSINESSES AND TO HEAR
ABOUT THE CHALLENGES
FACING THE GROUP FROM
THE PEOPLE WHO DEAL WITH
THEM EVERY DAY
FRANCISCA CASTRO – INDUCTION PROGRAMME
1
2
1 NOVEMBER 2016 – JOINED THE BOARD
NOVEMBER / DECEMBER 2016
BOARD INTRODUCTIONS, MEETINGS AND BRIEFINGS
Inductions, meetings and briefings with the Chairman and other
Directors, the Chairmen of the Audit and Risk and Remuneration and
Talent Management Committees, the Group CEO, each member of the
Executive Committee, the Company Secretary and the Secretary to
the Board.
SITE VISIT TO LOS PELAMBRES
Tour of the mine and concentrator plant to review challenges
and opportunities.
Vice Presidents:
− Financial position and outlook
− Audit plan
− Talent management strategy and compensation mechanisms
− Legal strategy and outstanding claims
− Exploration and business development opportunities
− Projects under execution and studies for future project development
− Challenges of the current copper market and the sales strategy
− The Group’s new community relations model
− UK financial and tax regulations
− Overview of the Group’s operations and the new Operating Model
MANAGEMENT BRIEFINGS
Group CEO:
− Implementation of the Group’s Strategy
− Culture
− Challenges and opportunities facing the Group
− Safety
− Production
− Costs
− Projects
− Business development
Company Secretary and Secretary to the Board:
− Information flows and expectations of Directors
− Directors’ duties and liabilities
− The Company’s share dealing policy
− The Company’s disclosure procedures
− The UK Corporate Governance Code
− Requirements of the EU Market Abuse Regulation
− Latest annual report and sustainability report
3
1 JANUARY 2017 – JOINED THE AUDIT AND RISK AND REMUNERATION AND TALENT MANAGEMENT
COMMITTEES
ANTOFAGASTA.CO.UK
81
EFFECTIVENESS
EFFECTIVENESS REVIEW
REVIEWING
THE BOARD’S
EFFECTIVENESS
Regular and candid effectiveness reviews are part
of the Board’s continuous improvement process.
EXTERNAL REVIEW
WHAT WE DID
WHAT WE ARE
GOING TO DO
AREAS OF IMPROVEMENT IDENTIFIED IN
JANUARY 2016
Independent Audit reported that significant improvements have been made
to Board effectiveness following the changes that had been made to address
the areas for improvement identified in 2013. In particular:
− the appointment of new independent Non-Executive Directors has
improved Board balance and diversity;
− the appointment of a Santiago-based Secretary to the Board has
significantly improved Board planning, organisation, focus and follow-up;
− specific requests made by the Board are followed through into agreed
actions which are tracked and reviewed until they have been reported
back to the Board;
− the Committees are functioning well, allowing the Board to receive more
detail and enhanced visibility across the business;
− the introduction of a Projects Committee has improved Board oversight of
project development and execution, informed capital allocation decisions
and allowed the members of that Committee to add additional value to the
management team; and
− the management team has been strengthened, resulting in the Board
having even greater confidence in management.
INTERNAL REVIEW
During the year, led by the Senior Independent Director, the Non-Executive
Directors met without the Chairman present and reviewed the Chairman’s
effectiveness. The Senior Independent Director subsequently met with
the Chairman to provide feedback. The Chairman used these comments
to develop further the effective operation of the Board. In turn, the
Chairman reviewed the individual effectiveness of each of the Non-
Executive Directors.
As envisaged in the 2015 Annual Report,
we asked Independent Audit Limited*
(“Independent Audit”) to conduct an
externally-facilitated review of the
effectiveness of the Board and its
Committees in January 2016 to:
− assess the Company’s progress in
closing gaps that were identified in
the 2013 external review;
− evaluate the Company’s response to
the changes made to the UK Corporate
Governance Code in 2014;
− analyse the Company’s response to
the new FRC guidance on Internal
Control and Risk Management; and
− benchmark Board and Committee
effectiveness against other large
publicly-listed companies in the UK.
We then worked on addressing the
opportunities for improvement identified
by Independent Audit.
Independent Audit provided a progress
report in January 2017 based on further
interviews and observations so that we
could focus further on specific areas for
improvement in 2017 and beyond.
Significant improvements have been
made to Board effectiveness over the last
three years.
We will use the findings of the January
2017 progress report to make targeted
additional improvements to Board and
Committee effectiveness in 2017. This will
include maintaining the strengths and
continuing to address those areas
identified in January 2016 as in need
of further improvement.
* Independent Audit Limited is an external independent adviser with no other connection to the Company.
82
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
REVIEW OF THE EFFECTIVENESS OF THE BOARD 2016: UPDATE FEBRUARY 2017
THE COMPANY HAS ADOPTED
A RIGOROUS APPROACH
TO REVIEWING THE
EFFECTIVENESS OF ITS
BOARD AND COMMITTEES
OPPORTUNITIES FOR FURTHER IMPROVEMENT
IDENTIFIED IN JANUARY 2016
Independent Audit reported that, although no major issues needed to be
addressed in order to ensure that the Board and Committees continue to
operate effectively, further improvements could be made by:
− reflecting on the Group’s culture and how it affects the Group’s ability to
cope with change, to work within controls, and to respect the Group’s
values; and
− changing the structure of materials circulated ahead of meetings to
further enhance the quality of discussion, use of time, and ability for
Directors to focus on key strategic issues and risks;
JANUARY 2017 PROGRESS REPORT
Improvement is a continuous process and Independent Audit’s January 2017
progress report noted that:
− a very thorough approach to follow-through of the agreed actions has
been adopted;
− considerable progress has been made across many aspects of the
Board’s activity, including a strong focus on cost and competitiveness as
well as considerable attention given to other crucial areas, including
relations with local communities, and to safety and health; and
− looking ahead, management will need to focus on the further
development of the information provided to Directors to help support
discussion of the main challenges and risks, and the Board will need to
assess how the Group will respond to industry trends, macroeconomic
developments and innovation.
EVALUATING BOARD EFFECTIVENESS
INTERNAL
YEAR 3
Development of plan
for external and
internal review
E
X
T
E
R
N
A
L
YEAR 1
External effectiveness
review, including
benchmarking
YEAR 2
Gap closure from
external effectiveness
review and
internal review
2013
External review completed by Independent Audit.
2014-2015
− Implementation of 2013 recommendations facilitated by the
Company Secretary and the newly-appointed Secretary to the Board
− Internal reviews to identify areas and opportunities for improvement
in the implementation of the recommendations made following the
external review
− Annual review of the Chairman by the Non-Executive Directors, led
by the Senior Independent Director
− Annual review of the Non-Executive Directors by the Chairman
2016-2017
− External review conducted by Independent Audit in January 2016
− Implementation of recommendations during the year
− Annual review of the Chairman’s effectiveness by the Non-Executive
Directors, led by the Senior Independent Director
− Annual review of the Non-Executive Directors’ effectiveness by
the Chairman
− Independent Audit progress report in January 2017
ANTOFAGASTA.CO.UK
83
ACCOUNTABILITY
INTRODUCTION TO THE COMMITTEES
BOARD
COMMITTEES
The Board relies on the Committees to ensure that
deliberations by the Board are focused on the most
important issues and that proposals are subject to
specialist debate and rigorous challenge.
NOMINATION AND
GOVERNANCE COMMITTEE
Chairman: Jean-Paul Luksic
Key responsibilities:
Ollie Oliveira
Tim Baker
− Corporate governance
− Succession planning for
− Board and Committee
composition
the Board and Group CEO
− Board effectiveness
reviews
P85
AUDIT AND RISK
COMMITTEE
Chairman: Ollie Oliveira
Jorge Bande
Vivianne Blanlot
Francisca Castro
Key responsibilities:
− Financial reporting
− External audit
− Internal audit
− Risk and internal control
− Compliance
SUSTAINABILITY AND STAKEHOLDER
MANAGEMENT COMMITTEE
Chairman: Vivianne Blanlot
Key responsibilities:
Juan Claro
William Hayes
Jorge Bande
PROJECTS
COMMITTEE
Chairman: Ollie Oliveira
Tim Baker
Jorge Bande
Ramón Jara
− Policies and commitments
− Safety and health
− Community relations
− Environment
Key responsibilities:
− Policies and commitments
− Reviews all major projects
− Reviews lessons learned
from projects
P88
P92
P94
REMUNERATION AND TALENT
MANAGEMENT COMMITTEE
Chairman: Tim Baker
Key responsibilities:
Vivianne Blanlot
Francisca Castro
− Directors’ remuneration
− Executive remuneration
− Group pay structures
− Talent management and
succession planning for the
Executive Committee
P96
84
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
ACCOUNTABILITY
NOMINATION AND GOVERNANCE COMMITTEE
COMPLEMENTARY
SKILLS & EXPERIENCE
JEAN-PAUL LUKSIC, CHAIRMAN
THE NOMINATION AND
GOVERNANCE COMMITTEE
SUPPORTS THE BOARD IN
ENSURING THAT THE GROUP
HAS EFFECTIVE GOVERNANCE
STRUCTURES IN PLACE AND
THAT THE BOARD AND ITS
COMMITTEES OPERATE
EFFECTIVELY
2016 MEMBERSHIP
AND MEETING ATTENDANCE
Jean-Paul Luksic (Chairman)
William Hayes
Tim Baker
NUMBER
ATTENDED
5/61
6/6
6/6
− Other regular attendees include the Group CEO, Company Secretary
and Secretary to the Board.
− Effective 1 January 2017, William Hayes rotated off the Committee and
Ollie Oliveira joined the Committee.
− The Committee meets as necessary and at least twice per year.
− Except for the Chairman, all Committee members are independent.
1. The Chairman was unable to attend one meeting due to a last-minute
commitment
KEY ACTIVITIES IN 2016
CORPORATE GOVERNANCE
BOARD AND COMMITTEE COMPOSITION
− Reviewed the Governance section of the 2015 Annual Report and
− Recommended the appointment of independent Non-Executive
recommended it to the Board for approval.
Director, Francisca Castro.
− Reviewed the Committee’s terms of reference and recommended
− Recommended the appointment of independent Non-Executive
amendments to the Board for approval.
− Recommended that the transition of the Senior Independent
Director include meetings with shareholders to discuss corporate
governance matters.
− Reviewed revised versions of the Group’s Share Dealing Code and
Disclosure Procedures updated for the EU Market Abuse Regulation
and recommended them to the Board for approval.
Director, Ollie Oliveira, to the roles of Senior Independent Director
and Audit and Risk Committee Chairman.
− Recommended the appointment of independent Non-Executive
Director, Vivianne Blanlot, to the role of Sustainability and
Stakeholder Management Committee Chairman.
− Recommended changes to the composition of all Committees.
− Reviewed the independence of all Directors, making
SUCCESSION PLANNING
− Reviewed and updated the written succession plans for the Board
and its Committees.
− Implemented succession plans and oversaw the appointment of a
new CEO, Senior Independent Director, Audit and Risk Committee
Chairman and Sustainability and Stakeholder Management
Committee Chairman.
recommendations to the Board.
BOARD EFFECTIVENESS REVIEWS
− Commissioned an externally-facilitated review of the effectiveness
of the Board and its Committees.
− Oversaw the implementation of the recommendations arising from
the review.
ANTOFAGASTA.CO.UK
85
JEAN-PAUL LUKSIC, CHAIRMAN
THE BOARD BELIEVES IN
THE BENEFITS OF DIVERSITY,
INCLUDING GENDER, AND
IN 2016 THE APPOINTMENT
OF FRANCISCA CASTRO
INCREASED THE NUMBER OF
FEMALE DIRECTORS TO TWO
THE BOARD’S APPROACH TO
SUCCESSION PLANNING
The Committee periodically reviews the composition of the Board and
its Committees. The Committee regularly discusses relevant profiles
for future appointments and, when required, assists the Board in
identifying appropriate candidates.
The Committee reviewed succession plans for all Board and
Committee roles in 2016.
The Committee regularly reviews the written succession plans in
place for the Board and Committees to ensure that vacancies can
be appropriately filled. Contingency plans are in place for a range of
situations, including the loss of key personnel.
During 2016, the Committee thoroughly reviewed the skills matrix
which sets out the core competencies and areas of expertise on the
Board, highlighting areas to be addressed in the future and amending
the skills in the matrix to reflect changes in the Group’s strategy and in
the current market environment.
ACCOUNTABILITY
NOMINATION AND GOVERNANCE COMMITTEE CONTINUED
Q What is the main function
of the Nomination and
Governance Committee?
Q How important is a
comprehensive induction
process for new Directors?
It is essential both for the new
Director and for the Company.
I am responsible for ensuring that
any new Directors receive a full
induction on joining the Board, and
the Secretary to the Board and the
Company Secretary both assist with
this process.
Details of the induction process
for Francisca Castro are set out on
page 81.
Q Do you think it is important
to have a Board review
each year?
Improvement is a continuous
process and we welcome the
opportunity to regularly assess
how effectively we operate as a
Board and how we can improve
even further.
The assessment of the Board and
its Committees through an annual
review has now become part of
the normal governance cycle and
we consider it to be a very useful
process. We plan our reviews on
the basis that at least every three
years we will conduct an external
effectiveness review. An external
review was held in 2013 and again
in 2016 and the details of the most
recent review are set out on pages
82 and 83.
It is useful to assess the
commitment of individual Directors
to ensure that they have enough
time available to devote to their
roles, and I am satisfied that this
is true for all our Directors.
We support the Board in ensuring
that the Group has effective
governance structures in place,
that the Board and its Committees
are operating effectively and that
the Board and its Committees
are comprised of Directors with
necessary and appropriate skills.
We make recommendations for
change where appropriate.
This involves:
− monitoring trends, initiatives
and proposals in relation to
corporate governance;
− overseeing and facilitating
annual reviews of the
Chairman, Directors and the
Board, including externally
facilitated reviews;
− evaluating and overseeing the
balance of skills, knowledge and
experience on the Board and its
Committees and reviewing the
independence of Directors; and
− overseeing Board and CEO
succession plans and leading the
process of identifying suitable
candidates to fill vacancies,
nominating such candidates
for approval by the Board and
ensuring that the appointments
are made on merit and against
objective criteria.
Q What has the Committee been
working on during 2016?
2016 has been a period of
significant activity and the
Committee met on six occasions,
recommending the implementation
of, and changes to, Board and
Committee succession plans,
culminating in the changes set
out on page 68 and overseeing
the externally facilitated Board
effectiveness review as described
on pages 82 and 83.
Q What are the steps that you
take to identify and appoint
new Directors?
When we are looking for a new
Director, we consider the skills,
experience and knowledge of the
existing Directors and identify
potential candidates who would
best meet a number of criteria,
including relevant experience, skills,
personality type, contribution to
Board diversity and whether they
have sufficient time to devote to the
role. The steps taken to identify and
appoint independent Non-Executive
Director Francisca Castro are set
out on page 87.
86
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
APPOINTMENT OF FRANCISCA CASTRO
The process was led by the Nomination and Governance Committee
with the assistance of the Secretary to the Board.
JUN
AUG
SEP
OCT
− Board and Committee succession plans tabled
for review.
− Key business experience and skills required agreed by
the Committee. Intertrust Head Hunting* engaged to
assist with the search.
− Intertrust Head Hunting provided longlist of potential
candidates for consideration.
− Four candidates shortlisted and interviewed by the
Chairman and the members of the Committee.
− Committee considered shortlisted candidates and
made recommendation to the Board.
− Board appointed Francisca Castro.
* Intertrust Head Hunting is an independent external adviser with no other
connection to the Company.
Q What prompted the changes
to the composition of
the Board Committees in
November 2016?
We review the membership of
each Board Committee annually
and, following the 2016 review,
recommended a number of changes
for approval by the Board. This was
with the intention of refreshing and
strengthening the performance of
each Committee.
We expect the composition of
the Board and its Committees to
remain unchanged in 2017.
Q How is diversity taken into
account when making Board
appointments?
The Board comprises highly capable
and committed individuals with a
diverse range of technical skills,
backgrounds, expertise, cultures,
nationalities and perspectives.
The Board benefits from the
diversity of personal attributes
among Board members. Diversity of
culture, views, attitudes, background
and gender is important to ensure
that the Board is not composed
solely of like-minded individuals.
As part of the annual review
process, the Board assesses
its effectiveness in meeting its
diversity goals.
The Board believes in the benefits
of diversity, including gender, and in
2016 the appointment of Francisca
Castro increased the number of
female Directors to two.
The Board plans to continue to have
at least one female Director and
will keep looking for opportunities
to increase female representation
further, while continuing to appoint
Directors based on merit.
Q How does corporate
governance fit in with the
other responsibilities of the
Committee?
Sound corporate governance is
fundamental to Board effectiveness.
The Company’s shares are admitted
to a Premium listing on the London
Stock Exchange and the Company
reports against, and complies with,
all of the provisions of the UK
Corporate Governance Code.
The Committee is responsible for
monitoring the Board’s corporate
governance arrangements,
reviewing the Company’s corporate
governance framework at least
annually and recommending any
changes to the Board.
In performing these functions,
the Committee uses the UK
Corporate Governance Code as a
benchmark and takes into account
the nature and location of the
Group’s businesses and any local
expectations that may apply.
The Committee has reviewed
and discussed the Corporate
Governance Reform Green Paper
published by the UK Government’s
Department for Business, Energy
& Industrial Strategy and will
continue to monitor any further
developments in 2017.
JEAN-PAUL LUKSIC,
CHAIRMAN OF THE
NOMINATION AND
GOVERNANCE COMMITTEE
GENDER DIVERSITY
It is widely reported that companies in the mining sector face
particular challenges in recruiting and retaining female talent. One of
the main challenges is the low level of female participation at all levels
of the mining industry. This industry-wide challenge is particularly
relevant for Antofagasta as its operations and corporate centre are
located in Chile where less than half of women currently participate in
the job market. Furthermore, it is less common for women in Chile to
pursue higher education in the fields of engineering, mathematics and
sciences – disciplines that, of necessity, feed into participation in the
mining industry.
During 2017 the Group will be initiating a programme to improve
opportunities for female employees and to ensure that the working
environment throughout the Group encourages the recruitment and
retention of female talent. This programme includes measurable
deliverables which are part of the Group’s Annual Bonus Plan metrics
for 2017.
ANTOFAGASTA.CO.UK
87
ACCOUNTABILITY
AUDIT AND RISK COMMITTEE
MANAGING RISK
EFFECTIVELY
OLLIE OLIVEIRA, CHAIRMAN
THE AUDIT AND RISK COMMITTEE
HAS BEEN INCREASINGLY FOCUSED
ON RISK MANAGEMENT AND I
BELIEVE THAT THIS TREND WILL
CONTINUE
2016 MEMBERSHIP AND
MEETING ATTENDANCE
Ollie Oliveira (Chairman from 1 September 2016)
William Hayes (Chairman until 31 August 2016)
Jorge Bande
NUMBER
ATTENDED
4/4
4/4
4/4
− Other regular attendees include the Group CEO, CFO, Group Financial
Controller, Head of Internal Audit, Strategic Planning Manager, Head
of Risk and Secretary to the Board.
− Effective 1 September 2016 Ollie Oliveira became Chairman, effective
1 January 2017 William Hayes rotated off the Committee and Vivianne
Blanlot and Francisca Castro joined the Committee.
− The Committee meets as necessary and at least twice per year.
− All Committee members are independent.
− Ollie Oliveira, William Hayes, Jorge Bande and Francisca Castro
are all considered to have recent and relevant financial experience.
KEY ACTIVITIES IN 2016
FINANCIAL REPORTING
RISK AND INTERNAL CONTROL
− Reviewed the year-end and half-year financial reporting, with
a focus on the significant accounting issues relating to the
Group’s results.
− Assisted the Board in ensuring that the Annual Report is fair,
balanced and understandable, and reviewed the long-term viability
statement contained in the Annual Report.
− Monitored the functioning of the new SAP accounting system.
EXTERNAL AUDIT
− Conducted detailed reviews with the General Managers of each
of the Group’s operations, covering the operations’ key risks.
− Reviewed the status of key controls in connection with the
SAP system.
− Reviewed developments in the Group’s standard risk management
processes during the year.
− Assisted the Board with its assessment of the Group’s key risks and
its review of the effectiveness of the risk management and internal
control processes.
− Reviewed and approved the 2016 audit plan, including fees.
− Assessed the effectiveness of the external audit process.
COMPLIANCE
INTERNAL AUDIT
− Reviewed the key findings from the Internal Audit reviews
conducted during 2016.
− Agreed the scope and areas of focus for the 2017 internal audit
plan with the Head of Internal Audit, and then approved the final
2017 plan.
− Reviewed whistleblowing incidents during the year, updates to
the conflict of interest declarations by the Group’s employees and
suppliers, and analysed the Group’s relationships with Politically
Exposed Persons.
− Reviewed the Group’s policies and procedures relevant to the
requirements of the UK Modern Slavery Act.
− Reviewed developments in the Group’s standard compliance
processes during the year.
88
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
Q What are the main
responsibilities of the
Committee?
The purpose of the Audit and Risk
Committee is to assist the Board in
meeting its responsibilities relating
to financial reporting and
control. The Committee’s main
responsibilities cover financial
reporting, the external audit
process, internal audit, risk and
internal control, and compliance.
Q You were appointed
Chairman of the Audit and
Risk Committee in September
2016. What has been your
experience so far, and what
do you think will be your
main focus during the next
year?
Firstly, I’d like to thank William
Hayes for his excellent work in
chairing the Committee over the
past five years. During that time the
Committee has been increasingly
focused on risk, and I think that this
trend will continue.
I was very pleased that Vivianne
Blanlot and Francisca Castro
agreed to join the Committee on
1 January 2017. This has been a
valuable addition to the Committee’s
breadth of experience and
expertise. It also means that the
size of the Committee has increased
from three to four members from
the start of 2017, which will be
very helpful in dealing with the
significant responsibilities of the
Committee. This also means that
we now have members of the Audit
and Risk Committee participating
on the Projects Committee and
the Sustainability and Stakeholder
Management Committee. This
allows close linkage between the
overall review of the Group’s risks
and risk management processes
by the Audit and Risk Committee,
with the more specific risks
relating to project execution, safety,
environmental and community
issues considered in detail by
the other committees.
While risk management is
considered at every meeting, I have
decided to have an additional
meeting each year at which
the Committee will focus on
risk management, to reflect the
increasing importance of this area.
Having a larger Committee will help
manage this additional workload.
FINANCIAL REPORTING
Q What are the Committee’s
main activities in respect
of the Group’s financial
reporting?
We review the year-end Financial
Statements and half-yearly financial
report, and ensure that the key
accounting policies, estimates
and judgements applied in those
financial statements are reasonable.
We also monitor the overall financial
reporting process to ensure it is
robust and well controlled. This
includes ensuring that the Group’s
accounting and finance function
is adequately resourced with
appropriate segregation of duties,
that there are appropriate internal
review processes, that the Group’s
accounting policies are appropriate
and clearly communicated, and
that the Group’s accounting and
consolidation systems are also
appropriate. This final area has
been a particular area of focus for
the Committee, as the Group has
implemented a new SAP accounting
system, which went live on
1 January 2016. We’ve been closely
monitoring the implementation of
the system, and its functioning and
control since the go-live date.
Q What are your particular
responsibilities with respect
to the Annual Report?
We assist the Board in its
assessment that the Annual Report
is, taken as a whole, fair, balanced
and understandable, and provides
the necessary information to allow
shareholders to assess the Group’s
position and performance, business
model and strategy. As part of this,
we use our detailed knowledge of
the financial results and the key
accounting judgements applied in
the Financial Statements to ensure
that the tone and content of the
narrative reporting fairly reflects
the financial results for the year.
We also review the going concern
basis adopted in the Financial
Statements, as well as the detailed
long-term viability statement
contained within the Annual Report.
Q What were the significant
accounting issues in relation
to the Financial Statements
considered by the Committee
during 2016?
The main issues considered in detail
by the Committee were:
− The impairment provisions
recorded in respect of Antucoya
and Alto Maipo. With Antucoya,
the Committee reviewed the
key assumptions used in the
impairment review, including
copper price forecasts, future
cost and production levels. This
included a number of meetings
with both management and the
external auditors to review the
methodologies and data used in
determining key parameters such
as the copper price forecasts.
The Committee considered
information provided by the
external auditors in respect of
their own consensus estimates
relating to relevant parameters,
and the auditors’ own calculation
of an appropriate discount rate.
The Committee also requested
that management perform a
number of sensitivity analyses
showing the impact of changes
in key assumptions on the value
of the operation. Following
this process the Committee
agreed that the management’s
estimate of the recoverable
amount of Antucoya’s assets was
reasonable, and therefore the
level of the impairment provision
was appropriate.
− With respect to Alto Maipo, the
Committee members had been
receiving (along with all other
Directors) regular updates in
respect of the project since the
identification of a significant
forecast cost overrun during
2016. As part of the Committee’s
review of the appropriate
accounting for the Group’s
investment in the project they
considered the key terms of the
Group’s agreement to dispose
of its investment for a nominal
amount and the remaining
steps required to complete the
disposal. Following this review
the Committee concurred with
management’s view that a
full impairment provision was
appropriate for the carrying value
of the Group’s investment.
− Details of the impairment reviews
are set out in Note 4 to the
Financial Statements.
− The finalisation of the fair
value adjustments relating to the
Zaldívar acquisition: following the
acquisition of our 50% interest
in Zaldívar in December 2015,
during 2016 the Group finalised
its valuation of the individual
assets and liabilities acquired.
The Committee reviewed the key
assumptions and conclusions of
this process.
− Consideration of the impact
of the non-renewal of two
mining leases at the Twin
Metals project. Following the
non-renewal of these licenses
the Group is undertaking legal
action to protect its position.
The Committee has reviewed in
detail the current status of the
legal action with the Group’s legal
team. They also reviewed the
potential operating and financial
impact of the non-renewal of
these leases with the Group’s
projects team, including an
analysis of the potential impact
on the mine plan and value of the
project of excluding the mineral
resources relating to these
two leases. This resulted in the
conclusion that no adjustment
to the carrying value of the
assets relating to the Twin Metals
project was appropriate.
EXTERNAL AUDIT
Q What are the Committee’s
activities in respect of the
external audit process?
We are responsible for overseeing
Antofagasta’s relationship with
PwC, the Group’s external
auditor. I personally have a key
direct relationship with Jason
Burkitt, the lead PwC audit
partner. We review and approve
the scope of the external audit,
the terms of engagement and
fees. The Committee monitors
the effectiveness of the audit
process and we are responsible
for ensuring the independence
of the external auditor. We
also make recommendations
to the Board in respect of the
appointment, reappointment or
removal of the external auditor.
The Committee formally meets
with PwC without management
present at least once a year.
Q How long has PwC been the
Group’s auditor?
PwC has been our external auditor
for two years. We carried out a
tender process during 2014, which
resulted in PwC being appointed.
In line with the relevant regulatory
guidance, we would expect to
undertake a tender process in
respect of the external audit at
least every ten years.
ANTOFAGASTA.CO.UK
89
ACCOUNTABILITY
AUDIT AND RISK COMMITTEE CONTINUED
The Statutory Audit Services for Large Companies Market Investigation
(Mandatory Use of Competitive Tender Processes and Audit Committee
Responsibilities) Order 2014 – statement of compliance
The Company confirms that it complied with the provisions of the
Competition and Markets Authority’s Order for the financial year
under review.
Q How do you assess the
effectiveness of the external
audit process?
− the effectiveness of the
co-ordination between the
UK and Chilean audit teams;
We considered the following
factors as part of our review of the
effectiveness of the external audit
process during the year:
− the appropriateness of the
proposed audit plan, the
significant risk areas and
areas of focus, and the effective
performance of the audit;
− the technical skills and industry
experience of the audit
engagement partner and the
wider audit team;
− the quality of the external
auditor’s reporting to
the Committee;
− the effectiveness of the
interaction and relationship
between the Group’s
management and the
external auditor;
− feedback from management
in respect of the effectiveness
of the audit processes for the
individual operations and the
Group overall; and
− the review of reports from the
external auditor detailing its
own internal quality control
procedures, as well as its
annual transparency report.
In light of this assessment, the
Committee considers it appropriate
that PwC be re-appointed as
external auditor.
INTERNAL AUDIT
Q What are your main activities
in relation to Internal Audit?
The Committee monitors and
reviews the effectiveness of the
Group’s Internal Audit function.
The Head of Internal Audit reports
directly to the Committee and
meets with us without management
present at least once a year.
The Committee reviews and
approves Internal Audit’s plan of
work for the coming year, including
the department’s budget, head
count and other resources. We
make sure there are sufficient
resources in the plan to allow for
special reviews which may be
required during the year.
We also monitor the resources
available to the Internal Audit team
to make sure it has the right mix of
skills and experience. Internal Audit
utilises a mix of permanent team
members, temporary secondees
from elsewhere in the Group and
third parties, particularly for areas
such as IT-related reviews. We’re
particularly keen on ensuring
the team has the right level of
INDEPENDENCE AND
OBJECTIVITY OF THE
EXTERNAL AUDITOR
The Committee monitors the external auditor’s
independence and objectivity. The Company
has a policy in place that aims to safeguard the
independence and objectivity of the external auditor.
This includes measures in respect of the potential
employment of former auditors, the types of non-
audit services that the external auditor may and may
not provide to the Group, and the approval process in
respect of permitted non-audit services.
The policy in place during 2016 specifies the
non-audit services that the external auditor is not
permitted to provide; these include Internal Audit
outsourcing, valuation services that would be used
for financial accounting purposes, preparation of the
Group’s accounting records or financial statements,
and financial information systems’ design and
implementation. Under the policy in place during
2016, certain permitted non-audit services always
required prior approval by the Committee, whereas
certain other non-audit services required prior
approval by the Committee when the related fees
were above specified levels ($50,000 for a single
engagement or a cumulative annual amount of
$400,000). In addition to this approval process
for specific non-audit services, the Audit and
Risk Committee monitors the total level of non-
audit services provided by the external auditor to
ensure that neither the auditor’s objectivity nor its
independence is put at risk.
An updated policy has been applied from
1 January 2017, reflecting the implementation of the
EU Audit Regulation and Directive. The updated policy
increases the scope of prohibited non-audit services,
particularly in respect of tax services. The policy
also requires prior approval by the Committee for all
non-audit services, other than services which are
considered to be clearly trivial, which the Committee
has defined as being services with fees of not more
than $25,000.
A breakdown of the audit and non-audit fees is
disclosed in Note 7 to the financial statements.
The Company’s external auditor, PwC, has provided
non-audit services (excluding audit-related services)
which amounted to $0.2 million, or 11% of the fees
for audit and audit-related services. This mainly
related to assurance services in respect of the
Group’s sustainability reporting and tax services.
In general, where the external auditor is selected
to provide non-audit services it is because they are
considered to have specific expertise or experience
in the relevant area which means they are the most
suitable provider of those services. The Committee
has reviewed the level of these services in the course
of the year and is confident that the objectivity and
independence of the auditor is not impaired by reason
of such non-audit work.
The external auditor provides a report to the
Committee at least once a year, setting out its
firm’s policies and procedures for maintaining
its independence.
The Committee considers that PwC remained
independent and objective throughout 2016.
mining technical expertise to be
able to deliver highly effective
operating reviews.
Internal Audit presents summaries
of the key findings from the reviews
conducted during the year to
the Committee. All Internal Audit
reports are distributed to the
Committee members once they
have been finalised.
The Committee monitors the
interaction between Internal Audit
and PwC, to ensure an efficient
relationship between the internal
and external audit processes,
avoiding duplication of work, and
ensuring the effective and timely
sharing of findings.
RISK MANAGEMENT AND
INTERNAL CONTROL
Q What are the Committee’s
responsibilities for risk
management and internal
control?
We play an important role in
assisting the Board with its
responsibilities in respect of
risk management and related
controls. The Board has ultimate
responsibility for overseeing the
Group’s principal risks, as well as
for maintaining control systems.
Our internal control systems
are designed to identify and
manage, rather than eliminate,
the risk of failure to achieve our
business objectives, and can
only provide reasonable, and
not absolute, assurance against
material misstatement or loss. The
Committee assists the Board with
its assessment of the Group’s
principal risks and its review
of the effectiveness of the risk
management process.
Q What were the Committee’s
main activities during the
year relating to risk?
The risk management function
presents to the Committee several
times during the year, covering
developments in the Group’s risk
management processes and Group-
level strategic risks.
The General Managers of the
Group’s operations also present to
the Committee at least once a year,
covering their assessment of their
operation’s key potential risks and
any significant materialised risks.
The analysis of key risks includes
an assessment of the significance
of the risks based on the probability
of the risk materialising and the
potential economic impact of the
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ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
risk, as well as an evaluation of the
quality of the controls in place in
respect of those specific risks. We
also look at whether those risks
have been increasing or decreasing
in significance. The General
Managers present their forecast
of any expected change in key
risks over the coming 12 months.
If there is a specific issue at one
of the operations that requires more
detailed understanding, we will
ask the General Manager to attend
the next meeting to discuss that
issue. I find this direct interaction
between the Committee and the
General Managers extremely
valuable – not only in terms of the
direct insight into each operation
it affords the Committee, but
also in allowing us to convey the
importance we attach to strong risk
management processes.
The Committee also reviewed the
implementation of the Group’s
standard risk management
processes at Zaldívar during
the year.
Q How does the Committee
interact with the Board and
other Committees?
I report to the Board following each
Committee meeting, summarising
the main matters reviewed by the
Committee. These regular reports
allow Directors to understand the
main issues being considered by the
Committee, and, when relevant, to
discuss these matters in more detail
with the Board.
The Risk Management function
also presents directly to the
Board, providing updates of
the analysis of the Group’s key
risks and relevant developments
in the risk management and
compliance processes. However,
we try to ensure that the review
of risk by the Board is not
compartmentalised into isolated
sessions, but permeates everything
that the Board considers. So the
operating update which the
CEO provides to the Board at each
meeting covers any significant
materialised risks, and all
proposals which are presented to
the Board incorporate an analysis
of the principal risks relevant to
the proposal.
These processes have assisted
the Board in carrying out a robust
assessment of the principal risks
facing the Company, including those
that would threaten its business
model, future performance,
solvency or liquidity, and to assess
the acceptability of the level of
risks that arise from the Group’s
operations and development
activities. Each year the Board,
with the support of the Committee,
reviews the effectiveness of the
Further information relating to
the Group’s key risks and risk
management processes are
given in the Risk Management
section of the Strategic Report
on pages 20 to 27.
Group’s risk management and
internal control systems. The
review covers all material controls,
including financial, operating and
compliance controls. No significant
failures or weaknesses were
identified as a result of this review
during 2016.
As I explained earlier, from
the start of 2017 we now have
members of the Audit and Risk
Committee participating on the
Projects Committee and the
Sustainability and Stakeholder
Management Committee, which
allows close co-ordination between
these committees.
COMPLIANCE
Q What are the Committee’s
responsibilities relating to
compliance?
We ensure that appropriate
compliance policies and procedures
are observed throughout the Group.
The Group’s Risk Management
function makes regular
presentations to the Committee
covering developments in the
Group’s compliance processes and
significant compliance issues.
Chilean law requires the Group to
appoint a Crime Prevention Officer.
The Committee is responsible
for making recommendations
to the Board in respect of
the appointment of the Crime
Prevention Officer, and generally
monitors and oversees the
AUDIT AND RISK COMMITTEE, BOARD AND
RISK MANAGEMENT FUNCTION INTERACTION
BOARD
Chairman of the Audit and Risk Committee
reports to the Board following each Committee
meeting, allowing a wider discussion of the risk
and compliance issues reviewed in detail by
the Committee
AUDIT AND RISK COMMITTEE
The Committee supports the Board in its
review of the effectiveness of the Group’s risk
management and internal control systems
GENERAL MANAGERS
OF THE OPERATIONS
The General Managers give detailed
presentations to the Committee at least once a
year including each operation’s key risks and
materialised risks
The Risk Management
Function provides regular
presentations covering
changes in the Group’s key
risks, major materialised
risks, and updates on the
risk management and
compliance processes
RISK MANAGEMENT
FUNCTION
There are detailed
presentations at each
Committee meeting covering
the risk management
process, details of significant
whistleblowing reports,
and updates in respect
of compliance processes
and activities
performance of the role. The Crime
Prevention Officer is currently
Alfredo Atucha, the Vice President
of Finance and Administration.
The Committee receives reports
from the Risk Management
function in respect of the Group’s
Crime Prevention Model, in
accordance with Chilean anti-
corruption legislation.
Q What were your main
activities during the year
in respect of compliance?
We reviewed the Group’s
whistleblowing arrangements,
which enable staff and contractors
to raise concerns in confidence
about possible improprieties
or non-compliance with the
Group’s Code of Ethics. This is
an important facility to allow any
potential issues to be raised. We
received regular reports on any
reported whistleblowing incidents,
which detail the number and type
of incidents, along with details
of the most significant ones
and the actions resulting from
their investigation.
The Committee reviewed updates to
the conflict of interest declarations
by the Group’s employees and
suppliers, including details of the
types of potential conflicts being
declared. We also reviewed the
analysis of suppliers who are
Politically Exposed Persons, (ie
individuals who hold prominent
public positions).
We also reviewed the Group’s
policies and procedures relevant to
the requirements of the UK Modern
Slavery Act.
As with the risk management
processes noted above, we
reviewed the implementation of
the Group’s standard compliance
processes at Zaldívar during
the year.
OLLIE OLIVEIRA
CHAIRMAN OF THE AUDIT
AND RISK COMMITTEE
ANTOFAGASTA.CO.UK
91
ACCOUNTABILITY
SUSTAINABILITY AND STAKEHOLDER MANAGEMENT COMMITTEE
COMMITMENT TO
STAKEHOLDERS
VIVIANNE BLANLOT, CHAIRMAN
DURING 2016 THE SUSTAINABILITY AND
STAKEHOLDER MANAGEMENT COMMITTEE
OVERSAW THE DESIGN AND IMPLEMENTATION
OF STRATEGIES TO STRENGTHEN THE
GROUP’S SAFETY, ENVIRONMENTAL AND
COMMUNITY RELATIONS PERFORMANCE,
WHILE MONITORING THE GROUP’S RESPONSE
TO CHALLENGES FACED DURING THE YEAR.
2016 MEMBERSHIP AND
MEETING ATTENDANCE
Ramón Jara (Chairman)
Juan Claro
Vivianne Blanlot
Tim Baker
NUMBER
ATTENDED
− Other regular attendees include the Group CEO, the Vice President of
Corporate Affairs and Sustainability and the Secretary to the Board.
4/4
4/4
4/4
4/4
− Effective 1 January 2017, Ramón Jara and Tim Baker rotated off the
Committee, Vivianne Blanlot assumed the Committee Chairmanship,
and William Hayes and Jorge Bande joined the Committee.
− The Committee meets as necessary and at least twice per year.
KEY ACTIVITIES IN 2016
POLICIES AND COMMITMENTS
COMMUNITY RELATIONS
− Confirmed the role and objectives of the Committee and updated
− Oversaw the process for entering into agreements with the local
its responsibilities as part of the annual review of its terms
of reference.
− Reviewed and approved the 2016 Antofagasta Minerals
Sustainability Report.
− Reviewed sustainability aspects of the Group’s development
projects at Los Pelambres and Centinela.
SAFETY AND HEALTH
− Reviewed the Group’s safety and health strategy including external
consultants’ recommendations and accident reports.
− Followed up on committed actions to prevent recurrence.
communities at Los Pelambres.
− Oversaw the implementation of a community relations strategy for
the Group’s mining and transport operating companies in the north
of Chile.
− Reviewed the Group’s expenditure relating to social plans.
ENVIRONMENT
− Reviewed the Group’s environmental compliance.
− Evaluated environmental risks and mitigating actions.
− Oversaw the process by which Antofagasta Minerals is fulfilling
commitments made to the ICMM.
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PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
For details of the Group’s
sustainability performance in
2016, see the Sustainability
Report on pages 52 to 59.
The Antofagasta Minerals
Sustainability Report provides
further information about its
social and environmental
performance. It is available
on the Company’s website at
www.antofagasta.co.uk
from May 2017.
Q What is the main function
of the Sustainability and
Stakeholder Management
Committee?
The Committee assists the Board
in the stewardship of the Group’s
social responsibility programmes
and makes recommendations to
the Board to ensure that ethical,
safety and health, environmental,
social and community considerations
are taken into account in
the Board’s deliberations.
The Committee provides guidance to
the Board in relation to sustainability
matters generally, reviewing and
updating the Group’s framework of
strategies and policies, (including
safety and health, environmental,
climate change, human rights,
community and other stakeholder
issues), and monitoring and
reviewing the Group’s performance
in respect of sustainability matters,
indicators and targets.
During 2016, the Committee
reviewed and updated its terms of
reference, adding climate change
as an area of responsibility and
clarifying the interconnection
between sustainability and
stakeholder management risks
and the risk oversight function
performed by the Audit and
Risk Committee.
Q What achievements did the
Committee oversee during
2016?
We have overseen and promoted
significant improvements in the
Group’s strategies and systems
to improve the Group’s safety,
environmental and community
relations performance. These
improvements have been
demonstrated by the milestones
that were achieved during 2016,
including the Group’s admission
as a full member of the ICMM,
reaching an agreement with the
local communities at Los Pelambres
and implementing a new community
relations programme (Somos
Choapa) at Los Pelambres.
Q What were the biggest
failures?
Q What trends did the
Committee observe in 2016?
Two people died at the Group’s
operations during the year. The
Group’s stated objective is to
ensure that there are no fatalities.
The Committee oversaw the
appointment of internationally-
renowned consultants, SAFEmap,
to review the mining division’s safety
strategy. This involved a safety
culture survey answered by over
2,600 employees and contractors.
SAFEmap’s recommendations were
reviewed by the Committee and
the Board and action plans were
developed to close the gaps that
were identified.
We must be resolute in our efforts
to ensure that a safety culture is,
and continues to be, embedded in
everything that the Group does.
Q Significant progress has
been made in relation to
community relations at
Los Pelambres. What about
elsewhere in the Group?
The future of our operating
companies depends on committed
and sustained collaboration between
local communities, local, regional
and national government and the
Group. During 2016, the Committee
oversaw the implementation of a
new community engagement model,
based on the Somos Choapa model
deployed at Los Pelambres, at the
other mining operating companies
and transport division in the north
of Chile. The model fosters close
engagement with local communities
and authorities to jointly identify
challenges, opportunities
and solutions.
The Committee also oversaw
progress in the implementation
of commitments made as part of
the Somos Choapa programme at
Los Pelambres, which included the
endorsement of the development
of a technical training centre at Los
Vilos, in partnership with a local
technical education provider.
Several events in 2016 highlighted
the increased importance of careful
environmental management.
In October 2016, the Environmental
Authority (SMA) brought nine
charges based on inspections
conducted at Los Pelambres in
2014-2015 and other activities
being undertaken in respect of third
parties. Los Pelambres remains
committed to full compliance and is
working to address these changes.
In November 2016, a compliance
programme was proposed for
the Los Pelambres Incremental
Expansion, which in its final form
should address all material issues
that might create a risk of non-
compliance in the future.
Q What are the Committee’s
three main priorities in 2017?
− Our number one priority is the
safety of our employees and
contractors. The steps taken
to close the gaps identified in
SAFEmap’s review of the mining
group’s safety strategy will be
carefully monitored.
− The Committee will continue to
oversee the implementation of
commitments made to the new
community relations model in the
north of Chile and as part of the
Somos Choapa programme at
Los Pelambres.
− The Committee has asked
management to strengthen
the Group’s environmental
compliance monitoring system
by appointing a third party to
perform an external review with
the aim of taking compliance
to a level of excellence.
VIVIANNE BLANLOT
CHAIRMAN OF THE
SUSTAINABILITY
AND STAKEHOLDER
MANAGEMENT COMMITTEE
ANTOFAGASTA.CO.UK
93
ACCOUNTABILITY
PROJECTS COMMITTEE
RIGOROUS PROJECT
REVIEW
OLLIE OLIVEIRA, CHAIRMAN
THE PROJECTS COMMITTEE PROVIDES
OVERSIGHT AND CHALLENGE, AND
OBJECTIVELY BENCHMARKS THE GROUP’S
PROJECTS TO ENSURE THAT INVESTMENT
DECISIONS SUBMITTED TO THE BOARD
HAVE BEEN THOROUGHLY TESTED
2016 MEMBERSHIP AND
MEETING ATTENDANCE
Ollie Oliveira (Chairman)
Jorge Bande
Tim Baker
NUMBER
ATTENDED
− Other regular attendees include the Group CEO, Corporate Project
Manager, Project Control Manager and Secretary to the Board
− Effective 1 January 2017, Ramón Jara joined the Projects Committee.
− The Committee meets as necessary and at least twice per year.
5/5
5/5
5/5
KEY ACTIVITIES IN 2016
POLICIES AND COMMITMENTS
PROJECT COMMISSIONING
− Confirmed the role, responsibilities and objectives of the Committee
− Reviewed Antucoya’s commissioning progress and challenges, and
as part of the annual review of its terms of reference.
− Reviewed updates to the Asset Delivery System (“ADS”) and its
application to the Group’s mining projects.
− Reviewed the Group’s mining projects portfolio.
− Reviewed Centinela’s long-term plan and productivity.
PROJECTS IN STUDY/EXECUTION PHASE
− Reviewed progress in relation to the Los Pelambres Incremental
Expansion project.
− Reviewed the Centinela Second Concentrator project.
actions taken.
LESSONS LEARNED FROM PROJECTS
− Reviewed lessons learned from the Esperanza and Centinela
debottlenecking projects and evaluated Centinela’s tailings
management system.
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ANTOFAGASTA ANNUAL REPORT 2016
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PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
Q What are the Committee’s
priorities in 2017?
− To play a key role in reviewing
the commissioning and ramp-up
of the Encuentro Oxides and
Molybdenum Plant projects.
− To carefully assess progress of
studies of the Los Pelambres
Incremental Expansion and
Centinela Second Concentrator
projects, particularly with respect
to critical path items, such as
the necessary Environmental
Impact Studies.
− To review Zaldívar’s and the
transport division’s projects.
− To continue to review and further
enhance the ADS framework.
OLLIE OLIVEIRA
CHAIRMAN OF THE
PROJECTS COMMITTEE
Q What is the main function of
the Projects Committee?
The Committee reviews all aspects
of projects to be submitted to
the Board for approval, highlighting
key matters for the Board’s
consideration throughout the
project lifecycle and making
recommendations to management
to ensure that all projects
submitted to the Board are in
line with the Group’s strategy.
The Committee adds an important
level of governance and control
for the evaluation of the Group’s
projects, and plays a key role
in providing the Board with
additional oversight of the projects
portfolio, development proposals,
milestones and performance
against key indicators.
Q What is the balance between
decisions made by the
Projects Committee and
decisions made by the
Board?
The Committee is not responsible
for approving projects – that is
for the Board to decide. Our role
is to assist the Board by ensuring
that all the Group’s projects follow
a standard, structured process
with consistent analysis, execution
and evaluation practices. As
part of its review, the Committee
invites management to consider
different perspectives, ideas and
improvements, with the aim of
fostering focused discussion within
the Board and, ultimately, enhancing
the value of the Group’s projects.
Q What tools does the
Committee use to assist with
benchmarking?
The Committee provides guidance
to the project managers leading
each individual project and to
the Board from the early stages
of project planning, to ensure that
policies, strategies, and the Group’s
standard implementation framework
are applied to all projects. The use
of the Group’s ADS framework is
an essential component of this.
ADS uses processes and practices
commonly utilised in the mining
industry for project management
from conception to execution. It
defines standards and common
criteria, including governance by
a steering committee, functional
quality assurance reviews and
risk management.
During 2016, the Committee
reviewed and endorsed
enhancements to the ADS
framework, including front-end
loading deliverables:
− making comparisons with
industry systems and assessing
alignment with best practices;
− the project control and
reporting system;
− the project accounting start-up
point policy (which clarifies
treatment of revenues generated
during the start-up period); and
− Board and Committee
involvement in the ADS stage
gate process.
Q What were the key activities
of the Committee in 2016?
The Committee reviewed project
proposals against flat-price
sensitivities, execution milestones
and key performance indicators, and
provided guidance when there was
evidence of a deviation in costs or
schedule from the plans approved
by the Board.
The Committee considered the drop
in commodity prices and reviewed
the Group’s mining projects portfolio
with the objective of maximising
cash preservation in 2016. It
endorsed a spending reduction
for the Encuentro Oxides and
Molybdenum Plant projects (which
are currently in the execution
phase) by reducing the rate and
intensity of construction.
When necessary, the Committee will
also commission reviews of specific
matters by external advisers.
The Committee reviewed progress
in relation to the Los Pelambres
Incremental Expansion Project,
including an analysis of project
management organisation,
an evaluation of comminution
technology alternatives and a review
of the tailings dam capacity studies.
The Committee also reviewed
Centinela’s Second Concentrator
project, including a detailed
analysis of grinding technology
alternatives. It also reviewed
Centinela’s long-term plan and
productivity effects.
As explained on page 80, the
Committee visited the Group’s
projects during the year and met
management and employees to
understand the precise stage of
development (including projects in
the study phase and construction
phase) and the specific issues
relevant to individuals working
at the site.
Q What does the Committee
do to ensure continuous
improvement?
The Committee reviews close-out
reports to derive lessons learned
that will be applied to future
projects. In 2016, the Committee
reviewed the lessons learned from
the Antucoya project. In particular, it
reviewed a cost reconciliation of the
project, and identified that project
economics should capture all costs
involved. The Committee ensured
that future projects’ submissions
for approval should include the
cost of studies, project execution,
commissioning, accumulated
interest, working capital and related
items in order to present a full
picture of the funding required.
The Committee also reviewed
lessons learned from the
construction of Esperanza and
the Centinela debottlenecking
project and evaluated the
investment in Centinela’s tailings
management system.
ANTOFAGASTA.CO.UK
95
COMMITTEE CHAIRMAN’S INTRODUCTORY LETTER
REMUNERATION AND TALENT MANAGEMENT COMMITTEE
ENCOURAGING THE
RIGHT BEHAVIOURS
TIM BAKER, CHAIRMAN
AS A COMMITTEE, OUR OBJECTIVES FOR
2017 ARE THE SAME AS FOR THE REST
OF THE GROUP – TO REDUCE COSTS
SUSTAINABLY, PRODUCE PROFITABLE
TONNES AND DELIVER POSITIVE FREE
CASH FLOW THROUGHOUT THE CYCLE
(whose pay arrangements were
also reviewed during the year).
The Committee also oversaw the
functional simplification programme
implemented during 2016. The
programme centralised certain
functions that support our mining
operations (including finance,
human resources, legal and external
affairs and sustainability) in the
locations most appropriate for
supporting the Group’s portfolio
of operations.
Finally, the Committee considered
the progress made in attaining the
Group’s strategic performance
targets for the year and how this
impacted executive remuneration.
As reported by the Chairman in his
introduction to this year’s Annual
Report, good progress was made
during 2016 as demonstrated by the
reduction in costs and increase in
production as the full impact from
the new mining operations in our
portfolio flowed through. As a result,
the Group’s performance score
for 2016 under the Annual Bonus
Plan, which forms the basis for
calculating 70% of the Group CEO’s
and Executive Committee’s annual
bonus, was determined to be 99.7
within a range of 90 (Threshold) –
110 (Maximum).
Q How does the 2017 Directors’
Remuneration Policy differ
from the 2014 policy?
There is very little change between
the two policies. The main
difference is that the 2017 policy
does not include a recruitment
policy for Executive Directors. As
noted on page 68, the Board does
not currently have an Executive
Director and does not anticipate
a new appointment during the
2017-2020 policy period.
Further details of the minor
differences between the 2014 and
2017 policies are set out within the
2017 Directors’ Remuneration Policy
itself on page 112.
Q Did the Committee apply
discretion to adjust
remuneration outcomes
during the year?
No discretion has been applied to
remuneration outcomes for any
payments to Directors or the Group
CEO during the year.
Q What information about
executive pay is being
provided in this 2016
Remuneration Report?
We feel it is important to embrace
the broad governance requirements
of the UK regime, so voluntarily
continue to report the Group
CEO’s remuneration as if he
were a member of the Board. We
also provide detailed information
relating to the structure and
components of the other Executive
Committee members’ remuneration.
As explained on page 68, the
Committee needs to consider the
market conditions and remuneration
structures available in Chile when
setting executive remuneration and
some elements of the Group’s LTIP
may therefore differ slightly from
arrangements that would typically
be expected for a UK-based CEO
and management team.
Dear Shareholder,
Q What is the function of the
Remuneration and Talent
Management Committee?
The Remuneration and Talent
Management Committee is
responsible for ensuring that the
Group’s remuneration arrangements
promote effective execution of the
Group’s strategy and enable the
recruitment, motivation, retention
and development of talent.
The Committee is responsible
for preparing the Directors’
Remuneration Policy and reviewing
the remuneration of any Executive
Directors (although there are
currently none and none are
expected to be appointed). The
Board comprises solely of Non-
Executive Directors as explained
by the Chairman on page 68.
The Committee also reviews and
approves the remuneration of the
Chairman and the Group CEO,
and determines the performance-
related elements of the Group
CEO’s compensation.
Remuneration for members of the
Executive Committee, including
awards granted under the long-term
incentive plan (LTIP) and annual
bonus plan (Annual Bonus Plan),
is proposed to the Committee by
the Group CEO for approval.
Awards under both the LTIP and
the Annual Bonus Plan are subject
to performance against financial
and non-financial metrics and
take into account the interests
of the Group’s stakeholders. The
Committee reviews these metrics
at the beginning of the year
and, if necessary, recommends
amendments before approving the
metrics (in the case of the LTIP)
or recommending the metrics to
the Board for approval (in the case
of the Annual Bonus Plan).
The Committee also reviews
succession plans for members of
the Executive Committee, assessing
any changes in compensation
policies across the Group that
may have a significant long-term
impact on labour costs, and
oversees compensation and talent
management strategies for the
Group as a whole.
Q What were the areas of focus
for the Committee in 2016?
The Committee reviewed the
principles and application of the
2014 Directors’ Remuneration
Policy, resulting in the development
of the 2017 Directors’ Remuneration
Policy, which is set out on pages
112 to 114. Shareholders are
invited to vote on this policy at the
2017 AGM.
At the management level, the
Committee reviewed Diego
Hernández’s performance against
the performance criteria that
applied to the Strategic Awards
that he received in 2015. These
criteria are set out on page 108 and
primarily relate to the successful
implementation of a succession plan
allowing for the transition of the
role of Group CEO to Iván Arriagada
96
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
In the event that candidates are
being considered for a role that
reports into the Group CEO, the
Committee Chairman participates
in the interview process to ensure
that the candidate receives input
on, and is capable of meeting, the
Board’s expectations.
We encourage and review
progress in the development and
internal promotion of professional
talent and the movement of
that talent between the Group’s
operations and closely monitor and
encourage the development of high
potential employees.
Q What are the key objectives
for the Committee in 2017?
The Committee’s objectives for
2017, as with the rest of the Group,
are to reduce costs sustainably,
produce profitable tonnes and
deliver positive free cash flow
throughout the cycle. In order
to ensure that these objectives
are met, the Committee has
commissioned a thorough review
of the Group’s variable remuneration
models in 2017.
As set out on page 74, the
Committee will also oversee the
activities of the culture committee,
update the talent management
programme and oversee labour
union negotiations at Centinela
and Zaldívar.
Shareholders are invited to
vote on the 2017 Directors’
Remuneration Policy and on
the 2016 Remuneration Report
and it is hoped that there will be
continued support for the Group’s
pay arrangements.
TIM BAKER
CHAIRMAN OF THE
REMUNERATION AND TALENT
MANAGEMENT COMMITTEE
Q Have any changes been made
to the fees payable to Non-
Executive Directors in 2017?
The sole change is the introduction
of a separate fee for the Senior
Independent Director. The
Committee works with remuneration
consultants to review Non-
Executive Directors’ remuneration
against relevant markets and
makes recommendations to
the Board based on those results.
The remuneration of Non-
Executive Directors is determined
by the Board as a whole and no
Non-Executive Director participates
in the determination of his or her
own remuneration.
Fee levels for the Non-Executive
Directors have remained unchanged
since 2012 and will remain
unchanged in 2017 except for
the Senior Independent Director
fee of $20,000 pa. This fee is in
accordance with the 2014 Directors’
Remuneration Policy and provides
recognition of the additional time
commitment and responsibilities
attached to the role.
Q What arrangement does the
Committee have in place with
remuneration consultants?
During the year, the Committee
reappointed remuneration
consultants Willis Towers Watson
to provide advice to the Committee.
In past years Willis Towers Watson
has provided the Committee with
useful advice on such matters
as compensation benchmarking,
new legislative requirements and
market practice.
Willis Towers Watson is a widely-
recognised independent global
professional services firm that is
a signatory to, and adheres to, the
Code of Conduct for Remuneration
Committee Consultants.
This can be found at www.
remunerationconsultantsgroup.com.
The Committee is satisfied that the
advice provided by Willis Towers
Watson in 2016 was objective and
independent, that no conflict of
interest arose as a result of these
ANTOFAGASTA.CO.UK
services and that it had no other
connection with the Company.
Willis Towers Watson’s fees for this
work were charged in accordance
with normal billing practices and
amounted to £93,848.
The Committee also re-appointed
the Company’s legal advisers,
Clifford Chance LLP, to provide
advice on the operation of
the Group’s LTIP and other
compensation-related legal issues
during 2016. This re-appointment
was also based on the Committee’s
satisfaction with advice received in
previous years.
The Committee Chairman and the
Committee as a whole regularly
speak with these advisers without
management present, to provide a
forum for open discussion and the
sharing of views and opinions on
compensation issues. Additionally,
part of each Committee meeting is
held without management present
to ensure that individual views
or areas of concern are debated
between the Committee members
as necessary.
The Committee also received
assistance from the Chairman, the
Group CEO, the Vice President
of Human Resources and the
Company Secretary during 2016,
none of whom participated in
discussions relating to their
own remuneration.
Q What role does the
Committee play in talent
management and succession
planning?
Talent management and succession
planning enable the Group to adapt
to the challenges and changes
that arise over the copper price
cycle. Under the agreed succession
planning policy, when a key
management position becomes
vacant a replacement will first
be sought from within the Group,
taking into account the succession
plan agreed for that position. In
2016, the appointment of Iván
Arriagada as Group CEO was an
internal appointment in accordance
with this policy.
97
REMUNERATION AND TALENT MANAGEMENT COMMITTEE CONTINUED
2016 MEMBERSHIP AND MEETING
ATTENDANCE
REMUNERATION AT A GLANCE
Tim Baker (Chairman)
William Hayes1
Ollie Oliveira
NUMBER
ATTENDED
Introductory letter from the Chairman of the Remuneration
and Talent Management Committee
9/9
8/9
9/9
Summary of 2014 Directors’ Remuneration Policy
2016 Remuneration Report
Statement of shareholder voting
1. William Hayes was unable to attend one meeting due to aircraft delay. This
meeting was not included in the schedule of planned meetings at the beginning
of the year.
− Other regular attendees include the Group CEO, Vice President of
Human Resources, Company Secretary and Secretary to the Board.
− Effective 1 January 2017, William Hayes and Ollie Oliveira rotated
off the Committee and Vivianne Blanlot and Francisca Castro joined
the Committee.
− Mrs Blanlot and Mrs Castro received briefings on the UK remuneration
reporting regulations and Corporate Governance Code as part of the
induction process following their appointments as Directors and will
undertake further specific technical briefings in 2017.
− The Committee meets as necessary and at least twice per year.
− All Committee members are independent.
KEY ACTIVITIES IN 2016
DIRECTORS’ REMUNERATION
− Evaluated Chairman, Director and Committee fees, recommending
to the Board that all fees remain unchanged except for a new
separate fee payable to the Senior Independent Director.
− Reviewed the Company’s 2015 Remuneration Report prior to its
approval by the Board and subsequent approval by shareholders at
the 2016 AGM.
EXECUTIVE REMUNERATION
− Determined Iván Arriagada’s remuneration on his appointment to
the role of Group CEO.
− Evaluated the performance of the Group CEO and determined
variable compensation payable under the 2015 Annual Bonus Plan
and Strategic Awards.
− Reviewed the structure of the Group’s Annual Bonus Plan and LTIP
and recommended minor changes to the Board for approval.
− Reviewed LTIP eligibility, participants and performance against set
criteria and approved the vesting of awards.
− Analysed Group performance against the 2016 Annual Bonus Plan
and performance metrics to apply to the 2017 Annual Bonus Plan.
− Reviewed and approved the performance of the members of the
Executive Committee under the 2015 Annual Bonus Plan.
GROUP PAY STRUCTURES
− Oversaw implementation of the functional simplification programme
which involved the centralisation of support functions.
− Reviewed compensation across the Group to ensure that it remains
competitive, motivating and appropriately aligned with the Group’s
performance and strategy.
TALENT MANAGEMENT AND SUCCESSION PLANNING
− Oversaw transition arrangements relating to the implementation of
the succession plan for the Group CEO.
− Reviewed the application of the Group’s talent management and
succession planning policies, including further development of the
graduate trainee programme.
Implementation of the Directors’ Remuneration Policy in 2016
Audited single figure remuneration table
Voluntary disclosures – executive remuneration
Comparison of overall performance and remuneration
Relative change in remuneration
Relative importance of remuneration spend
2017 Directors’ Remuneration Policy
96
99
100
100
100
101
102
110
111
111
112
COMPANY SHARE PRICE PERFORMANCE
500
400
300
200
100
0
31/12/08
31/12/09
31/12/10
30/12/11
31/12/12
31/12/13
31/12/14
31/12/15
30/12/16
ANTOFAGASTA
FTSE ALL SHARE
EUROMONEY GLOBAL MINING
Source: Datastream.
The calculation metrics are set out on page 110.
GROUP CEO 2017 POTENTIAL
TOTAL REMUNERATION
MAXIMUM
TARGET
43%
55%
43%
14%
$1.366m
27%
18%
$1.074m
MINIMUM
100%
$0.592m
FIXED ELEMENTS
ANNUAL VARIABLE ELEMENTS
LONG-TERM VARIABLE ELEMENTS
Figures are based on the assumptions set out in detail on page 109.
98
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
2014 REMUNERATION POLICY
SUMMARY
OF 2014 DIRECTORS’
REMUNERATION POLICY
The 2014 Directors’ Remuneration Policy was approved by shareholders at the AGM held on 21 May 2014 and took effect from that date. The summary
policy table below is provided for reference, and covers elements of the policy that apply to all Directors. It does not formally form part of the Remuneration
Report and has not been separated into elements relating to the role of Executive Chairman and Non-Executive Director following Jean-Paul Luksic’s
re-designation as Non-Executive Chairman in 2014.
The full Remuneration Policy approved by shareholders at the 2014 AGM can be found in the Remuneration and Talent Management section of the
Company’s website at www.antofagasta.co.uk/investors/corporate-governance/board-committees.
The Company’s policy is to ensure that Directors are fairly rewarded with regard to their responsibilities, and to consider comparable pay levels and
structures in the UK and Chile, and in the international mining industry. Remuneration levels for Directors are reviewed annually in comparison with
companies of a similar nature, size and complexity and take into account the specific responsibilities undertaken and the structure of the Board.
PURPOSE
OPERATION
MAXIMUM OPPORTUNITY
Fees
To attract and
retain high-calibre,
experienced Non-
Executive Directors
by offering globally
competitive fee
levels.
Fees are reviewed annually and the competitiveness
of total fees is assessed against companies of a similar
nature, size and complexity.
Non-Executive Directors receive a base fee for
services to Antofagasta plc’s Board, as well as
additional fees for chairing or serving as a member
of any of the Board’s committees.
Separate base fees are paid for services to the
Antofagasta Minerals Board (all Non-Executive
Directors are members of both boards), and for being
directors of subsidiary companies and joint venture
companies within the Group.
Ramón Jara also receives a base fee for services
provided to Antofagasta Minerals (pursuant to
a separate service contract).
Fee levels are denominated in US dollars. The
Committee may determine fee levels and/or pay
fees in any other currency if deemed necessary,
or appropriate.
In normal circumstances, the maximum annual fee
increase will be 7%. However, the Committee has
discretion to exceed this in exceptional circumstances,
for example:
− if there is a sustained period of high inflation;
− if fees are out of line with the market; and/or
− if fees for chairing or serving as a member of
any of the Board’s committees are out of line with
the market.
Any increases will take into account the factors
described under “operation” and will not be excessive.
Fee levels for additional roles within the Antofagasta
Group are based on the needs and time commitment
expected and may be determined and/or paid in a
combination of currencies, including US dollars and
Chilean pesos.
Fees will also be increased to take account of Chilean
inflation and may be reported as an increase or
decrease as a result of the exchange rate impact
of Chilean peso-denominated fees, given all amounts
in this report are reported in US dollars.
Variable
remuneration
Benefits
Given the non-executive composition of the Board, there are no arrangements for Directors to acquire benefits through the acquisition
of shares in the Company or any of its subsidiary undertakings, to benefit through performance-related pay or to participate in long-
term incentive schemes.
The Corporate Governance Code states that remuneration for Non-Executive Directors should not include share options or other
performance-related elements.
To provide
appropriate benefits
required in the
performance of the
duties of Non-
Executive Directors.
Benefits include the provision of life, accident and
health insurance.
The Committee retains the discretion to provide
additional insurance benefits in accordance with
Company policy, should this be deemed necessary.
In normal circumstances, the maximum value of
benefits will be $22,000. However, the Committee
has discretion to exceed this should the underlying
cost of providing the pre-existing benefits increase,
or if additional benefits are provided and are
deemed appropriate.
Pension
No Director receives pension contributions. The Corporate Governance Code considers that the participation by a Non-Executive
Director in a company’s pension scheme could potentially affect the independence of that Non-Executive Director.
As Directors do not receive variable remuneration, there are no provisions in place to recover sums paid or withhold payments.
No Executive Directors were appointed, or served, on the Board in 2016.
ANTOFAGASTA.CO.UK
99
2016 REMUNERATION REPORT
2016 REMUNERATION
REPORT
STATEMENT OF SHAREHOLDER VOTING
The table below shows the voting results on the 2014 Directors’
Remuneration Policy at the 2014 AGM and on the Company’s 2015
Remuneration Report at the 2016 AGM:
RESOLUTION TO APPROVE THE 2014
DIRECTORS’ REMUNERATION POLICY
Votes for
Votes against
Votes cast as a percentage of Issued Share Capital
Votes withheld
965,357,216
91.8%
86,053,542
8.2%
88.7%
1,350,645
RESOLUTION TO APPROVE THE COMPANY’S 2015
REMUNERATION REPORT
Votes for
1,052,359,607
Votes against
Votes cast as a percentage of Issued Share Capital
Votes withheld
99.89%
1,138,173
0.11%
88.84%
61,608
The considerable vote in favour of the 2014 Directors’ Remuneration Policy
and the Company’s 2015 Remuneration Report confirms the strong support
the Group has received from shareholders for the Group’s remuneration
arrangements in recent years.
IMPLEMENTATION OF THE DIRECTORS’
REMUNERATION POLICY IN 2016
CHAIRMAN
Mr Jean-Paul Luksic was appointed Executive Chairman in 2004 and
was re-designated as Non-Executive Chairman in 2014. Mr Luksic’s total
2016 fee was $1,000,000, comprising, for his services as Chairman of the
Board: $730,000 per annum, Chairman of the Nomination and Governance
Committee: $10,000 per annum, and Chairman of the Antofagasta Minerals
board: $260,000 per annum.
Since the last policy review in 2014, this reflects a decrease of 61%,
reflecting his role change from Executive to Non-Executive and his
continuing responsibility, experience and time commitment to the role.
SENIOR INDEPENDENT DIRECTOR
Ollie Oliveira was appointed Senior Independent Director with effect from
1 September 2016. On 24 January 2017, the Board approved an annual fee
of $20,000 for performing this role in recognition of its importance, and the
additional time commitment, which is in line with market practice.
REMUNERATION REPORTING
FRAMEWORK
This Remuneration Report has been prepared in accordance
with Schedule 8 of the Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations 2008 (as amended).
It also describes how the Board has applied the principles of good
governance as set out in the Corporate Governance Code.
NON-EXECUTIVE DIRECTORS
There has been no change to Non-Executive Director fees since 2012.
The base Non-Executive Director’s fee in respect of the Board remains at
$130,000 per annum. Given the core role which Antofagasta Minerals plays
in the management of the mining operations and projects, all Directors
also serve as directors of Antofagasta Minerals. The annual fee payable
to directors of Antofagasta Minerals remains at $130,000. Therefore, the
combined base fees payable to Non-Executive Directors amounted to
$260,000 per annum.
The Board remains satisfied that the current fee levels and structure are
aligned with the Group’s international peers and is not recommending any
change this year, but will continue to review fee levels from time to time, in
accordance with the Remuneration Policy.
In addition to Board fees, Non-Executive Directors also received fees for
their participation on Board Committees during the year. In 2016, with
the assistance of Willis Towers Watson, the Committee reviewed the fee
levels and decided that other than recommending a new annual fee for the
Senior Independent Director, the existing Committee fees should remain
unchanged, as they have since 2012.
ROLE
Senior Independent Director
Audit and Risk Committee Chairman
Audit and Risk Committee member
Nomination and Governance Committee Chairman
Nomination and Governance Committee member
Projects Committee Chairman
Projects Committee member
Remuneration and Talent Management Committee
Chairman
Remuneration and Talent Management Committee member
Sustainability and Stakeholder Management Committee
Chairman
Sustainability and Stakeholder Management Committee
member
ADDITIONAL
FEES ($000)
201
20
10
10
4
16
10
16
10
16
10
1. This fee was approved by the Board on 24 January 2017 and took effect from
that date.
The 2014 Directors’ Remuneration Policy does not allow for the payment of
variable remuneration to the Chairman or Non-Executive Directors.
100
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
AUDITED SINGLE FIGURE REMUNERATION TABLE
The remuneration of the Directors and the Group CEO for the year is set out below in US dollars. Unless otherwise noted, amounts paid in Chilean pesos
have been converted at the exchange rate on the first day of the month following the date of payment.
Any additional fees payable for membership of subsidiary and joint venture company boards are included within the amounts attributable to the Directors in
the table below.
As explained in the Remuneration Policy, Director do not receive pensions or performance-related pay and are not eligible to participate in the LTIP.
SALARY/FEES
BENEFITS5
ANNUAL BONUS6
LTIP7
RECRUITMENT
AWARDS /
STRATEGIC AWARDS
TOTAL
2016
$000
2015
$000
2016
$000
2015
$000
2016
$000
2015
$000
20168
$000
20159
$000
201610
$000
2015
$000
2016
$000
2015
$000
Chairman
Jean-Paul Luksic
Non-Executive
Directors
Ollie Oliveira1
Gonzalo Menéndez
Ramón Jara2
Juan Claro
Hugo Dryland (retired
effective
31 October 2016)
William Hayes
Tim Baker
Andrónico Luksic C
Vivianne Blanlot
Jorge Bande
Francisca Castro
(appointed effective
November 2016)
1,000
1,098
14
39
299
260
833
270
217
339
300
260
270
280
43
288
313
876
270
260
342
294
260
270
275
–
6
15
20
6
11
13
7
4
6
4
2
14
77
45
21
12
66
21
24
12
12
–
–
–
–
–
–
–
–
–
–
–
–
–
Total Board
4,371
4,545
108
343
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,014
1,137
305
275
853
276
228
352
307
264
276
284
45
302
390
921
291
272
408
315
284
282
287
–
4,479
4,888
Group CEO
(not on the Board)
Diego Hernández3
(Group CEO until
8 April 2016)
Iván Arriagada4
(appointed Group CEO
8 April 2016)
226
847
417
–
Total Group CEO
643
847
2
6
8
Grand total
5,013
5,392
116
11
–
117
325
–
528
1,180
734
1,525
2,445
260
–
60
–
–
–
742
–
11
354
377
377
325
325
60
60
528
528
1,180
1,180
734
734
2,266
6,745
2,445
7,333
1. From 1 January 2016 until 30 April 2016, fees payable in respect of Ollie Oliveira’s
service as a Director were paid to Greengrove Capital LLP, a partnership in which
Ollie Oliveira was a partner.
2. During 2016, remuneration of $533,000 (2015 – $524,000) for the provision of
services by Ramón Jara was paid to Asesorías Ramón F Jara Ltda. This amount is
included in the amounts attributable to Ramón Jara of $833,000 (2015 – $876,000).
3. Amounts disclosed for Diego Hernández in 2016 relate to (i) the pro rata value of
his base salary, benefits and annual bonus from 1 January 2016 until 8 April 2016;
and (ii) Strategic Awards that vested on 30 April and 1 August 2016 – after his
transition out of the role of Group CEO (as set out in detail on page 107) – and
which have not been pro-rated in the single figure table. The LTIP awards granted to
Diego Hernández in 2014 which were due to vest on 19 March 2017 were forfeited
by Mr Hernández as a condition of entitlement to the Strategic Awards. No pension
was payable to Diego Hernández. The benefits expense represents the provision of
life and health insurance and does not include taxable benefits relating to expenses.
4. The amounts disclosed for 2016 relate to remuneration paid to Iván Arriagada from
8 April 2016, including base salary and benefits and the pro rata value of his annual
bonus and LTIP awards vesting in 2016. No pension is payable to Iván Arriagada.
The benefits expense represents the provision of life and health insurance and
does not include taxable benefits relating to expenses.
5. Includes amounts which are deemed by UK tax authorities to be taxable benefits
relating largely to the costs of Non-Executive Directors’ expenses in attending
Board meetings in the UK (including associated hotel and subsistence expenses).
Given these expenses are incurred by Directors in the fulfilment of their duties,
the Company also pays the tax incurred by Directors on these expenses. These
amounts were not disclosed in the 2015 Remuneration Report because the
Company was not alerted until after the 2016 Annual General Meeting that these
amounts were taxable. The figures for 2015 are higher than for 2016 because there
were more meetings in London in 2015 than in 2016 and the 2015 figures include
spouse travel costs which did not apply in 2016. Amounts for Jean-Paul Luksic
include the provision of life, accident and health insurance. Amounts for Ramón Jara
include the provision of accident insurance.
6. The annual bonus paid to Diego Hernández in 2015 is reported based on the
exchange rate as at 1 April 2015. In the 2015 Remuneration Report a slightly lower
figure of $321,000 was reported, which reflected the anticipated exchange rate at
the date the 2015 Remuneration Report was published.
7. As explained on page 105, awards granted pursuant to the LTIP are split between
Restricted Share Awards and Performance Share Awards. Amounts relating to
Restricted Share Awards are reported in the year that they vest. Performance
Share Awards are reported in the year that the performance period ends.
8. The 2016 amounts payable to Iván Arriagada under the LTIP relate to Restricted
Share Awards granted in 2015 that vested in 2016. The amount is the pro
rata portion of the payment in relation to the period from 8 April 2016 until
31 December 2016.
9. The 2015 amounts payable to Diego Hernández under the LTIP relate to Restricted
Share Awards and Performance Share Awards granted in 2013 and to Restricted
Share Awards granted in 2012 and 2014. The performance period for Performance
Share Awards granted in 2013 concluded on 31 December 2015 and the
awards vested on 8 April 2016. This figure is the final amount paid for the entire
performance period. In the 2015 Annual Report an estimate was used because the
2013 Performance Share Awards had not yet vested.
10. Details of the performance conditions and vesting dates attaching to this award are
explained in more detail on page 107.
ANTOFAGASTA.CO.UK
101
2016 REMUNERATION REPORT CONTINUED
DIRECTORS’ INTERESTS (AUDITED)
The Directors who held office at 31 December 2016 had the following
interests in ordinary shares of the Company:
Jean-Paul Luksic1
Ramón Jara2
ORDINARY SHARES OF 5P EACH
31 DECEMBER
2016
41,963,110
5,260
1 JANUARY
2016
41,963,110
5,260
1. Jean-Paul Luksic’s interest relates to shares held by Aureberg Establishment, an
entity that he ultimately controls.
2. Ramón Jara’s interest relates to shares held by a close family member.
There have been no changes to the Directors’ interests in the shares of the
Company between 31 December 2016 and the date of this report.
The Directors had no interests in the shares of the Company during the
year other than the interests set out in the table above. No Director had any
material interest in any contract (other than a service contract) with the
Company or its subsidiary undertakings during the year other than in the
ordinary course of business.
SHAREHOLDING GUIDELINES
The Group does not have shareholding guidelines or requirements for
Directors, all of whom are non-executive, or for the Group CEO and
Executive Committee members, all of whom are based in Chile.
Chairman Jean-Paul Luksic and Non-Executive Director Andrónico Luksic
C are members of the Luksic family; members of the Luksic family are
interested in the E. Abaroa Foundation which controls the Metalinvest
Establishment and Kupferberg Establishment (which, in aggregate, hold
approximately 60.66% of the Company’s ordinary shares and approximately
94.12% of the Company’s preference shares). In addition, Mr Jean-Paul
Luksic controls the Severe Studere Foundation which, in turn, controls
Aureberg Establishment (which holds approximately 4.26% of the
Company’s ordinary shares). This creates significant alignment between
these members of the Board and shareholders.
Certain senior executives participate in the Group’s LTIP, which entitles
them to cash-based contingent share awards linked to Antofagasta’s share
price. Further details of the LTIP are set out on page 105.
The Committee believes that cash-based awards are appropriate because
share based awards would be taxable on the date of grant
for Chilean employees.
During the period, no Non-Executive Director was eligible for any
short-term or long-term incentive awards and no Non-Executive
Director owns any shares that have resulted from the achievement
of performance conditions.
LETTERS OF APPOINTMENT
Each Non-Executive Director has a letter of appointment from the Company.
The Company has a policy of putting all Directors forward for re-election at
each AGM, in accordance with the UK Corporate Governance Code. Under
the terms of the letters, if the shareholders do not confirm a Director’s
appointment, the appointment will terminate with immediate effect. In other
circumstances, the appointment may be terminated by either party on one
month’s written notice.
There is a contract between Antofagasta Minerals and Asesorías Ramón
F Jara Ltda dated 2 November 2004 for the provision of advisory services
by Ramón Jara. This contract does not have an expiry date but may be
terminated by either party on one month’s notice. No other Director is party
to a service contract with the Group.
VOLUNTARY DISCLOSURES –
EXECUTIVE REMUNERATION
Iván Arriagada is responsible for leading the senior management team
and for the executive management of the Group. Members of the Executive
Committee report to Mr. Arriagada and are responsible for leading the
day-to-day operation of the Group’s mining and transport businesses.
No member of the Executive Committee, nor the Group CEO, sits on
the Board of the Company. Consequently, the following disclosures have
been made voluntarily to demonstrate the remuneration arrangements that
the Committee believe are appropriate for the Group CEO and the Group’s
executives including the variable pay mechanisms (Annual Bonus Plans and
LTIP) which are designed to motivate the Group CEO and the Group as a
whole to effectively implement the Group’s strategy.
REMUNERATION PRINCIPLES
The remuneration arrangements in place for Iván Arriagada and the
Executive Committee align remuneration with performance, the Group’s
strategic objectives and shareholders’ interests. Iván Arriagada and each
Executive Committee member are eligible to receive a combination of base
salary and other benefits, as well as variable remuneration in the form of
an annual cash bonus and cash-based contingent awards linked to the
Company’s share price pursuant to the LTIP.
The performance components of variable remuneration are selected
to incentivise the delivery of the Group’s strategy, to reward Group
and individual performance and to motivate Iván Arriagada and the
Executive Committee.
The table on page 110 shows the total remuneration for the Group’s CEO
over the last eight years. The total remuneration for the Group CEO in 2016
was 7% lower than in 2015.
Iván Arriagada’s base salary and potential remuneration are currently
significantly lower than they were for Diego Hernández.
The Committee will closely monitor Iván Arriagada’s performance and pay
arrangements. If the Committee determines that an above-inflation base
salary increase is necessary, the Committee will explain the rationale for the
increase in the Remuneration Report for the relevant financial year within
the voluntary disclosures.
EXTERNAL APPOINTMENTS
The Board will consider any proposal for an executive to serve as a Non-
Executive Director of another company on a case-by-case basis. The
Board would carefully consider the time commitments of the proposed role,
the industry of the company, whether or not it is a supplier, customer or
competitor and whether it would be appropriate for the executive to retain
remuneration for the position.
LEAVING ARRANGEMENTS FOR DIEGO HERNÁNDEZ
Diego Hernández did not receive any payments upon leaving other than
the entitlement to one month’s base salary for each year of service as
envisaged in his employment contract, the details of which have previously
been disclosed.
SALARY AND BENEFITS
The total remuneration paid to Diego Hernández and Iván Arriagada in 2016
in the role of Group CEO was $2.27 million. Fixed remuneration comprises
base salary and benefits, and in 2016 represented less than 29% of
total remuneration.
Benefits payable to Diego Hernández and Iván Arriagada reflect amounts
paid to maintain life and health insurance policies.
102
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
The bonus payable to the Group CEO for achieving both Group and personal
performance targets in 2016 was 50% of annual base salary. The maximum
bonus receivable by the Group CEO for achieving stretch performance
targets in 2016 was 100% of annual base salary.
The average maximum available bonus for the Executive Committee
members under the Annual Bonus Plan, for achieving their maximum
individual and Group performance targets, is 70% of base salary. In
2016, the average bonus for the Executive Committee members was
approximately 38% of base salary.
The Group performance criteria for the Annual Bonus Plan and the
individual performance criteria for the Group CEO are set annually by the
Committee. The individual performance criteria for the Executive Committee
are set by the Group CEO and reviewed by the Committee.
We have provided greater detail on the Annual Bonus Plan metrics this
year, on a voluntary basis, including the outcomes against each of the
performance metrics relating to business development and sustainability
and organisational capabilities. This is to provide shareholders with even
further clarity on the structure of the metrics and reassurance that the
metrics are based on stretching performance.
A critical issue for a mining company is the commodity price and we
carefully review the impact of changes in this price on our long-term
and annual performance targets to ensure there is fair opportunity for
achievement under each metric.
According to Chilean law, all employees are required to pay their
own pension and compulsory healthcare contributions. No additional
contributions are made by the Group.
Iván Arriagada’s total remuneration package is determined by the
Committee, taking into account the performance of the Group and his
personal performance. The Company also benchmarks each element of
his remuneration and his total remuneration package by reference to peers
in the FTSE 100 and FTSE mining indices and comparable international
mining companies.
EMPLOYMENT CONTRACT
Iván Arriagada is employed under a contract of employment with
Antofagasta Minerals, a subsidiary of the Company. His contract is governed
by Chilean labour law. It does not have a fixed term and can be terminated
by either party on 30 days’ notice in writing. Except in the case of
termination for breach of contract or misconduct under the Chilean Labour
Code, Iván Arriagada is entitled to receive one month’s base salary for
each year of service on termination, otherwise no other compensation or
benefits are payable on termination of his employment. The salary payable
to Iván Arriagada under his employment contract as of 8 April 2016 was
Ch$31,500,814 ($47,484) per month and his salary is adjusted for inflation
in Chile every three months.
Iván Arriagada was appointed Group CEO on 8 April 2016. His total salary
payments for 2016 from that date were Ch$278,182,966 ($416,856) and,
other than adjustments for inflation, there were no other adjustments to his
salary in 2016. Under his employment agreement, Iván Arriagada is entitled
to 20 working days’ paid holiday per year. He is also entitled to life and
health insurance.
Because Iván Arriagada’s salary is paid in Chilean pesos, it is subject to
annual exchange rate movements when reported in US dollars.
ANNUAL BONUS PLAN
Employees are eligible to receive cash bonuses under the Annual Bonus
Plan based on Group and individual performance. The Annual Bonus
Plan focuses on the delivery of annual financial and non-financial targets
designed to align remuneration with the Group’s strategy and create a
platform for sustainable future performance. Individual award levels are
calibrated at the conclusion of each annual performance period to ensure
that performance targets remain stretching and that high or maximum
payments under the plan are received only for exceptional performance.
In 2016, the bonus payable to the Group CEO and members of the Executive
Committee was 70% attributable to the performance of the Group and
30% to personal performance, according to metrics that were fixed at the
beginning of the year.
ANTOFAGASTA.CO.UK
103
2016 REMUNERATION REPORT CONTINUED
GROUP PERFORMANCE UNDER THE 2016 ANNUAL BONUS PLAN
In 2016, Group performance under the Annual Bonus Plan was as follows. The choice of these criteria, and their respective weightings, reflects the
Committee’s belief that any incentive compensation should be tied both to the overall performance of the Group and to those areas of the business that the
relevant individual can directly influence.
WEIGHTING
OBJECTIVE
MEASURE
2016 THRESHOLD
(90)
2016 TARGET
(100)
2016 MAXIMUM
(110)
2016 OUTCOME
2016 RESULT1
70%
10%
25%
30%
5%
5%
3%
2%
25%
5%
5%
5%
10%
Core Business
EBITDA2
Copper Production3
Costs
Cash costs before by-product
credits (24%)
Corporate Expenditure (6%)
Operating Companies’ Capex4
Business Development
Growth Projects’ Execution5
Business Development Savings6
Sustainability and Organisational
Capabilities
Safety – KPIs, Reporting and Safety
Model7
People – Productivity, Talent
Management8
Environmental Performance9
Social Programmes10
Total – pre-adjustments
Adjustment for fatality11
Total – post-adjustments
$m
kt
$/lb
$m
1,277
691
165
86
1,419
735
155.4
82
1,516
757
151
78
1,534
709
154.1
78
Measured according to schedule and budget as described in more detail
in the footnotes
Measured according to schedule/budget/quality as described in more detail
in the footnotes
Measured according to KPIs and milestones as described in more detail
in the footnotes
Measured according to KPIs and milestones as described in more detail
in the footnotes
100.3
108
94
103
110
92
104.0
100
110
104.1
107
105
100
105
101.4
-1.7
99.7
1. Performance range is 90-110 where 90 = threshold (0% bonus), 100 = target (50% bonus), and 110 = stretch (100% bonus).
2. Mining division only. Net of copper price and exchange rate fluctuations and adjusted for the impact of IFRIC 2016 which results in an outcome of 108, not 110.
3. 100% basis, except for Zaldívar (50%).
4. Measured against the implementation of planned works at each of the Group’s mining operations to sustain the mining operations during the year and progress against the
budget for the year associated with those works where Threshold is 85% completion of planned works on budget, Target is between 90% and 100% of progress on budget
and Maximum is more than 105% of planned works within budget. The weighted outcome for the Group’s mining operations was 92.
5. Split between the Encuentro Oxides (1.5%) and Centinela Molybdenum Plant (1.5%). Specific targets based on budgets for costs incurred, capex and PEM date with opportunity
for Maximum if capex 5% lower than the 2016 budget. Dates and capex for both projects matched budget with costs incurred slightly below budget for Encuentro Oxides.
6. Split between closing the Brisbane office (1%) – Target 30 June 2016, with Maximum achieved if closed before 1 May 2016 and mining property savings (1%) achieved by
consolidating mining properties in high potential areas with a target of discarding 100,000 Ha, with Maximum achieved if 150,000 Ha or more discarded. The Brisbane office
closed in April 2016 and 214,000 Ha of mining property was discarded.
7. Split between fatality risk management at the Group’s operations (3%) through the implementation of critical controls for fatality risks, as verified by the executive team
with responsibility for Sustainability and Corporate Affairs, and performance against global lost time accidents frequency index (1%) and performance in reporting near-
miss accidents with high potential (1%). Outcomes were 110 for fatality risk management and reporting of near-miss accidents with high potential and 94.6 for global lost
time accidents.
8. Split between the implementation of an action plan for organisational skills analysis and talent upgrade programme (2.5%) with a Target of 31 December 2016 and Maximum if
implemented by 30 November 2016, and (2.5%) for implementing permanent productivity improvements at the Group’s operations with a Target of a 5% productivity increase
for the year to 31 December 2016 and Maximum achieved if the improvement is 10% or more. Outcomes were 105 for both criteria.
9. Split between the control of critical environmental risks (2.5%) with Target of no operating incidents with environmental impact of high potential and Maximum where
additional compliance with corrective measures is defined for high potential incidents as reported in 2015/2016, submission of the EIA for the Los Pelambres Incremental
Expansion project (1.25%) with a Target submission date of 30 April 2016 and Maximum performance subject to responding to initial comments before 31 December 2016
and improvement of processes to control critical environmental risks (1.25%) with a Target implementation date of 31 December 2016 and Maximum if implemented before
31 October 2016. Outcomes were 104 for the control of critical environmental risks, 100 for submission of the EIA and 90 for the improvement of processes to control critical
environmental risks.
10. Split between the control of risks relating to social incidents (3%) performance of certain steps set out in the Somos Choapa programme within budget and reaching an
agreement with the Caimanes community to improve social relations at Los Pelambres (4%), and approval of a Social and Communications strategy for the Antofagasta Region,
including a work plan by the Sustainability and Stakeholder Management Committee (3%). Outcomes were 104 for the control of risks, 109 for progress on Somos Choapa and
the Caimanes agreement and 100 for the Social and Communications strategy.
11. As noted in the Company’s 2015 Remuneration Report, stand-alone adjustment triggers apply to the Annual Bonus Plan, which includes a 15% adjustment to the performance
score – upwards if there are no fatalities during the year and downwards if there are one or more fatalities during the year. This resulted in an automatic reduction of 1.7 to the
final Group performance score (ie 15% of 101.4 – 90).
104
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
IVÁN ARRIAGADA – INDIVIDUAL PERFORMANCE UNDER THE 2016 ANNUAL BONUS PLAN
The Committee, with input from the Board, assessed Iván Arriagada’s performance against his individual objectives as 108 (within a range of 90 (Threshold)
to 110 (Maximum)) for his individual contribution to the business during the year. This performance score counts towards 30% of his annual bonus. Iván
Arriagada’s performance against his individual objectives is summarised below:
CATEGORY
Results
Leadership
Strategic development
PERFORMANCE
Substantially met the key objectives set out by the Board at the beginning
of the year:
− Production guidance for the year was met.
− Net cash costs were 20% lower than the previous year.
− Centinela thickener issues were resolved and production improved by
7% compared with 2015.
− The start-up of Antucoya was in line with guidance.
Strong leadership was demonstrated by:
− Initiation of processes to drive safety leadership across the Group.
− Introduction of an operating excellence programme at the Group’s
operations, targeting maintenance, planning and execution.
− Following through on the cost reduction programmes started in 2015 to
deliver measurable savings in 2016.
− Development of succession plans and the creation of synergies across
the Group’s operations.
− Successful integration of Zaldívar, with operating improvements
now underway.
Focused on the priorities established by the Board, namely to cut costs
and improve performance of the Group’s operations, in order to maintain
competitiveness in a low copper price environment.
Capital projects
Capital projects progressed on time and on budget.
Based on performance achieved against targets during the 2016 financial year, the Committee determined that Iván Arriagada would receive a bonus
payment of $356,754 for 2016. This figure was determined as follows:
Overall Performance Score
(70% x 99.7) + (30% x 108) = 102.19
Overall Performance Score as a percentage to be applied to the Maximum
(102.19 – 90) ÷ 20 = 60.95%
Gross Annual Bonus
60.95% of Ch$386,020,102 (Maximum) = Ch$235,279,252
In USD using exchange rate of $1 = Ch$659.5
$356,754
As the annual bonus is paid in Chilean pesos, it is subject to annual exchange rate movements when reported in US dollars.
LONG-TERM INCENTIVE PLAN (LTIP)
The Company introduced the LTIP at the end of 2011. Eligibility to participate in the LTIP is determined by the Committee each year on an individual basis and
all members of the Executive Committee currently participate. Awards are normally granted annually. Directors are not eligible to participate.
Under the LTIP, participants are eligible to receive “phantom” share awards (conditional rights to receive a cash payment by reference to a specified number
of the Company’s ordinary shares), which are paid in cash upon vesting based on the price of the Company’s ordinary shares at the time of vesting.
LTIP awards are split between Restricted Share Awards (RSAs) and Performance Share Awards (PSAs). The RSAs vest only if the relevant employee
remains employed by the Group on the vesting date. The PSAs vest subject to both the satisfaction of performance conditions and the relevant employee
remaining employed by the Group on the vesting date. The same performance criteria apply to all participants in the LTIP and are designed to link business
objectives, shareholder value and senior management rewards.
− PSAs reward performance over three years. There is no additional holding period before these amounts are paid.
− RSAs vest one-third in each year over a three-year period following grant of the award.
The number of PSAs and RSAs awarded to each member of the Executive Committee is calculated as a percentage of salary up to a limit of 200% of base
salary or 325% of base salary if the Committee determines that exceptional circumstances apply. The market value of shares in relation to which the award
is to be granted is equal to the closing price on the dealing day before the grant, or, if the Committee determines, the average closing price during a period
set by the Committee not exceeding five dealing days ending with the last dealing day before the grant.
Iván Arriagada participates in the LTIP and received total payments of $59,608 in respect of the RSAs granted in 2015 that vested in 2016, which amounted
to 14% of his base salary.
ANTOFAGASTA.CO.UK
105
2016 REMUNERATION REPORT CONTINUED
During 2017 the PSAs granted in 2014 will vest. Iván Arriagada does not hold these PSAs and performance will not be finally determined by the Committee
until after the date of this report, once the Group’s 2016 results have been released to the market. The performance criteria attaching to these PSAs and the
anticipated performance against these criteria, based on estimates as at the date of this report, are as follows:
WEIGHTING OBJECTIVE
THRESHOLD (0%)
TARGET (50%)
MAXIMUM (100%)
ANTICIPATED
PERFORMANCE
ANTICIPATED
ACHIEVEMENT1
MEASURE
25%
Relative Total
Shareholder
Return2
0% vesting at performance
below the index during the
three year period
33% vesting at
performance equal to
the index during the
three-year period
100% vesting at performance
equal to or greater than the
index plus 5% during the
three-year period
To be updated at
the vesting date.
30%
EBITDA3
0% vesting at $5,385
million or below
75% vesting at $6,058
million
100% vesting at $6,731
million
7%
Mineral
Resources
Increase
0% vesting at 75.236
million tonnes of contained
copper or below as at 31
December 2016, which
takes into account 1.0
million tonnes of expected
extraction by the operating
companies in Chile over
the performance period
50% vesting at 76.236
million tonnes of
contained copper
100% vesting at 77.236
million tonnes of contained
copper, of which 1.0 million
tonnes of the increase is in
Chile
5%
Mineral Reserves
Increase
0% vesting at 18.372
million tonnes of contained
copper or below
33% vesting at 21.684
million tonnes of
contained copper
100% vesting at 23.692
million tonnes of contained
copper
EBITDA for
the period was
$4,891 million
Resources
increased to
84.211 million
tonnes of
contained copper
Reserves
increased to
20.164 million
tonnes of
contained copper
+ 184 attributable
to Zaldívar
33%
Total
Projects,
Development and
Sustainability
1. Encuentro
Oxides and
Centinela Second
Concentrator
(four project
specific goals)
(8%)
2. Antucoya (four
project specific
goals) (10%)
3. Safety –
mining division
(5%)
At least two of the four
goals achieved
At least three of the four
goals achieved
All four goals achieved
At least two of the four
goals achieved
At least three of the four
goals achieved
All four goals achieved
None of these
goals were met
Over the three-year period,
zero fatalities and LTIFR
less than an average of
1.3. Achieving certain
milestones associated
with the Safety and Health
Model.
4. Los Pelambres
expansion
project (6%)
EIA submitted by 31
December 2015
5. Twin Metals
project (4%)
Pre-feasibility study
completed by 31 December
2014
Over the three-year
period, zero fatalities
and LTIFR less than an
average of 1.1. Achieving
certain milestones
associated with the
Safety and Health
Model.
Feasibility study
completed and EIA
submitted by 31
December 2015
Pre-feasibility study
and basic information
for the mine plan of
operation completed by
31 December 2014
Over the three-year period,
zero fatalities and LTIFR
less than an average of 1.0.
Achieving certain milestones
associated with the Safety
and Health Model.
EIA approved and project
approved for execution by 31
December 2016
Pre-feasibility study with
definitive mine plan of
operation completed and
environmental review
process ongoing by 31
December 2015
There were
five fatalities
in the period.
The milestones
associated with
the Safety and
Health Model
were achieved
This objective
was not met
100%
0%
100%
31.6%
100%*
0%
35%
100%*
0%
49.4%
* Due to market conditions in 2015 and 2016, the Board made certain decisions that resulted in a slow-down of the execution timetable for the Group’s projects portfolio. As
a result, the Committee has agreed to adjust the outcome of the performance criteria that apply to PSAs granted in 2014 relating to execution of the Encuentro Oxides and
Centinela Second Concentrator projects and the Los Pelambres expansion project.
1. Anticipated performance is based on estimates made as at the date of this report. These awards will not vest until after the Group’s 2016 results have been released to
the market.
2. Total shareholder return is calculated to show a theoretical change in the value of a shareholding over a specified period, assuming that dividends are reinvested to purchase
additional shares at the closing price applicable on the ex-dividend date. Total shareholder return for the Euromoney Global Mining Index is calculated by aggregating the
returns of all individual constituents of that index and, for the purposes of comparison with the Company’s share performance, taking an average of the index over three months
before the beginning and the end of the period respectively.
3. Targets are calculated based on the Group’s accumulated EBITDA over the period from 2014-2016, versus the 2014 budget figure and the Group’s 2014 internal base case
figures for 2015 and 2016. The final calculation will not be adjusted for commodity price or exchange rate fluctuations.
106
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
The following LTIP awards with one or more outstanding tranches have been granted to Iván Arriagada.
YEAR OF
GRANT
AWARD
TYPE
NUMBER OF
SHARES OVER
WHICH THE
GRANT
RELATES
DATE OF
AWARD
VESTING
DATES
FACE VALUE
OF AWARD
(USING
MARKET
PRICE AT
GRANT) $’000
MARKET
PRICE AT
THE DATE
OF GRANT
$1
END OF
PERFORMANCE
PERIOD
% OF AWARD
RECEIVABLE
IF THRESHOLD
PERFORMANCE
ACHIEVED
% OF AWARD
RECEIVABLE
IF TARGET
PERFORMANCE
ACHIEVED
% OF AWARD
RECEIVABLE
IF MAXIMUM
PERFORMANCE
ACHIEVED
2015
Performance
Share Awards
Restricted
Share Awards
35,645
35,645
25 March
2015
25 March
2015
2016
Performance
Share Awards
Restricted
Share Awards
85,559
36,668
22 March
2016
22 March
2016
25 March
2018
25 March
2016
25 March
2017
25 March
2018
22 March
2017
22 March
2017
22 March
2018
22 March
2019
375
375
10.77 31 December
2017
10.77
N/A
630
270
7.14 31 December
2018
7.14
N/A
0%
0%
0%
0%
50%
100%
100%
100%
50%
100%
100%
100%
1. The market price used at the date of grant was the closing price on the dealing day before the grant date.
DIEGO HERNÁNDEZ – STRATEGIC AWARDS
Diego Hernández received Strategic Awards in 2015, in lieu of the LTIP awards that he may otherwise have received and in substitution for the PSAs and
RSAs granted in 2014. The purpose of these Strategic Awards was to align his performance goals with the Group’s strategy, taking into account his new
role and its associated responsibilities, and also his planned retirement in 2016 following a smooth handover to his successor.
The Strategic Awards were cash awards not linked to the Company’s share price. The amount paid to Diego Hernández during 2016 in relation to these
awards was $1,180,000, 77% of the maximum.
AWARD
TYPE
Cash Awards
Cash Awards
GRANT
DATE
FACE VALUE OF AWARD
(% OF BASE SALARY)
FACE VALUE
OF AWARD (‘000)1
ACTUAL VALUE
OF AWARD (‘000)1
END OF PERFORMANCE
PERIOD OVER WHICH THE
PERFORMANCE CONDITIONS
HAVE BEEN FULFILLED2
21 May 2015
21 May 2015
27%
153%
$230
$1,300
$230
$950
30 April 2016
1 August 2016
1. The face value represents the maximum value of the award.
2. The actual value of the award was paid in April and August 2016, and the total amount was 77% of the face value, or $1,180,000.
The Committee determined actual performance against the set performance conditions as follows in relation to the Strategic Awards.
PERFORMANCE CONDITION
MAXIMUM CASH AWARD
ACTUAL CASH AWARD
Delivery of Antucoya on time and on budget, including commissioning
Successful mentoring and integration of a replacement CEO, with the replacement CEO taking up
the position on or before August 2016
Strengthening of the management team to ensure successful transition of the Group CEO role
Growth strategy framework implemented and in operation
Remaining in employment with Antofagasta Minerals until 1 August 2016
$250,000
$250,000
$250,000
$250,000
$300,000
$0
$250,000
$250,000
$150,000
$300,000
ANTOFAGASTA.CO.UK
107
2016 REMUNERATION REPORT CONTINUED
INDICATIVE CEO’S TOTAL REMUNERATION IN 2017
The Group CEO’s total remuneration in 2017 will consist of the same elements as in 2016, including:
− Annual base salary of Ch$386,040,204 ($567,706) as at 1 January 2017, subject to adjustments for Chilean inflation, as described above, and using an
exchange rate of $1 = Ch$680
− An annual bonus equivalent to 50% of base salary if Target performance is achieved, with a Maximum of 100% if stretch targets are met
− The vesting of LTIP awards granted before 8 April 2016, equivalent to a maximum of 33% of base salary (using the average share price for the last
quarter of 2016)
− A significant proportion of the remuneration available to Iván Arriagada is dependent on the performance of the Group.
2017 ANNUAL BONUS PLAN
The Board has agreed Group performance criteria for the 2017 Annual Bonus Plan as follows:
WEIGHTING
OBJECTIVE
MEASURE
THRESHOLD
TARGET
60%
10%
Core Business
EBITDA
$m
≤-10%
The Group’s future metals price assumptions
are commercially sensitive and therefore
the target for EBITDA will not be disclosed
in advance. However, the Company will
disclose the 2017 target and outcome in the
2017 Annual Report.
MAXIMUM
≥+10%
25%
20%
5%
15%
10%
5%
25%
5%
5%
10%
5%
Copper Production
tonnes
663,000
685-720,000
726,000
Costs
Cash costs before by-product
credits (17%)
$/lb
Corporate Expenditure (3%)
$m
Sustaining Capital Expenditure
Business Development –
Growth Projects Execution
Encuentro Oxides and Centinela
Molybdenum Plant
Exploration
Sustainability and
Organisation Capabilities
Safety
People
Environmental
Social
164.6
71.9
1.55
68.4
150.6
65
Measured according to schedule and budget. The Company will disclose the 2017
target and outcome in the 2017 Annual Report.
Measured according to KPIs and milestones. The Company will disclose the 2017
target and outcome in the 2017 Annual Report.
Measured according to KPIs and milestones. The Company will disclose the 2017
target and outcome in the 2017 Annual Report.
The weighting attributable to core business has decreased from 70% of the total scorecard in 2016 to 60% in 2017, and the weighting attributable to
Business Development – Growth Projects Execution has increased from 5% in 2016 to 15% in 2017. This reflects the importance of the Group’s current
project portfolio and an increasing focus on exploration at this point in the copper price cycle.
108
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
2017 LTIP AWARDS
The Committee commenced a review of the LTIP in 2016. This included
reviewing the plan’s objectives, methodology, participants, performance
KPIs and targets. As part of this process, the plan was benchmarked
against peers both globally and in the UK. Participants were asked to
give feedback on the plan, including whether or not the performance
KPIs adequately reflect current business challenges. As a consequence,
total shareholder return will account for 35% of the performance criteria
attaching to 2017 PSAs (decreased from 40% in 2016), resources increase
will account for 15% (increased from 5% in 2016), and project development
and sustainability will account for 30% (decreased from 35% in 2016).
The PSAs granted in 2017 will be measured over a three-year performance
period. The specific targets will be determined by the Committee after
the publication of the Group’s 2016 results. The performance conditions
are anticipated to be those set out below as at the date of this report. If
the performance conditions set by the Committee end up being materially
different from those disclosed below, the revised performance conditions
will be disclosed in the 2017 Annual Report.
WEIGHTING
OBJECTIVE
MEASURE
35%
Relative Total
Shareholder
Return
20%
EBITDA
15%
30%
Mineral
Resources
Increase
Projects,
Development
and
Sustainability
Comparison against Euromoney Global
Mining Index with 33% vesting at
performance equal to the index and 100%
vesting at performance equal to or greater
than the index plus 5% during the three-
year period.
Measured according to the accumulated
EBITDA over the period 2017-2019.
Anticipated Maximum is $5,832 million,
anticipated Target is $5,249 million and
anticipated Threshold is $4,666 million. For
2017, this is calculated using the budget
figure. For 2018 and 2019, the figures will
be from the internal base case prepared
during 2017. The final calculation will not
take into account price and exchange
rate fluctuations.
Tonnes of contained copper at the end
of 2019. Maximum is expected to be
81,841 million tonnes of contained copper,
with an anticipated Target and Threshold
of 79,795 and 77,745 million tonnes of
contained copper respectively.
Relate to the Group’s priority projects
(15%) and environmental and community
relations performance (15%).
The Committee is continuing to review the structure of the LTIP with the
purpose of simplifying the plan and ensuring that it is valued by participants.
GROUP CEO’S POTENTIAL TOTAL
REMUNERATION IN 2017
The following chart outlines the potential total remuneration of the Group
CEO in 2017 under different performance scenarios. The chart is forward-
looking and does not include information on the vesting of awards in 2016
shown in the single figure remuneration table on page 101.
GROUP CEO
MAXIMUM
TARGET
43%
55%
MINIMUM
100%
$0.592m
43%
14%
$1.366m
27%
18%
$1.074m
FIXED ELEMENTS
ANNUAL VARIABLE ELEMENTS
LONG-TERM VARIABLE ELEMENTS
Figures do not include PSAs (because the first tranche of PSAs awarded
in 2015 will not vest until 2018) and are based on the following assumptions:
− Minimum consists of base salary plus benefits only and excludes
adjustments for inflation.
− Target consists of base salary, benefits and incentive awards at 50% of
the maximum potential award.
− Maximum consists of base salary, benefits and incentive awards at 100%
of the maximum potential award.
− There is no change in the share price in calculating potential awards.
− Long-term variable elements are calculated using the average closing
share price for the last quarter of 2016 of 630.5p and an exchange rate
of £1 = $1.242.
− Base salary, benefits and incentive awards are estimated in Chilean
pesos and long-term variable elements are estimated by reference to the
Company’s share price, which is in sterling. These figures are therefore
subject to exchange rate fluctuations.
REMUNERATION STRUCTURE
The Committee is satisfied that the remuneration arrangements for
Iván Arriagada and the Executive Committee are linked to performance,
appropriately stretching and aligned to the Group’s strategy. Variable
remuneration is a core component of Executive Committee remuneration
and in 2017 up to 60% of the Executive Committee’s total annual
remuneration may be received under the Annual Bonus Plan and the LTIP.
ANTOFAGASTA.CO.UK
109
2016 REMUNERATION REPORT CONTINUED
COMPARISON OF OVERALL PERFORMANCE AND
REMUNERATION
The following graph shows the Company’s performance compared with
the performance of the FTSE All-Share Index and the Euromoney Global
Mining Index over an eight-year period, measured by total shareholder
return (as defined below). The FTSE All-Share Index has been selected as
an appropriate benchmark as it is the most broadly-based index to which
the Company belongs and relates to the London Stock Exchange, where the
Company’s ordinary shares are traded.
Total shareholder return represents share price growth plus dividends
reinvested over the period. Total Return Basis Index – 31 December 2008
= 100.
Total shareholder return performance in comparison with the Euromoney
Global Mining Index is one of the performance criteria for PSAs granted
pursuant to the LTIP, as described above.
Total shareholder return is calculated to show a theoretical change in
the value of a shareholding over a period, assuming that dividends are
reinvested to purchase additional shares at the closing price applicable on
the ex-dividend date. Total shareholder return for the FTSE All-Share Index
and the Euromoney Global Mining Index is calculated by aggregating the
returns of all individual constituents of those indices at the end of an eight-
year period.
500
400
300
200
100
0
31/12/08
31/12/09
31/12/10
30/12/11
31/12/12
31/12/13
31/12/14
31/12/15
30/12/16
ANTOFAGASTA
FTSE ALL SHARE
EUROMONEY GLOBAL MINING
Source: Datastream.
The total remuneration of the lead executive in the Group for the past eight years, in US dollars, is as follows:
SINGLE FIGURE
REMUNERATION FOR THE
GROUP’S LEAD EXECUTIVE
$’000
Chairman –
Jean-Paul Luksic
Group CEO –
Diego Hernández
Group CEO –
Iván Arriagada
Total
Percentage change on
previous year
Proportion of maximum
annual bonus paid to the
Group CEO
Proportion of maximum
LTIP awards vesting in
favour of the Group CEO3
2009
2010
2011
2012
2013
20141,2
2015
3,184
3,330
3,521
3,598
3,615
2,196
–
2016
–
–
–
–
–
–
–
–
–
–
–
3,184
3,330
3,521
3,598
3,615
–
–
–
–
–
–
–
–
–
–
688
2,445
1,525
–
2,884
–
2,445
742
2,266
(7)%
69%
39%
61%
76%
16%
N/A
1. The single figure remuneration for the Group’s lead executive in 2014 comprises Jean-Paul Luksic’s remuneration until 1 September 2014 (when he became Non-Executive
Chairman) and Diego Hernández’s remuneration from 1 September 2014 (when he became Group CEO).
2. The Chairman was not eligible for variable remuneration and the 2014 percentage figures therefore only relate to the 2014 annual bonus and LTIP awards vesting for
the Group CEO.
3. The 2015 figure has been restated – an estimate was included in the 2015 Remuneration Report because these awards had not yet vested as at the date of that report.
No PSAs will vest for the Group CEO for 2016. As RSAs do not have a performance element, they are not included in these calculations.
110
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
RELATIVE CHANGE IN REMUNERATION
The aggregated total remuneration paid to Diego Hernández and Iván
Arriagada as Group CEO for 2016 was 7% lower than the total remuneration
paid to Diego Hernández as Group CEO in 2015. This included a 24%
decrease in fees/base salary and a 36% decrease in benefits.
The equivalent average percentage change in total remuneration for Group
employees as a whole was an increase of 4%. This comprised a 2.6%
increase in salaries, a 2.6% increase in benefits and an 11% increase in
annual bonus. It is common for employment contracts in Chile to include an
annual adjustment for Chilean inflation and most Group employees’ base
salaries in Chile are linked to inflation. In 2016, Chilean inflation was 2.7%.
The table below compares the changes from 2015 to 2016 in fees/base
salary, benefits and annual bonus paid to the Group CEO and Group
employees as a whole. The underlying elements of Group CEO pay are
calculated using the values reported in the single figure remuneration table
on page 101.
PERCENTAGE
CHANGE IN
BASE SALARY
PERCENTAGE
CHANGE IN
BENEFITS
PERCENTAGE
CHANGE IN
ANNUAL BONUS
RELATIVE IMPORTANCE OF REMUNERATION SPEND
The table below shows the total expenditure on employee remuneration, the
levels of distribution to shareholders and the taxation cost in 2015 and 2016.
A Employee remuneration1
B Distribution to shareholders2
C Taxation3
2015
($M)
422.3
30.6
89.1
2016
($M)
PERCENTAGE
CHANGE
379.2
181.4
261.2
(10.2)%
493%
193.2%
1. The employee remuneration cost includes salaries and social security costs, as set
out in Note 8 to the Financial Statements.
2. The distributions to shareholders represent the dividends proposed in relation to the
year as set out in Note 13 to the Financial Statements.
3. Taxation has been included because it provides an indication of the tax
contribution of the Group’s operations in Chile to the Chilean state. The taxation
cost represents the current tax charge in respect of corporate tax, mining tax
(royalty) and withholding tax, as set out in Note 10 to the Financial Statements. As
shown in the Financial Statements, the 2015 figure has been restated to exclude
discontinued operations.
Group CEO1
Group employees
(24)%
2.6%
(36)%
0%
16%2
11%3
1. The figures for Group CEO relate to the percentage changes for the aggregate
amount paid to Diego Hernández and Iván Arriagada in 2016 and the amount paid to
Diego Hernández in 2015.
OTHER INFORMATION
As described in this report, Directors are not entitled to payments for loss
of office and do not receive pension benefits and no such payments were
made, or benefits received, during the year. No payments were made to
past Directors.
2. The percentage change in annual bonus for the Group CEO is higher than for Group
By order of the Board
employees because under the terms of the Annual Bonus Plan employees are
entitled to their full annual bonus if their employment terminates during the last six
months of the year. Because Diego Hernández’s employment terminated in August
2016, the element of Group CEO Annual Bonus attributable to Diego Hernández is
therefore higher than for the equivalent period in 2015.
3. This figure relates to the percentage change in average annual bonus for mining
division employees and does not include a one-off bonus paid to employees as a
result of the conclusion of collective bargaining agreements with labour unions at
Antucoya, Los Pelambres and Zaldívar in 2016. Mining division employees were
chosen as the comparator group because the mining division accounts for more
than 90% of the Group’s revenue and the Annual Bonus Plan that applies to the
Executive Committee is the same plan that applies to the mining division as a whole.
TIM BAKER
CHAIRMAN OF THE REMUNERATION AND TALENT
MANAGEMENT COMMITTEE
13 March 2017
ANTOFAGASTA.CO.UK
111
2017 DIRECTORS’ REMUNERATION POLICY
2017 DIRECTORS’
REMUNERATION POLICY
The Committee presents the 2017 Directors’ Remuneration Policy (Policy),
which will be put to a binding vote of shareholders at the Company’s 2017
Annual General Meeting.
Subject to shareholder approval, this Policy will take effect from the
2017 Annual General Meeting with the intention that it will supersede the
remuneration policy approved by shareholders at the 2014 Annual General
Meeting (2014 Policy) and will remain in place for three years. Once the
Policy is approved, the Company will only make remuneration payments
to current or prospective Directors, or payments for loss of office, if the
payment is in line with the Policy.
If the Committee is required, or wishes, to change the Policy within this
period, it will submit a revised Policy to shareholders for approval.
The policies that are summarised in this section are consistent with those
that have been in place at the Company for a number of years which the
Committee believes are effective and simple to understand.
CHANGES TO 2014 POLICY
On 1 September 2014, Jean-Paul Luksic stepped back from his position
of Executive Chairman to become Non-Executive Chairman. As there are
currently no executives on the Board and the Company does not expect an
Executive Director to be appointed during the next three years, the Policy
does not include components relating to Executive Directors which were
included in the 2014 Policy.
POLICY SCOPE
The policies that are summarised in this section apply to Non-Executive
Directors only. The Board has considered the pros and cons of having
executives on the Board and continues to be of the view that the existing
structure is effective in ensuring that the Board maintains objectivity and
independence from management and appropriate given the CEO, Executive
Committee and most senior managers are based in Chile where local
company law prohibits CEOs of public companies from serving as directors
of those companies.
Although the policies that are summarised in this section do not cover
executive remuneration, the Company will continue to embrace the spirit
of the UK remuneration reporting regulations and the UK Corporate
Governance Code by voluntarily reporting each year on the remuneration
and incentive pay design for the Company’s CEO as if he were a Director
and by providing detailed information in relation to the structure and
components of the other Executive Committee members’ remuneration.
The Policy is broken into a number of sections:
− remuneration policies that relate solely to Non-Executive Directors; and
− statements regarding the contextual information the Committee
considers when reaching remuneration decisions in respect of the Non-
Executive Directors.
The Company’s policy is to ensure that Non-Executive Directors are fairly
rewarded with regard to the responsibilities undertaken, and to consider
comparable pay levels and structures in the UK, Chile and the international
mining industry.
The Chairman’s fees and other terms are set by the Committee. Non-
Executive Directors’ fees and other terms are set by the Board upon
recommendation of the Committee.
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ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
PURPOSE
OPERATION
MAXIMUM OPPORTUNITY
DIRECTORS
Fees
To attract and retain high-calibre,
experienced Directors by offering
globally competitive fee levels.
Fees are reviewed annually and the
competitiveness of total fees is assessed
against companies of a similar nature, size
and complexity.
In normal circumstances, the maximum
annual fee increase will be 7%. However, the
Committee has discretion to exceed this in
exceptional circumstances, for example:
Directors receive a base fee for services to the
Company’s Board as well as additional fees
for chairing or serving as a member of any of
the Board’s Committees or serving as Senior
Independent Director. The Chairman receives a
higher base fee which reflects his responsibility,
experience and time commitment to the role.
Separate base fees are paid for services to the
Antofagasta Minerals board (all Non-Executive
Directors are members of both boards), and for
serving as a director, or chairing, any subsidiary
or joint-venture company Boards.
Ramón Jara also receives a base fee for
advisory services provided to Antofagasta
Minerals pursuant to a separate service
contract. This fee is currently denominated in
Chilean pesos and is automatically adjusted for
Chilean inflation
All other fee levels are currently denominated
in US dollars and are not automatically adjusted
for inflation. The Committee may determine fee
levels and/or pay fees in any other currency if
deemed necessary or appropriate.
− if there is a sustained period of high inflation;
− if fees are out of line with the market; and/or
− if fees for chairing or serving as a member of
any of the Board’s Committees or performing
a specific role on the Board such as Senior
Independent Director are out of line with
the market.
Any increases will take into account the factors
described under “operation”, will not be
excessive, and the rationale for the increase will
be disclosed in the remuneration report for the
relevant financial year.
Fee levels for additional roles within the
Group are set based on the needs and time
commitment expected and may be determined
and/or paid in a combination of currencies
including US dollars and Chilean pesos.
Chilean peso denominated fees will be increased
to take account of Chilean inflation and may
be reported from one year to the next as an
increase or decrease as a result of exchange
rate movements only. Because all amounts are
reported in US dollars, any exchange rate impact
will not be taken into account when applying the
maximum annual fee increase described above.
Variable
remuneration
Benefits
Given the non-executive composition of the Board, there are no arrangements for Directors to acquire benefits through the acquisition
of shares in the Company or any of its subsidiary undertakings, to benefit through performance-related pay or to participate in long-
term incentive schemes. The Code states that remuneration for Non-Executive Directors should not include share options or other
performance-related elements.
To provide appropriate benefits
and reimburse appropriate
expenses that are incurred in
the performance of duties of
the Directors.
Benefits include the provision of life, accident
and health insurance and may also include
professional advice and certain other minor
benefits including occasional spousal travel in
connection with the business and any Company
business expenses which are deemed to be
taxable. The Company will pay any tax payable
on those benefits on behalf of Directors.
The Committee retains the discretion to
provide additional insurance benefits in
accordance with Company policy, should this be
deemed necessary.
Set at a level appropriate to the individual’s role
and circumstances. The maximum opportunity
will depend on the type of benefit and cost of
its provision, which will vary according to the
market and individual circumstances.
Pension
No Director receives pension contributions. The Code considers that the participation by a Non-Executive Director in a company’s
pension scheme could potentially impact on the independence of that Non-Executive Director.
As Directors do not receive variable remuneration, there are no provisions in place to recover sums paid or to withhold payments made to Directors.
SHAREHOLDING REQUIREMENTS
The Company does not currently have shareholding guidelines or requirements for Directors. However, Chairman Jean-Paul Luksic and Non-Executive
Director Andrónico Luksic C are members of the Luksic family; members of the Luksic family are interested in the E. Abaroa Foundation which controls
the Metalinvest Establishment and Kupferberg Establishment (which, in aggregate, hold approximately 60.66% of the Company’s ordinary shares and
approximately 94.12% of the Company’s preference shares). In addition, Mr Jean-Paul Luksic controls the Severe Studere Foundation which in turn, controls
Aureberg Establishment (which holds approximately 4.26% of the Company’s ordinary shares). This creates significant alignment between these members
of the Board and shareholders.
ANTOFAGASTA.CO.UK
113
2017 DIRECTORS’ REMUNERATION POLICY CONTINUED
RECRUITMENT POLICY
The appointment of Non-Executive Directors (including the Chairman) is handled through the Nomination and Governance Committee and Board processes.
The current fee levels are set out in the Directors’ Remuneration Report. Details of each element of remuneration paid to the Chairman and Directors are
set out in the 2016 Directors’ Remuneration Report on page 100.
The terms of appointment for any new Non-Executive Director will be consistent with those in place for current Non-Executive Directors as summarised in
the service contracts and letters of appointment policy.
Variable pay will not be considered and, as such, no maximum applies. Fees will be consistent with the policy at the time of appointment.
A timely announcement with respect to any Director appointment will be made to the regulatory news services and posted on the Company’s website.
TERMINATION POLICY
The letters of appointment for the Non-Executive Directors do not provide for any compensation for loss of office beyond payments in lieu of notice, and
therefore the maximum amount payable upon termination of these letters is limited to one month’s payment.
SERVICE CONTRACTS AND LETTERS OF APPOINTMENT
All Directors’ service contracts and letters of appointment are available for inspection at the Company’s registered office during normal business hours and
at the Annual General Meeting (for 15 minutes prior to and during the meeting).
Each Director has a letter of appointment with the Company. The Company has a policy of putting all Directors forward for re-election at each Annual
General Meeting in accordance with the Code. Under the terms of the letters, if shareholders do not confirm a Director’s appointment or reappointment,
the appointment will terminate with immediate effect. In other circumstances, the appointment may be terminated by either the Director or the Company
on one month’s prior written notice. The letters require the Directors to undertake that they will have sufficient time to discharge their responsibilities.
A summary of the key terms of the letters of appointment for all Directors is set out below.
NAME
Jean-Paul Luksic
Manuel Lino Silva De Sousa-Oliveira
(Ollie Oliveira)
Gonzalo Menéndez
Ramón Jara
Juan Claro
William Hayes
Tim Baker
Andrónico Luksic C.
Vivianne Blanlot
Jorge Bande
Francisca Castro
TERMINATION PAYMENT
DATE OF LAST REAPPOINTMENT
NOTICE PERIOD
The letters of appointment do
not provide for any compensation for
loss of office beyond payments in lieu
of notice, and therefore the maximum
amount payable upon termination
of these appointments is limited to
one month’s fees.
18 May 2016
18 May 2016
18 May 2016
18 May 2016
18 May 2016
18 May 2016
18 May 2016
18 May 2016
18 May 2016
18 May 2016
N/A – appointed by the Board
effective from 1 November 2016
One month’s written notice
One month’s written notice
One month’s written notice
One month’s written notice
One month’s written notice
One month’s written notice
One month’s written notice
One month’s written notice
One month’s written notice
One month’s written notice
One month’s written notice
There is also a contract between Antofagasta Minerals and Asesorías Ramón F Jara Ltda (formerly E.I.R.L.) dated 2 November 2004 for the provision of advisory services by Ramón
Jara. This contract does not have an expiry date but can be terminated by either party on one month’s notice. The amounts payable under this contract for services are denominated in
Chilean pesos and, as is typical for employment contracts or contracts for services in Chile, are adjusted in line with Chilean inflation, and are also reviewed periodically in line with the
Company’s policy on Directors’ pay.
CONSIDERATION OF EMPLOYMENT
CONDITIONS ELSEWHERE IN THE
COMPANY
When the Committee reviews Director compensation, it also reviews pay
conditions across the rest of the Group. This is set in the context of very
different working environments and geographies and therefore is not a
mechanical process. However, this acts as one input into the pay review
process. The Committee does not currently use any other remuneration
comparison metrics when determining the quantum and structure of
Director compensation and does not solicit employees’ views.
CONSIDERATION OF SHAREHOLDER VIEWS
The Company maintains a dialogue with institutional shareholders and
sell-side analysts, as well as potential shareholders. This communication is
managed by the Investor Relations team, and includes a formal programme
of presentations to update institutional shareholders and analysts on
developments in the Group following the announcement of the half-year
and full-year results. The Board receives regular summaries and feedback
in respect of the meetings held as part of the Investor Relations programme,
as well as receiving analysts’ reports on the Company.
REMUNERATION POLICY FOR OTHER
EMPLOYEES
Remuneration arrangements are determined throughout the Group based
on the principle that reward should be granted for delivery of the Group’s
strategy. A significant proportion of the CEO and Executive Committee
members’ remuneration is in the form of variable pay. The CEO and
Executive Committee are eligible to participate in the LTIP and Annual
Bonus Plan, which are both subject to performance criteria aligned with the
Group’s strategy. The remuneration structure for other Group employees
varies according to their role, location and working environment.
The Senior Independent Director meets with shareholders regularly and the
Chairman, and the Chairman of the Committee, are also regularly available
to meet shareholders to discuss matters of importance, including the
Group’s remuneration structures.
The Company’s Annual General Meeting is also used as an opportunity to
communicate with both institutional and private shareholders.
This ongoing dialogue allows us to respond to the needs and concerns of all
shareholders throughout the year and the Directors’ pay arrangements will
continue to be reviewed each year in line with the policy, taking into account
the views of all of the Company’s shareholders.
114
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
RELATIONS WITH SHAREHOLDERS
ENGAGING WITH
OUR SHAREHOLDERS
The shares of Antofagasta plc are listed on the main market
of the London Stock Exchange. As explained in the Corporate
Governance Report on page 70, the controlling shareholders
of the Company hold approximately 65% of the Company’s
ordinary shares. The majority of the Company’s remaining
ordinary shares are held by institutional investors, mainly
based in the UK and North America.
The Company maintains an active dialogue with institutional shareholders
and sell-side analysts, as well as potential shareholders. This communication
is managed by the investor relations team in London, and includes a
formal programme of presentations and roadshows to update institutional
shareholders and analysts on developments in the Group.
The Company held regular meetings with institutional investors and sell-
side analysts throughout the year, which included international investor
roadshows, and presenting at industry conferences and to banks’ equity
sales forces. These were attended by the CEO and various members of the
management team, including the CFO, the Vice President of Sales and the
Vice President of Development.
The Company publishes quarterly production figures as well as the half-year
and full-year financial results. Copies of these production reports, financial
results, presentations and other press releases issued by the Company are
available on the Company’s website. The Group also publishes a separate
Sustainability Report to provide further information on its social and
environmental performance, which is available on the Company’s website in
both Spanish and English.
WHAT OUR INVESTORS FOCUSED ON MOST IN 2016
− cost reduction programmes to control operating and capital costs and the
generation of free cash flow;
− capital allocation;
− commissioning of the newly constructed Antucoya mine;
− integration of the Zaldívar copper mine and capture of
associated synergies;
− impact of events in Chile, including changes to environmental regulations,
labour laws and availability of energy and water;
− conclusion of the long-standing issues with the local community and legal
issues surrounding the Mauro tailings storage facility at Los Pelambres;
− the Group’s focus on brownfield development projects and the potential
from longer-term growth projects;
− the capital distribution policy of the Group; and
− supply and demand factors in the world copper market.
The Board receives regular summaries and feedback in respect of the
meetings held as part of the investor relations programme. The Company’s
Annual General Meeting is also used as an opportunity to communicate with
both institutional and private shareholders. All of the Directors then in office
met shareholders at the 2016 Annual General Meeting.
SHAREHOLDERS AND ANALYSTS VISIT CHILE
In December 2016, the Company hosted a group of shareholders and analysts at the Group’s corporate
headquarters and each of the Group’s mining operations in Chile.
The visit began with briefings from the CEO and members of the Executive Committee on current
challenges and recent achievements at the Group’s corporate headquarters in Santiago and was followed
by a dinner reception hosted by the Chairman, who engaged with shareholders on a broad range of topics.
The General Managers of Los Pelambres, Centinela and Antucoya hosted shareholders and analysts at their
respective operations, where they demonstrated the initiatives that have been implemented, the functionality
of the operations and the specific risks and steps being taken to manage them.
Copies of the presentation given to the shareholders and analysts are available
online www.antofagasta.co.uk/investors
ANTOFAGASTA.CO.UK
115
RELATIONS WITH SHAREHOLDERS CONTINUED
SENIOR INDEPENDENT DIRECTOR –
CORPORATE GOVERNANCE ROADSHOW
Senior Independent Director, Ollie Oliveira, met with a number of proxy
advisers and major shareholders in London in October to discuss corporate
governance and associated matters relating to the Company, its strategy
and the performance of management. These meetings were also attended
by Non-Executive Director and former Senior Independent Director, William
Hayes, the Company Secretary and the Director of the London Office.
During these meetings a wide range of topics were discussed, including:
− the role of Senior Independent Director in controlled companies;
− succession planning;
− the Board’s composition and role, including why there are no executives
on the Board;
− diversity;
− the performance of the CEO;
− the link between Group pay structures and incentives and strategy;
− the pay structure and quantum for the CEO;
− the structure of the Group’s LTIP;
− the use of discretion by the Remuneration and Talent Management
Committee;
− the impact of safety performance on remuneration outcomes;
− progress in the court cases involving Los Pelambres;
− community relations and sustainability issues involving Los
Pelambres; and
− the BEIS Corporate Governance Green Paper.
2016 SHAREHOLDER ENGAGEMENT CALENDAR
FEB
MAR
− Group CEO presented at
industry conference for
institutional investors
− 3 days of 1-on-1 meetings with
over 50 investors
− Presentation of full-year 2015
results by the CEO and CFO
− Europe roadshow – 1 day
− US east coast roadshow – 3 days
− London roadshow – 2 days
MAY
− Presentation at industry
− 2 days of 1-on-1 meetings with
− Europe roadshow – 1 day
conference for institutional
investors by Diego Hernández
over 40 investors
− Annual General Meeting
in London
AUG
JUN
SEP
− Presentation of half-year
− London roadshow – 2 days
2016 results
− Europe roadshow – 1 day
− US east coast roadshow – 3 days
− Investor relations team attended
three industry conferences in
the UK
− US west coast roadshow –
4 days – led by the Vice
President of Sales
OCT
NOV
− Corporate governance
− Nordea sustainability team visit
Roadshow London – 3 days –
led by the Senior Independent
Director
to operations – 4 days
− Investor relations team attended
three industry conferences in
the UK
− Sustainability roadshow
London – 1 day
DEC
− Site visit to Chile with analysts
and investors – 4 days
116
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
DIRECTORS’ REPORT
DIRECTORS’
REPORT
DIRECTORS
Directors that have served during the year and summaries of current
Directors’ key skills and experience are set out in the Corporate Governance
Report on pages 72 to 74.
POST BALANCE SHEET EVENTS
There have been no post balance sheet events.
FINANCIAL RISK MANAGEMENT
Details of the Company’s policies on financial risk management are set out
in Note 25 to the Financial Statements.
RESULTS AND DIVIDENDS
The consolidated profit before tax (excluding exceptional items) has
increased from $242.8 million in 2015 to $875.9 million in 2016.
The Board has recommended a final dividend of 15.3 cents per ordinary
share. No final dividend for the year ended 31 December 2015 was paid. An
interim dividend of 3.1 cents was paid on 30 September 2016 (2015 interim
dividend – 3.1 cents). This gives total dividends per share proposed in
relation to 2016 of 18.4 cents (2015 – 3.1 cents) and a total dividend amount
in relation to 2016 of $181.4 million (2015 – $30.6 million).
Preference shares carry the right to a fixed cumulative dividend of 5%
per annum. The preference shares are classified within borrowings and
preference dividends are included within finance costs. The total cost
of dividends paid on preference shares and recognised as an expense
in the income statement was $0.2 million (2015 – $0.2 million). Further
information relating to dividends is set out in the Financial Review on page
64 and in Note 13 to the Financial Statements.
POLITICAL CONTRIBUTIONS
The Group did not make political donations during the year ended
31 December 2016 (2015 – nil).
AUDITORS
The auditors, PwC LLP have indicated their willingness to continue in office
and a resolution seeking to reappoint them will be proposed at the Annual
General Meeting.
DISCLOSURE OF INFORMATION TO AUDITORS
The Directors in office at the date of this report have each confirmed that:
(a) so far as they are aware, there is no relevant audit information of which
the Group’s auditors are unaware; and
(b) they have taken all the steps that they ought to have taken as Directors
in order to make themselves aware of any relevant audit information and
to establish that the Group’s auditors are aware of that information.
CAPITAL STRUCTURE
Details of the authorised and issued ordinary share capital, including details
of any movements in the issued share capital during the year, are shown
in Note 30 to the Financial Statements. The Company has one class of
ordinary shares, which carry no right to fixed income. Each ordinary share
carries one vote at any general meeting of the Company.
Details of the preference share capital are shown in Note 23 to the Financial
Statements. The preference shares are non-redeemable and are entitled
to a fixed cumulative dividend of 5% per annum. Each preference share
carries 100 votes on a poll at any general meeting of the Company.
The nominal value of the issued ordinary share capital is approximately
96.1% of the total Sterling nominal value of all issued share capital, and the
nominal value of the issued preference share capital is approximately 3.9%
of the total Sterling nominal value of all issued share capital. Originally,
the ordinary shares and preference shares had the same voting rights.
However, the number of ordinary shares has increased over time through
stock splits and bonus issues so that a holding of one ordinary share in
1982 would now amount to a holding of 100 ordinary shares (before taking
into account all the rights issues since then).
The preference shares were not split at the same time as the ordinary
shares, and the voting rights attaching to these shares were increased
purely to maintain the relative votes of each class, not to give additional
weighting to the preference shares.
There are no specific restrictions on the transfer of shares or on their
voting rights beyond those standard provisions set out in the Company’s
Articles of Association and other provisions of applicable law and regulation
(including, in particular, following a failure to provide the Company with
information about interests in shares as required by the Companies Act
2006). The Company is not aware of any agreements between holders
of the Company’s shares that may result in restrictions on the transfer of
securities or on voting rights.
With regard to the appointment and replacement of Directors, the
Company is governed by, and has regard to, its Articles of Association,
the UK Corporate Governance Code 2014, the Companies Act 2006 and
related legislation. The Articles of Association may be amended by special
resolution of the shareholders. There are no significant agreements in place
that take effect, alter or terminate upon a change of control of the Company.
There are no agreements in place between the Company and its Directors
or employees that provide for compensation for loss of office resulting from
a change of control of the Company.
AUTHORITY TO ISSUE SHARES AND AUTHORITY TO
PURCHASE OWN SHARES
At the 2016 AGM, held on 18 May 2016, authority was given to the Directors
to allot unissued relevant securities in the Company up to a maximum
amount equivalent to two-thirds of the shares in issue (of which one-third
may only be offered by way of rights issue). This authority expires on the
date of this year’s AGM, scheduled to be held on 24 May 2017. No such
shares have been issued. The Directors propose to renew this authority at
this year’s AGM for the following year.
A further special resolution passed at the 2016 AGM granted authority to the
Directors to allot equity securities in the Company for cash, without regard
to the pre-emption provisions of the Companies Act 2006. This authority
also expires on the date of this year’s AGM and the Directors will seek to
renew this authority on similar terms for the following year by way of two
separate resolutions, in line with the Investment Association’s guidance and
the Pre-Emption Group’s Statement of Principles.
ANTOFAGASTA.CO.UK
117
DIRECTORS’ REPORT CONTINUED
The Company was also authorised by a shareholders’ resolution passed at
the 2016 AGM to purchase up to 10% of its issued ordinary share capital.
Any shares which have been bought back may be held as treasury shares
or, if not so held, must be cancelled immediately upon completion of the
purchase, thereby reducing the amount of the Company’s issued and
authorised share capital. This authority will expire at this year’s AGM and
a resolution to renew the authority for a further year will be proposed.
No shares were purchased by the Company during the year.
DIRECTORS’ INTERESTS AND INDEMNITIES
Details of Directors’ contracts and letters of appointment, remuneration
and emoluments, and their interests in the shares of the Company as at
31 December 2016 are given in the Directors’ Remuneration Report. No
Director had any material interest in a contract of significance (other than
a service contract) with the Company or any subsidiary company during
the year.
In accordance with the Company’s Articles of Association and to the extent
permitted by the laws of England and Wales, Directors are granted an
indemnity from the Company in respect of liabilities personally incurred
as a result of their office. The Company also maintained a Directors’ and
Officers’ liability insurance policy throughout the financial year. A new
policy has been entered into for the current financial year.
CONFLICTS OF INTEREST
The Companies Act 2006 requires that a Director must avoid a situation
where he has, or can have, a direct or indirect interest that conflicts, or
possibly may conflict, with the Company’s interests. The Company has
undertaken a process to identify and, where appropriate, authorise and
manage potential and actual conflicts. Each Director has identified his or her
interests that may constitute conflicts including, for example, directorships in
other companies. The Board, with detailed assistance from the Nomination
and Governance Committee, has considered the potential and actual conflict
situations of each of the Directors and decided in relation to each situation
whether to authorise it and the steps, if any, which need to be taken to
manage it. The authorisation process is not regarded as a substitute for
managing an actual conflict of interest if one arises. The monitoring and,
if appropriate, authorisation of actual and potential conflicts of interest is
an ongoing process. Directors are required to notify the Company of any
material changes in those positions or situations that have already been
considered, as well as to notify the Company of any other new positions
or situations that may arise. In addition to considering any new situations
as they arise, the Board usually considers the conflict position of all
Directors formally each year.
SUBSTANTIAL SHAREHOLDINGS
Notifiable major share interests in which the Company has been made
aware are set out on page 70.
EXPLORATION AND RESEARCH AND DEVELOPMENT
The Group’s operating companies carry out exploration and research
and development activities that are necessary to support and expand
their operations.
OTHER STATUTORY DISCLOSURES
The Corporate Governance Report on pages 66 to 116, the Statement of
Directors’ Responsibilities on page 119 of this Annual Report and Note 25
to the financial statements are incorporated into the Directors’ Report
by reference.
Other information can be found in the following sections of the
Strategic Report:
Future developments in the business of
the Group
Viability and going concern statement
Subsidiaries, associates and joint ventures
Employee consultation
Greenhouse gas emissions
LOCATION IN
STRATEGIC REPORT
Pages 32 to 51
Page 22
Pages 32 to 51
Pages 35 to 37
Page 57
Disclosures required pursuant to Listing Rule 9.8.4R can be found on the
following pages of the Annual Report:
Statement of interest capitalised by the Group
(LR 9.8.4(1))
LOCATION IN
ANNUAL REPORT
See Notes 5, 9 and
15 to the financial
statements on Pages
139 to 143,149 and 154
and 155.
Relationship agreement (LR 9.8.4(14))
Page 70
By order of the Board
JULIAN ANDERSON
COMPANY SECRETARY
13 March 2017
118
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
STATEMENT OF
DIRECTORS’
RESPONSIBILITIES
The Directors are responsible for the maintenance and integrity of the
Company’s website. Legislation in the United Kingdom governing the
preparation and dissemination of Financial Statements may differ from
legislation in other jurisdictions.
The Directors consider that the Annual Report and Financial Statements,
taken as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company’s position
and performance, business model and strategy.
Each of the Directors, whose names and functions are listed in the
Corporate Governance Report, confirm that to the best of their knowledge:
− the Group Financial Statements, which have been prepared in
accordance with IFRSs as adopted by the EU, give a true and fair view of
the assets, liabilities, financial position and profit of the Group; and
− the Strategic Report and the Directors’ Report include a fair review of
the development and performance of the business and the position of the
Group, together with a description of the principal risks and uncertainties
that it faces.
By order of the Board
JEAN-PAUL LUKSIC
CHAIRMAN
13 March 2017
OLLIE OLIVEIRA
SENIOR INDEPENDENT
DIRECTOR
STATEMENT OF DIRECTORS’
RESPONSIBILITIES IN RELATION TO THE
FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report, the
Directors’ Remuneration Report and the Financial Statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare Financial Statements
for each financial year. Under that law, the Directors have prepared the
Group Financial Statements in accordance with International Financial
Reporting Standards (“IFRSs”) as adopted by the European Union, and the
Parent Company Financial Statements in accordance with United Kingdom
Generally Accepted Accounting Practice (United Kingdom Accounting
Standards and applicable law), including Financial Reporting Standard
101 Reduced Disclosure Framework (“FRS 101”). Under company law,
the Directors must not approve the Financial Statements unless they are
satisfied that they give a true and fair view of the state of affairs of the
Group and the Company and of the profit or loss of the Group for that
period. In preparing these financial statements, the Directors are required to:
− select suitable accounting policies and then apply them consistently;
− make judgements and accounting estimates that are reasonable
and prudent;
− state whether IFRSs as adopted by the European Union and applicable
UK Accounting Standards, including FRS 101, have been followed, subject
to any material departures disclosed and explained in the Group and
Parent Company Financial Statements respectively; and
− prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that
are sufficient to show and explain the Company’s transactions and disclose
with reasonable accuracy at any time the financial position of the Company
and the Group and enable them to ensure that the Financial Statements
and the Directors’ Remuneration Report comply with the Companies Act
2006 and, as regards the Group Financial Statements, Article 4 of the
IAS Regulation. They are also responsible for safeguarding the assets of
the Company and the Group and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
ANTOFAGASTA.CO.UK
119
FINANCIAL
STATEMENTS
Independent auditors’ report
Consolidated income statement
Consolidated statement
of comprehensive income
Consolidated statement of
changes in equity
Consolidated balance sheet
Consolidated cash flow statement
Notes to the financial statements
Parent company financial statements
Other information
Five year summary
Dividends to ordinary shareholders
of the company
Ore reserves and mineral resources
estimates
Glossary and definitions
Shareholder information
Directors and advisors
122
127
128
128
129
130
131
181
188
189
190
200
204
ibc
ZALDÍVAR
Solvent Extraction – Electro Winning plant
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF ANTOFAGASTA PLC
REPORT ON THE FINANCIAL STATEMENTS
OUR OPINION
IN OUR OPINION:
Antofagasta plc’s Group financial statements and Parent Company financial
statements (the ‘financial statements’) give a true and fair view of the state of
the Group’s and of the Parent Company’s affairs as at 31 December 2016 and
of the Group’s profit and cash flows for the year then ended;
– the Group financial statements have been properly prepared in accordance
with International Financial Reporting Standards (‘IFRSs’) as adopted by
the European Union;
– the Parent Company financial statements have been properly prepared in
accordance with United Kingdom Generally Accepted Accounting Practice;
and
– the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAS Regulation.
WHAT WE HAVE AUDITED
The financial statements, included within the Annual Report and Financial
Statements (the ‘Annual Report’), comprise:
– the Consolidated Balance Sheet as at 31 December 2016;
– the Balance Sheet of the Parent Company as at 31 December 2016;
– the Consolidated Income Statement and Consolidated Statement of
Comprehensive Income for the year then ended;
– the Consolidated Statement of Cash Flow for the year then ended;
– the Consolidated Statement of Changes in Equity for the year then ended;
– the Statement of Changes in Equity of the Parent Company for the year
then ended; and
– the notes to the financial statements, which include a summary of
significant accounting policies and other explanatory information.
Certain required disclosures have been presented elsewhere in the Annual
Report, rather than in the notes to the financial statements. These are cross-
referenced from the financial statements and are identified as audited.
The financial reporting framework that has been applied in the preparation of
the Group financial statements is IFRSs as adopted by the European Union,
and applicable law. The financial reporting framework that has been applied in
the preparation of the Parent Company financial statements is United Kingdom
Accounting Standards, comprising FRS 101 ‘Reduced Disclosure Framework’
(United Kingdom Generally Accepted Accounting Practice), and applicable law.
OUR AUDIT APPROACH
OVERVIEW
MATERIALITY
– Overall Group materiality: $45 million which represents 5% of the three-year average of profit before tax adjusted
for one-off items.
AUDIT SCOPE
– We identified the four mine sites, Los Pelambres, Centinela, Antucoya and Zaldívar, which in our view, required an
audit of their complete financial information.
– Taken together, the locations and functions where we performed our audit work accounted for 96% of revenue
and approximately 85% of absolute adjusted profit before tax (i.e. the sum of the numerical values without regard
to whether they were profits or losses for the relevant locations and functions).
AREAS OF
FOCUS
– Impairment assessments at Antucoya, Twin Metals and Alto Maipo.
– Finalisation of Zaldívar purchase price accounting
THE SCOPE OF OUR AUDIT AND OUR AREAS OF FOCUS
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (‘ISAs (UK & Ireland)’).
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we looked at where
the Directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future
events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether
there was evidence of bias by the Directors that represented a risk of material misstatement due to fraud.
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are identified as ‘areas of focus’
in the table below. We have also set out how we tailored our audit to address these specific areas in order to provide an opinion on the financial statements as a
whole, and any comments we make on the results of our procedures should be read in this context. This is not a complete list of all risks identified by our audit.
122
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
AREA OF FOCUS
HOW OUR AUDIT ADDRESSED THE AREA OF FOCUS
IMPAIRMENT ASSESSMENTS – MINING PROPERTIES
In accordance with IAS 36 “Impairment of assets” the Directors are required
to perform a review for impairment of long-lived assets at any time an
indicator of impairment exists.
The Directors identified that impairment indicators existed at Antucoya where
post declaration of commercial production the higher carrying value did not
appear supported by the latest estimate of the recoverable value.
The resulting impairment review determined that the recoverable amount was
below their carrying value. Accordingly an impairment provision of $215.6 m
was recognised, along with a deferred tax credit of $99.4m, resulting in a
post-tax impairment of $116.2m. The Directors determined that there were no
indicators of impairment at Centinela. The Directors considered if there were
impairment indicators at the Group’s other mines, including considering the
results of a carrying value review, but concluded that there were not.
The determination of recoverable amount was based on the higher of value-
in-use and fair value less costs of disposal (“FVLCD”), which requires
judgement on the part of the Directors in valuing the relevant CGUs. As a
value-in-use methodology does not permit future expansion or optimisation
plans to be included within the discounted cash flow model, the Directors
have used a FVLCD valuation methodology to determine the recoverable
amount, applying assumptions that a market participant would use to
determine fair value.
Refer to Note 4 Exceptional items.
We considered the Directors’ impairment trigger analysis and agree that
impairment indicators existed at Antucoya and that this was the appropriate
CGU for impairment testing purposes. We considered whether impairment
indicators existed for other CGUs and concluded they did not.
We evaluated the Directors’ future cash flow forecasts, and the process by
which they were drawn up, including verifying the mathematical accuracy of
the cash flow models and agreeing future capital and operating expenditure to
the latest Board approved budgets, modified as required for FVLCD modelling
purposes, and the latest approved Life of Mine plans. We assessed the
reasonableness of the Directors’ future capital and operating expenses in light
of their historical accuracy and the current operating results and concluded
the forecasts had been appropriately prepared, based on updated
assessments of future operating performance and cost savings initiatives.
Utilising our valuation experts, we evaluated the appropriateness of key
market related assumptions in the Directors’ valuation models, including the
copper prices, discount rates and foreign currency exchange rates. We noted
that the required impairment charge was particularly sensitive to changes in
the long-term copper price and discount rate assumptions.
We formed an independent view of the copper price that a market participant
might use in a fair value less cost to dispose scenario. We found that the
Directors’ long-term copper price assumption of $3.00/lb was at the higher
end of a reasonable range. We independently calculated a weighted average
cost of capital by making reference to market data, and considering the CGU
specific risks. The discount rate used by the Directors of 8% fell within a
reasonable range. We performed sensitivity analysis around the key
assumptions within the cash flow forecasts using a range of higher discount
rates and lower long term copper prices.
In light of the above, we reviewed the appropriateness of the related
disclosures in Note 4 of the financial statements, including the sensitivities
provided, and concluded they were appropriate.
AREA OF FOCUS
HOW OUR AUDIT ADDRESSED THE AREA OF FOCUS
We discussed the impact of the actions of the Bureau of Land Management
with management to help us assess the implications on the Group’s ability to
continue to progress the Twin Metals project. We noted the Directors remain
committed to the project, have filed a federal lawsuit and believe that the
Group’s contractual mineral rights can be protected through this legal avenue.
We corroborated these views with management’s external counsel.
The actions and resulting lawsuit are very recent which makes predicting the
outcome inherently judgemental. Additionally, the actions only relate to two of
the mineral leases, rather than all leases, further complicating the
assessment. However we concluded no impairment had occurred by the
balance sheet date.
With respect to Alto Maipo, we reviewed the terms of the agreements and
concluded that a full impairment of related balances was appropriate. We also
reviewed the work of management’s tax expert as part of our assessment of
the related tax consequences.
We reviewed the appropriateness of the related disclosures in Notes 36 and 4
of the financial statements and concluded they were appropriate.
IMPAIRMENT ASSESSMENTS – OTHER ASSETS
In accordance with IAS 36 “Impairment of assets” the Directors are required
to perform a review for impairment of long-lived assets at any time an
indicator of impairment exists.
The Directors identified that impairment indicators existed at its wholly owned
exploration subsidiary Twin Metals in the US where the Bureau of Land
Management declined to renew two federal mineral leases. In response a
federal lawsuit has been filed, noting that rescinding of the leases is
inconsistent with federal law, the terms of leases themselves, and the federal
government’s established precedent in supporting and renewing the leases
over the past five decades. The Directors have announced that they remain
committed to progressing the project and will continue to pursue legal
avenues to protect the Group’s contractual mineral rights, carried at $150m.
Accordingly no impairment has been recognised at this time.
The Directors also concluded that there was an indication that the Group’s
interest in the Alto Maipo hydro project was impaired following the
announcement of forecast cost increases and the Group’s subsequent
decision to exit the project for nominal consideration.
Accordingly, an impairment provision of $367.6m was recognised, comprising
$74.0m with respect to the investment in associate balance and $52.6m of
mark-to-market losses in respect of derivative financial instruments held by
Alto Maipo previously deferred in reserves, resulting in a $126.6m loss
reflected in the profit from associates and joint ventures lines and $241.0m of
loan financing (including interest receivable) reflected in operating cost. This
impairment provision resulted in a deferred tax credit of $95.0 million
resulting in a post-tax impact of $272.6m.
Refer to Note 4 Exceptional items.
ANTOFAGASTA.CO.UK
123
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF ANTOFAGASTA PLC CONTINUED
AREA OF FOCUS
HOW OUR AUDIT ADDRESSED THE AREA OF FOCUS
FINALISATION OF ZALDÍVAR PURCHASE PRICE ACCOUNTING
Accounting for acquisitions of joint ventures under IFRS is inherently complex,
requiring the Directors to perform a purchase price allocation exercise to fair
value the assets and liabilities of the acquired business. As Zaldívar was
acquired on 1 December 2015, there was limited time to conduct this exercise
in the prior year and in particular, the working capital adjustment period
remained open.
Following an adjustment to the final consideration for the purchase to
$949.7m, the provisional purchase price allocations previously recorded have
now been finalised.
The main adjustment was a revision to working capital balances.
Refer to Note 19 – Compania Minera Zaldívar SPA transaction.
We obtained and reviewed the purchase agreements and related
amendments and confirmed that the appropriate consideration had been
recorded. We also reviewed the amendments to the initial purchase price
allocations and considered if these were supportable and noted no exceptions.
The Group engaged an independent valuation expert to perform the purchase
price allocation exercise and we assessed the competency and objectivity of
the expert, and the scope of their work. Specifically in relation to ore
stockpiles we read the expert’s report and discussed with the expert their
valuation methodology for inventory, along with the key judgements they
made in determining the fair values. We determined that the methods used by
the Directors’ expert were appropriate and the fair values appeared
reasonable based on the judgements made.
We concurred with the Directors’ expert’s assessment of the purchase price
allocation and the appropriateness of the related disclosures in Note 19 of the
financial statements.
HOW WE TAILORED THE AUDIT SCOPE
We tailored the scope of our audit to ensure that we performed enough work
to be able to give an opinion on the financial statements as a whole, taking into
account the geographic structure of the Group, the accounting processes and
controls, and the industry in which the Group operates.
The core mining business consists of four assets: Los Pelambres; Centinela;
Antucoya, which has commenced production during the year; and Zaldívar, a
joint venture with Barrick Gold Corporation operated by the Group. These
mines produce copper cathodes, copper concentrates and significant volumes
of by-products.
In addition to mining, the Group has a transport division that provides rail and
road cargo services in northern Chile predominantly to mining customers,
including to the Group’s own operations.
MATERIALITY
The scope of our audit was influenced by our application of materiality. We set
certain quantitative thresholds for materiality. These, together with qualitative
considerations, helped us to determine the scope of our audit and the nature,
timing and extent of our audit procedures on the individual financial statement
line items and disclosures and in evaluating the effect of misstatements, both
individually and on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the
financial statements as a whole as follows:
OVERALL GROUP
MATERIALITY
$45 million (2015: $65 million).
HOW WE
DETERMINED IT
5% of the three-year average of profit before tax adjusted
for one-off items.
All of the above operations are located in Chile. In addition, the Group has
corporate head offices located in both Santiago, Chile (Antofagasta Minerals)
and London, UK (Antofagasta plc). The Group also has exploration projects in
various countries.
RATIONALE FOR
BENCHMARK
APPLIED
In establishing the overall approach to the Group audit, we determined the
type of work that needed to be performed at each of the four mine sites and
the corporate offices in Chile, by us, as the Group engagement team and by
component auditors from PwC Chile operating under our instruction. Los
Pelambres and Centinela were considered to be financially significant
components of the Group, due to their contribution towards Group profit
before tax, and so required audits of their complete financial information.
Antucoya and Zaldívar were also subject to an audit of their complete financial
information, in response to the risks of impairment to Antucoya’s carrying
value and the carrying value of inventory at Zaldívar.
We also requested that component auditors perform specified procedures
over the corporate offices in Chile, and specific line items of other entities
within the Group to ensure that we had sufficient coverage from our audit
work for each line of the Group’s financial statements. For all other non-
financially significant components, the Group team performed analytical
review procedures.
We believe that profit before tax is the primary measure in
assessing the performance of the Group, and is a generally
accepted auditing benchmark. We used a three-year
average due to the impact on profit before tax of the
inherent volatility in copper commodity prices, and adjusted
for one-off items to eliminate the volatility that they
introduce.
COMPONENT
MATERIALITY
For each component in our audit scope, we allocated a
materiality that is less than our overall Group materiality.
The range of materiality allocated across components was
between $12 million and $30 million. Certain components
were audited to a local statutory audit materiality that was
also less than our overall Group materiality.
We agreed with the Audit Committee that we would report to them
misstatements identified during our audit above $1.5 million (2015: $3 million)
as well as misstatements below that amount that, in our view, warranted
reporting for qualitative reasons.
Where work was performed by component auditors, we determined the level
of involvement we needed to have in the audit work to be able to conclude
whether sufficient appropriate audit evidence had been obtained as a basis for
our opinion on the Group financial statements as a whole.
GOING CONCERN
Under the Listing Rules we are required to review the Directors’ statement,
set out on page 22, in relation to going concern. We have nothing to report
having performed our review.
A UK senior manager was seconded to PwC Chile to be an integral part of the
team. In addition the Senior Statutory Auditor visited Chile four times,
including two mine site visits, key audit meetings with management and
meetings with our component auditors. The Group team also reviewed the
component auditor working papers, attended local audit clearance meetings,
and reviewed other forms of communications dealing with significant
accounting and auditing issues.
Under ISAs (UK & Ireland) we are required to report to you if we have
anything material to add or to draw attention to in relation to the Directors’
statement about whether they considered it appropriate to adopt the going
concern basis in preparing the financial statements. We have nothing material
to add or to draw attention to.
124
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
As noted in the Directors’ statement, the Directors have concluded that it is
appropriate to adopt the going concern basis in preparing the financial
statements. The going concern basis presumes that the Group and Parent
Company have adequate resources to remain in operation, and that the
Directors intend them to do so, for at least one year from the date the
financial statements were signed. As part of our audit we have concluded that
the Directors’ use of the going concern basis is appropriate. However,
because not all future events or conditions can be predicted, these statements
are not a guarantee as to the Group’s and Parent Company’s ability to
continue as a going concern.
OTHER REQUIRED REPORTING
CONSISTENCY OF OTHER INFORMATION AND COMPLIANCE WITH APPLICABLE REQUIREMENTS
COMPANIES ACT 2006 REPORTING
In our opinion, based on the work undertaken in the course of the audit:
– the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent
with the financial statements; and
– the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
In addition, in light of the knowledge and understanding of the Group, the Parent Company and their environment obtained in the course of the audit, we are
required to report if we have identified any material misstatements in the Strategic Report and the Directors’ Report. We have nothing to report in this respect.
ISAS (UK & IRELAND) REPORTING
Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:
– information in the Annual Report is: materially inconsistent with the information in the audited financial statements; or apparently
materially incorrect based on, or materially inconsistent with, our knowledge of the Group and Parent Company acquired in the
course of performing our audit; or otherwise misleading.
We have no exceptions
to report
– the statement given by the Directors on page 119, in accordance with provision C.1.1 of the UK Corporate Governance Code (the
‘Code’), that they consider the Annual Report taken as a whole to be fair, balanced and understandable and provides the
information necessary for members to assess the Group’s and Parent Company’s position and performance, business model
and strategy is materially inconsistent with our knowledge of the Group and Parent Company acquired in the course of
performing our audit.
We have no exceptions
to report.
– the section of the Annual Report on pages 88 to 91, as required by provision C.3.8 of the Code, describing the work of the Audit
Committee does not appropriately address matters communicated by us to the Audit Committee.
We have no exceptions
to report.
THE DIRECTORS’ ASSESSMENT OF THE PROSPECTS OF THE GROUP AND OF THE PRINCIPAL RISKS THAT WOULD
THREATEN THE SOLVENCY OR LIQUIDITY OF THE GROUP:
Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to:
– the Directors’ confirmation on page 23 of the Annual Report, in accordance with provision C.2.1 of the Code, that they have
carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model,
future performance, solvency or liquidity.
– the disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
– the Directors’ explanation on page 22 of the Annual Report, in accordance with provision C.2.2 of the Code, as to how they have
assessed the prospects of the Group, over what period they have done so and why they consider that period to be appropriate,
and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and
meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions.
We have nothing material
to add or to draw
attention to.
We have nothing material
to add or to draw
attention to.
We have nothing material
to add or to draw
attention to.
Under the Listing Rules we are required to review the Directors’ statement that they have carried out a robust assessment of the principal risks facing the
Group and the Directors’ statement in relation to the longer-term viability of the Group. Our review was substantially less in scope than an audit and only
consisted of making inquiries and considering the Directors’ process supporting their statements; checking that the statements are in alignment with the
relevant provisions of the Code; and considering whether the statements are consistent with the knowledge acquired by us in the course of performing our
audit. We have nothing to report having performed our review.
ANTOFAGASTA.CO.UK
125
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF ANTOFAGASTA PLC CONTINUED
WHAT AN AUDIT OF FINANCIAL STATEMENTS INVOLVES
An audit involves obtaining evidence about the amounts and disclosures in the
financial statements sufficient to give reasonable assurance that the financial
statements are free from material misstatement, whether caused by fraud or
error. This includes an assessment of:
– whether the accounting policies are appropriate to the Group’s and the
Parent Company’s circumstances and have been consistently applied and
adequately disclosed;
– the reasonableness of significant accounting estimates made by the
Directors; and
– the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the Directors’
judgements against available evidence, forming our own judgements, and
evaluating the disclosures in the financial statements.
We test and examine information, using sampling and other auditing
techniques, to the extent we consider necessary to provide a reasonable basis
for us to draw conclusions. We obtain audit evidence through testing the
effectiveness of controls, substantive procedures or a combination of both.
In addition, we read all the financial and non-financial information in the
Annual Report to identify material inconsistencies with the audited financial
statements and to identify any information that is apparently materially
incorrect based on, or materially inconsistent with, the knowledge acquired by
us in the course of performing the audit. If we become aware of any apparent
material misstatements or inconsistencies we consider the implications for
our report. With respect to the Strategic Report and Directors’ Report, we
consider whether those reports include the disclosures required by applicable
legal requirements.
JASON BURKITT
SENIOR STATUTORY AUDITOR
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
13 March 2017
ADEQUACY OF ACCOUNTING RECORDS AND
INFORMATION AND EXPLANATION RECEIVED
Under the Companies Act 2006 we are required to report to you if, in our
opinion:
– we have not received all the information and explanations we require for
our audit; or
– adequate accounting records have not been kept by the Parent Company,
or returns adequate for our audit have not been received from branches
not visited by us; or
– the Parent Company financial statements and the part of the Directors’
Remuneration Report to be audited are not in agreement with the
accounting records and returns.
We have no exceptions to report arising from this responsibility.
DIRECTORS’ REMUNERATION
DIRECTORS’ REMUNERATION REPORT – COMPANIES ACT
2006 OPINION
In our opinion, the part of the Directors’ Remuneration Report to be audited
has been properly prepared in accordance with the Companies Act 2006.
OTHER COMPANIES ACT 2006 REPORTING
Under the Companies Act 2006 we are required to report to you if, in our
opinion, certain disclosures of Directors’ remuneration specified by law are
not made. We have no exceptions to report arising from this responsibility.
CORPORATE GOVERNANCE STATEMENT
Under the Listing Rules we are required to review the part of the Corporate
Governance Statement relating to ten further provisions of the Code. We have
nothing to report having performed our review.
RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS
AND THE AUDIT
OUR RESPONSIBILITIES AND THOSE OF THE DIRECTORS
As explained more fully in the Statement of Directors’ Responsibilities set out
on page 119, the Directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the financial
statements in accordance with applicable law and ISAs (UK & Ireland). Those
standards require us to comply with the Auditing Practices Board’s Ethical
Standards for Auditors.
This report, including the opinions, has been prepared for and only for the
Parent Company’s members as a body in accordance with Chapter 3 of Part
16 of the Companies Act 2006 and for no other purpose. We do not, in giving
these opinions, 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.
126
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2016
Group revenue
Total operating costs
Operating profit/(loss) from subsidiaries
Net share of results from associates and joint ventures
Total profit/(loss) from operations, associates and joint ventures
Investment income
Interest expense
Other finance items
Net finance expense
Profit/(loss) before tax
Income tax (expense)/credit
Profit/(loss) for the financial year from continuing operations
Profit for the financial year from discontinued operations
Profit/(loss) for the year
Attributable to:
Non-controlling interests
Owners of the parent
Basic earnings/(losses) per share
From continuing operations
From discontinued operations
Total continuing and discontinued operations
NOTES
5,6
5,7
5,17
5,7
9
5
10
5
11
31
12
12
BEFORE
EXCEPTIONAL
ITEMS
$M
3,621.7
(2,698.1)
EXCEPTIONAL
ITEMS
(NOTE 4)
$M
2016
$M
–
3,621.7
(456.6)
(3,154.7)
2015
(RESTATED)
$M
3,225.7
(2,936.7)
923.6
23.4
947.0
26.9
(86.1)
(11.9)
(71.1)
875.9
(313.5)
562.4
38.3
600.7
220.9
379.8
(456.6)
(134.7)
(591.3)
–
–
–
–
(591.3)
204.9
(386.4)
–
(386.4)
467.0
(111.3)
355.7
26.9
(86.1)
(11.9)
(71.1)
284.6
(108.6)
176.0
38.3
214.3
(164.6)
(221.8)
56.3
158.0
289.0
(5.8)
283.2
17.5
(33.7)
(24.2)
(40.4)
242.8
(154.4)
88.4
613.3
701.7
93.5
608.2
US CENTS
US CENTS
US CENTS
US CENTS
34.7
3.9
38.6
(22.6)
–
(22.6)
12.1
3.9
16.0
(0.5)
62.2
61.7
ANTOFAGASTA.CO.UK
127
FINANCIAL STATEMENTS CONTINUED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2016
Profit for the year
Items that may be reclassified subsequently to profit or loss:
(Losses)/gains in fair value of cash flow hedges deferred in reserves
Share of other comprehensive gains/(losses) of associates and joint ventures, net of tax
Gains/(losses) in fair value of available for sale investments
Currency translation adjustment
Deferred tax effects arising on cash flow hedges deferred in reserves
Losses in fair value of cash flow hedges transferred to the income statement
Share of other comprehensive loss of equity accounted units transferred to the income statement
Losses in fair value of available– for– sale investments transferred to income statement
Deferred tax effects arising on amounts transferred to the income statement
Total items that may be reclassified subsequently to profit or loss
Items that will not be subsequently reclassified to profit or loss
Actuarial gains on defined benefit plans
Tax on items recognised through OCI which will not be reclassified to profit or loss in the future
Total items that will not be subsequently reclassified to profit or loss
Total other comprehensive income/(expense)
Total comprehensive income for the year
Attributable to:
Non-controlling interests
Owners of the parent
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2016
NOTE
5
25
17
18
25
25
18
28
27
2016
$M
214.3
(3.5)
4.4
1.7
–
0.6
5.8
52.6
–
(1.4)
60.2
7.8
(1.3)
6.5
66.7
281.0
2015
$M
701.7
1.7
(16.0)
(3.2)
(1.8)
–
5.8
–
1.0
(1.3)
(13.8)
3.8
(1.2)
2.6
(11.2)
690.5
31
24.9
256.1
90.9
599.6
At 1 January 2015
Profit for the year
Other comprehensive (expense)/income for the year
Loss of control in subsidiaries
Capital contribution from non-controlling interest
Dividends
At 31 December 2015
Profit for the year
Other comprehensive income for the year
Dividends
At 31 December 2016
SHARE
PREMIUM
$M
OTHER
RESERVES
(NOTE 30)
$M
RETAINED
EARNINGS
(NOTE 30)
$M
EQUITY
ATTRIBUTABLE
TO EQUITY
OWNERS OF
THE PARENT
$M
NON-
CONTROLLING
INTERESTS
$M
TOTAL
EQUITY
$M
199.2
(47.4)
5,932.1
6,173.7
1,861.0
8,034.7
–
–
–
–
–
–
(11.9)
–
–
–
608.2
3.3
–
–
608.2
(8.6)
–
–
93.5
(2.6)
(13.3)
14.6
701.7
(11.2)
(13.3)
14.6
(127.2)
(127.2)
(80.0)
(207.2)
SHARE
CAPITAL
$M
89.8
–
–
–
–
–
89.8
199.2
(59.3)
6,416.4
6,646.1
1,873.2
8,519.3
–
–
–
–
–
–
–
37.0
–
158.0
4.8
(30.6)
158.0
41.8
56.3
24.9
214.3
66.7
(30.6)
(260.0)
(290.6)
89.8
199.2
(22.3)
6,548.6
6,815.3
1,694.4
8,509.7
128
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
As at 31 December 2016
Non-current assets
Intangible assets
Property, plant and equipment
Other non-current assets
Inventories
Investment in associates and joint ventures
Trade and other receivables
Derivative financial instruments
Available-for-sale investments
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Current tax assets
Derivative financial instruments
Liquid investments
Cash and cash equivalents
Total assets
Current liabilities
Short-term borrowings
Derivative financial instruments
Trade and other payables
Current tax liabilities
Non-current liabilities
Medium and long-term borrowings
Derivative financial instruments
Trade and other payables
Liabilities in relation to joint venture
Post-employment benefit obligations
Decommissioning & restoration and other long term provisions
Deferred tax liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Other reserves
Retained earnings
Equity attributable to equity owners of the parent
Non-controlling interests
Total equity
Approved by the Board and signed on its behalf on 13 March 2017.
JEAN-PAUL LUKSIC
CHAIRMAN
OLLIE OLIVEIRA
SENIOR INDEPENDENT DIRECTOR
NOTE
2016
$M
2015
(RESTATED)
$M
14
15
20
17
21
18
28
20
21
25
22
22
23
25
24
23
25
24
17
27
29
28
30
30
30
31
150.1
8,737.5
2.6
157.3
1,086.6
66.7
0.2
4.6
82.8
150.1
8,601.1
2.0
263.9
1,149.1
292.9
–
2.7
124.6
10,288.4
10,586.4
393.4
736.1
255.2
2.2
1,332.2
716.3
3,435.4
297.1
604.8
319.5
0.2
924.1
807.5
2,953.2
13,723.8
13,539.6
(836.8)
(2.0)
(595.8)
(119.4)
(758.9)
(2.0)
(478.9)
(198.8)
(1,554.0)
(1,438.6)
(2,283.4)
(1,996.2)
(0.5)
(7.9)
(3.1)
(92.2)
(392.1)
(880.9)
(3,660.1)
(5,214.1)
8,509.7
89.8
199.2
(22.3)
6,548.6
6,815.3
1,694.4
8,509.7
(1.5)
(24.4)
(2.5)
(86.9)
(394.0)
(1,076.2)
(3,581.7)
(5,020.3)
8,519.3
89.8
199.2
(59.3)
6,416.4
6,646.1
1,873.2
8,519.3
ANTOFAGASTA.CO.UK
129
FINANCIAL STATEMENTS CONTINUED
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2016
Cash flow from operations
Interest paid
Income tax paid
Net cash from operating activities
Investing activities
Capital contribution and loan to associates and joint ventures
Acquisition of joint ventures
Dividends from associate
Acquisition of available-for-sale investments
Disposal of subsidiary
Acquisition of mining properties
Proceeds from sale of property plant and equipment
Purchases of property, plant and equipment
Net (increase)/decrease in liquid investments
Interest received
Net cash used in investing activities
Financing activities
Dividends paid to equity holders of the Company
Dividends paid to preference shareholders of the Company
Dividends paid to non-controlling interests
Capital contribution from non-controlling interests
Proceeds from issue of new borrowings
Repayments of borrowings
Repayments of obligations under finance leases
Net cash (used in)/from financing activities
Net (decrease)in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Net decrease in cash and cash equivalents
Effect of foreign exchange rate changes
Cash and cash equivalents at end of the year
NOTES
32
17
19
17
18
10
19
22
13
13
31
32
32
32
32
32
22,32
2016
$M
1,457.3
(46.3)
(272.6)
1,138.4
(10.1)
20.01
10.2
–
10.0
(7.0)
0.5
(795.1)
(408.1)
14.4
(1,165.2)
(30.6)
(0.1)
(260.0)
–
938.8
(693.1)
(31.3)
(76.3)
(103.1)
807.5
(103.1)
11.9
716.3
2015
$M
858.3
(38.6)
(427.1)
392.6
(112.0)
(972.8)
12.1
(0.2)
942.9
(78.0)
1.6
(1,048.5)
605.0
11.0
(638.9)
(127.2)
(0.2)
(80.0)
14.6
725.9
(276.4)
(11.9)
244.8
(1.5)
845.4
(1.5)
(36.4)
807.5
1. Represents cash refunded to the Group as part of the final adjustments to the consideration relating to the acquisition of the 50% stake in Zaldívar as detailed in Note 19.
130
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
– Investment Entities: Applying the Consolidation Exception (Amendments to
IFRS 10, IFRS 12 and IAS 28)
– Disclosure Initiative (Amendments to IAS 1
– Annual improvements 2012 – 2014 Cycle – improvements to four IFRSs
The application of these standards and interpretations effective for the first
time in the current year has had no significant impact on the amounts
reported in these financial statements.
B) ACCOUNTING STANDARDS ISSUED BUT
NOT YET EFFECTIVE
At the date of authorisation of these financial statements, the following
Standards and Interpretations which have not been applied in these financial
statements were in issue but not yet effective:
– IFRS 9, Financial Instruments
– IFRS 15, Revenue from Contracts with Customers
– IFRS 16, Leases
– IFRIC 22, Foreign Currency Transactions and Advance Consideration
– Recognition of Deferred Tax Assets for Unrealized Losses (Amendments
to IAS 12)
– Disclosure Initiative (Amendments to IAS 7)
– Classification and Measurement of Share-based Payment Transactions
(Amendments to IFRS 2)
– Applying IFRS 9 ‘Financial Instruments’ with IFRS 4 ‘Insurance Contracts’
(Amendments to IFRS 4)
– Transfers of Investment Property (Amendments to IAS 40)
– Annual Improvements to three IFRS Standards 2014–2016 Cycle
The Group is continuing to evaluate in detail the potential impact of IFRS 9
and IFRIC 22.
In respect of IFRS 15 Revenue from contracts the current expectation is
that the principal impact will relate to situations where the Group is effectively
providing a shipping service to customers who have purchased copper from
the Group, to transport that copper to a destination port specified by the
customer. Such shipping services will represent a separate performance
obligation and should be accounted for over time separately from the sale
of goods. The impact of recognising shipping revenue over time rather
than at a point in time is not expected to have a material impact on the
financial statements.
IFRS 16 Leases will result in most of the Group’s existing operating leases
being accounted for similarly to finance leases under the current IAS 17,
resulting in the recognition of additional assets within property, plant and
equipment in respect of the right of use of the lease assets, and additional
lease liabilities. The operating lease charges currently reflected within
operating expenses (and EBITDA) will be eliminated, and instead depreciation
and finance charges will be recognised in respect of the lease assets and
liabilities. Based on the operating leases in place at 31 December 2016 it is
currently estimated that this would result in the recognition of additional lease
assets within property, plant & equipment and additional lease liabilities as at
1 January 2017 of approximately $100 million in each case. It is also estimated
that this would result in a decrease in annual operating expenses before
depreciation (and therefore an increase in EBITDA) of approximately
$75 million, an increase in annual depreciation of approximately $70 million,
an increase in finance costs of less than $15 million, and a net impact on profit
before tax of less than $15 million.
1 BASIS OF PREPARATION
The financial statements have been prepared in accordance with International
Financial Reporting Standards (“IFRS”) and with those parts of the Companies
Act 2006 applicable to companies reporting under IFRS. For these purposes,
IFRS comprise the standards issued by the International Accounting
Standards Board (“IASB”) and IFRS Interpretations Committee
(“IFRS IC”) that have been endorsed by the European Union (“EU”).
The financial statements have 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 within the Directors´ Report.
Antofagasta Plc is a company limited by shares, incorporated and domiciled
in the United Kingdom at Cleveland House, 33 King Street, St James’s
London SW1Y 6RJ.
The immediate parent of the Group is Metalinvest Establishment, which is
controlled by E. Abaroa Foundation, in which members of the Luksic family
are interested.
The nature of the Group entities’ operations are mainly related with mining
and exploration activities, rail and road cargo.
SIGNIFICANT EVENTS DURING 2016
The Antucoya operation achieved commercial production on 1 April 2016,
and its revenue and costs have accordingly been recognised in the income
statement from that date onwards.
The Group has revised its estimation of deferred stripping costs which has
resulted in the capitalisation of $118.1 million of deferred stripping costs for
Los Pelambres mine during 2016.
In 2015 Antofagasta acquired a 50% stake in Compañia Minera Zaldívar SpA
(“Zaldívar”) from Barrick Gold Corporation. Total preliminary consideration for
the transaction was $1,005.0 million in cash, subject to adjustments based on
the net debt and working capital levels of Zaldívar at the completion date. The
net debt and working capital adjustments were finalised in August 2016 and
resulted in a final adjusted consideration of $949.7 million.
The Group completed the sale of Minera Michilla SA to Haldeman Mining
Company S.A., on 30 December 2016. In these financial statements the net
results of Michilla for the twelve months to December 2016 are shown in
the income statement on the line for “Profit for the period from discontinued
operations”. The comparative results for the prior year have been restated in
order to present the comparative net result on the “Profit for the period from
discontinued operations” line.
Impairment charges have been recognised during 2016 in respect of Minera
Antucoya SA, the Alto Maipo and the Energia Andina joint venture.
The investment in associate balance relating to Tethyan Copper Company
Limited (“Tethyan”) is a negative balance $3.1 million. The negative balance
has been recognised because the Group funds the on-going expenses and
liabilities of Tethyan. Given the balance is negative it has been included within
non-current liabilities. The prior year negative balance of $2.5 million has
been reclassified to non-current liabilities.
A) ADOPTION OF NEW ACCOUNTING STANDARDS
The following accounting standards, amendments and interpretations became
effective in the current reporting period:
– IFRS 14, Regulatory Deferral Accounts
– IAS 19, Defined Benefit Plans, Employee Contributions (Amendments
to IAS 19)
– Annual improvements 2010 – 2012 Cycle – improvements to six IFRSs
– Accounting for Acquisitions of Interests in Joint Operations (Amendments
to IFRS 11)
– Clarification of Acceptable Methods of Depreciation and Amortisation
(Amendments to IAS 16 and IAS 38)
– Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41)
– Equity Method in Separate Financial Statements (Amendments to IAS 27)
– Sale or Contribution of Assets between an Investor and its Associate or
Joint Venture (Amendments to IFRS 10 and IAS 28)
ANTOFAGASTA.CO.UK
131
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS
2 PRINCIPAL ACCOUNTING POLICIES
A) ACCOUNTING CONVENTION
These financial statements have been prepared under the historical cost
convention as modified by the use of fair values to measure certain financial
instruments, principally provisionally priced sales as explained in Note 2(f) and
financial derivative contracts as explained in Note 2(x).
B) BASIS OF CONSOLIDATION
The financial statements comprise the consolidated financial statements of
Antofagasta plc (“the Company”) and its subsidiaries (collectively “the Group”).
a) Subsidiaries – A subsidiary is an entity over which the Group has control,
which is the case when the Group is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to affect
those returns through its power over the entity. The consolidated financial
statements include all the assets, liabilities, revenues, expenses and cash
flows of the Company and its subsidiaries after eliminating inter-company
balances and transactions. For partly-owned subsidiaries, the net assets
and profit attributable to non-controlling shareholders are presented as
“Non-controlling interests” in the consolidated balance sheet and
consolidated income statement.
Non-controlling interests that are present ownership interests and entitle
their holders to a proportionate share of the entity’s net assets in the event
of liquidation may be initially measured either at fair value or at the non-
controlling interests’ proportionate share of the recognised amounts of the
acquiree’s identifiable net assets. The choice of measurement basis is made
on an acquisition-by-acquisition basis. Other types of non-controlling interests
are measured at fair value or, when applicable, on the basis specified in
another IFRS. Subsequent to acquisition, the carrying amount of non-
controlling interests is the amount of those interests at initial recognition
plus the non-controlling interests’ share of subsequent changes in equity.
Total comprehensive income is attributed to non-controlling interests even
if this results in the non-controlling interests having a deficit balance.
Changes in the Group’s ownership interests in subsidiaries that do not
result in the Group losing control over the subsidiaries are accounted for as
equity transactions. The carrying amounts of the Group’s interests and the
non-controlling interests are adjusted to reflect the changes in their relative
interests in the subsidiaries. Any difference between the amount by which the
non-controlling interests are adjusted and the fair value of the consideration
paid or received is recognised directly in equity and attributed to owners of
the Company.
When the Group loses control of a subsidiary, a gain or loss is recognised in
profit or loss and is calculated as the difference between (i) the aggregate of
the fair value of the consideration received and the fair value of any retained
interest and (ii) the previous carrying amount of the assets (including
goodwill), and liabilities of the subsidiary and any non-controlling interests.
When assets of the subsidiary are carried at revalued amounts or fair
values and the related cumulative gain or loss has been recognised in other
comprehensive income and accumulated in equity, the amounts previously
recognised in other comprehensive income and accumulated in equity are
accounted for as if the Group had directly disposed of the relevant assets
(i.e. reclassified to profit or loss or transferred directly to retained earnings
as specified by applicable IFRSs). The fair value of any investment retained
in the former subsidiary at the date when control is lost is regarded as the fair
value on initial recognition for subsequent accounting under IAS 39 Financial
Instruments: Recognition and Measurement or, when applicable, the cost on
initial recognition of an investment in an associate or a joint venture.
Acquisitions and disposals are treated as explained in Note 2(g) relating to
business combinations and goodwill.
C) INVESTMENTS IN ASSOCIATES
An associate is an entity over which the Group is in a position to exercise
significant influence, but not control or joint control, through the power to
participate in the financial and operating policy decisions of that entity. The
results and assets and liabilities of associates are incorporated in these
consolidated financial statements using the equity method of accounting.
This requires recording the investment initially at cost to the Group and then,
in subsequent periods, adjusting the carrying amount of the investment to
reflect the Group’s share of the associate’s results less any impairment and
any other changes to the associate’s net assets such as dividends. When
the Group loses control of a former subsidiary but retains an investment in
associate in that entity the initial carrying value of the investment in associate
is recorded at its fair value at that point. When the Group’s share of losses
of an associate exceeds the Group’s interest in that associate the Group
discontinues recognising its share of further losses. Additional losses
are recognised only to the extent that the Group has incurred legal or
constructive obligations or made payments on behalf of the associate.
D) JOINT ARRANGEMENTS
A joint arrangement is an arrangement of which two or more parties have
joint control. Joint arrangements are accounted depending on the nature of
the arrangement.
i) Joint ventures – are accounted for using equity method in accordance
with IAS 28 Investment in Associates and Joint Ventures as described
in Note 2I.
ii) Joint operations – are accounted for recognising directly the assets,
obligations, revenues and expenses of the joint operator in the joint
arrangement. The assets, liabilities, revenues and expenses are
accounted for in accordance with the relevant IFRS.
When a Group entity transacts with its joint arrangements, profits and losses
resulting from the transactions with the joint arrangements are recognised in
the Group’s consolidated financial statements only to the extent of interests in
the joint arrangements that are not related to the Group.
E) CURRENCY TRANSLATION
The functional currency for each entity in the Group is determined as
the currency of the primary economic environment in which it operates.
Transactions in currencies other than the functional currency of the entity
are translated at the exchange rate ruling at the date of the transaction.
Monetary assets and liabilities denominated in currencies other than the
functional currency are retranslated at year end exchange rates. Gains and
losses on retranslation are included in net profit or loss for the period within
other finance items.
The presentational currency of the Group and the functional currency of
the Company is the US dollar. On consolidation, income statement items for
entities with a functional currency other than the US dollar are translated into
US dollars at average rates of exchange. Balance sheet items are translated
at period-end exchange rates. Exchange differences on translation of the
net assets of such entities are taken to equity and recorded in a separate
currency translation reserve. Cumulative translation differences arising
after the transition date to IFRS are recognised as income or as expenses
in the income statement in the period in which an operation is disposed of.
On consolidation, exchange gains and losses which arise on balances between
Group entities are taken to reserves where that balance is, in substance, part
of the net investment in a foreign operation, i.e. where settlement is neither
planned nor likely to occur in the foreseeable future. All other exchange gains
and losses on Group balances are dealt with in the income statement.
Fair value adjustments and any goodwill arising on the acquisition of
a foreign entity are treated as assets of the foreign entity and translated
at the period-end rate.
F) REVENUE RECOGNITION
Revenue represents the value of goods and services supplied to third parties
during the year. Revenue is measured at the fair value of consideration
received or receivable, and excludes any applicable sales tax.
A sale is recognised when the significant risks and rewards of ownership
have passed. This is generally when title and any insurance risk has passed
to the customer, and the goods have been delivered to a contractually agreed
location or when any services have been provided.
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PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
Revenue from mining activities is recorded at the invoiced amounts with an
adjustment for provisional pricing at each reporting date, as explained below.
For copper and molybdenum concentrates, which are sold to smelters and
roasting plants for further processing, the invoiced amount is the market
value of the metal payable by the customer, net of deductions for tolling
charges. Revenue includes amounts from the sale of by-products.
Copper and molybdenum concentrate sale agreements and copper cathode
sale agreements generally provide for provisional pricing of sales at the time
of shipment, with final pricing based on the monthly average London Metal
Exchange (“LME”) copper price or the monthly average market molybdenum
price for specified future periods. This normally ranges from one to five
months after delivery to the customer. Such a provisional sale contains
an embedded derivative which is required to be separated from the host
contract. The host contract is the sale of metals contained in the concentrate
or cathode at the provisional invoice price less tolling charges deducted, and
the embedded derivative is the forward contract for which the provisional sale
is subsequently adjusted. At each reporting date, the provisionally priced metal
sales together with any related tolling charges are marked-to-market, with
adjustments (both gains and losses) being recorded in revenue in the
Consolidated income statement and in trade debtors in the balance sheet.
Forward prices at the period end are used for copper concentrate and
cathode sales, while period-end average prices are used for molybdenum
concentrate sales due to the absence of a futures market.
Interest income is accrued on a time basis, by reference to the principal
outstanding and the effective interest rate applicable, which is the rate that
exactly discounts estimated future cash receipts through the expected life of
the financial asset to that asset’s net carrying amount.
Dividend income from available-for-sale investments, associates and joint
ventures is recognised when the shareholders’ right to receive payment has
been established and for associates and joint venture is recorded as decrease
of the investment at balance level.
G) BUSINESS COMBINATIONS AND GOODWILL
Acquisitions of businesses are accounted for using the acquisition method.
The consideration transferred in a business combination is measured at fair
value, which is calculated as the sum of the acquisition-date fair values of
the assets transferred by the Group, liabilities incurred by the Group to the
former owners of the acquiree and the equity interests issued by the Group
in exchange for control of the acquiree. The results of businesses acquired
during the year are brought into the consolidated financial statements from
the effective date of acquisition. The identifiable assets, liabilities and
contingent liabilities of a business which can be measured reliably
are recorded at their provisional fair values at the date of acquisition.
Provisional fair values are finalised within 12 months of the acquisition
date. Acquisition-related costs are expensed as incurred.
When the consideration transferred by the Group in a business combination
includes assets or liabilities resulting from a contingent consideration
arrangement, the contingent consideration is measured at its acquisition-date
fair value and included as part of the consideration transferred in a business
combination. Changes in the fair value of the contingent consideration that
qualify as measurement period adjustments are adjusted retrospectively,
with corresponding adjustments against goodwill. Measurement period
adjustments are adjustments that arise from additional information obtained
during the “measurement period” (which cannot exceed one year from
the acquisition date) about facts and circumstances that existed at the
acquisition date.
The subsequent accounting for changes in the fair value of the contingent
consideration that do not qualify as “measurement period” adjustments
depends on how the contingent consideration is classified. Contingent
consideration that is classified as equity is not remeasured at subsequent
reporting dates and its subsequent settlement is accounted for within equity.
Contingent consideration that is classified as an asset or a liability is
remeasured at subsequent reporting dates in accordance with IAS 39.
When a business combination is achieved in stages, the Group’s previously
held equity interest in the acquiree is remeasured to fair value at the
acquisition date (i.e. the date when the Group obtains control) and the
resulting gain or loss, if any, is recognised in profit or loss. Amounts arising
from interests in the acquiree prior to the acquisition date that have previously
been recognised in other comprehensive income are reclassified to profit or
loss where such treatment would be appropriate if that interest were
disposed of.
If the initial accounting for a business combination is incomplete by the end
of the reporting period in which the combination occurs, the Group reports
provisional amounts for the items for which the accounting is incomplete.
Those provisional amounts are adjusted during the measurement period
(see above), or additional assets or liabilities are recognised, to reflect new
information obtained about facts and circumstances that existed at the
acquisition date that, if known, would have affected the amounts recognised
at that date.
Goodwill arising in a business combination is measured as the excess of
the sum of the consideration transferred, the amount of any non-controlling
interest in the acquiree and the fair value of the acquirer’s previously held
equity interest in the acquiree (if any) over the net identifiable assets acquired
and liabilities assumed. Any goodwill on the acquisition of subsidiaries is
separately disclosed, while any goodwill on the acquisition of associates
and joint ventures is included within investments in equity accounted entities.
Internally generated goodwill is not recognised. Where the fair values of
the identifiable net assets acquired exceed the sum of the consideration
transferred, the surplus is credited to the profit or loss in the period of
acquisition as a bargain purchase gain.
The Group often enters into earn-in arrangements whereby the Group
acquires an interest in a project company in exchange for funding
exploration and evaluation expenditure up to a specified level of expenditure
or a specified stage in the life of the project. Funding is usually conditional
on the achievement of key milestones by the partner. Typically there is no
consideration transferred or funding liability on the effective date of acquisition
of the interest in the project company and no goodwill is recognised on this
type of transaction.
The results of businesses sold during the year are included in the
consolidated financial statements for the period up to the effective date of
disposal. Gains or losses on disposal are calculated as the difference between
the sales´ proceeds (net of expenses) and the net assets attributable to the
interest which has been sold. Where a disposal represents a separate major
line of business or geographical area of operations, the net results attributable
to the disposed entity are shown separately in the income statement as a
discontinued operation.
H) EXPLORATION AND EVALUATION EXPENDITURE
Exploration and evaluation costs, other than those incurred in acquiring
exploration licences, are expensed in the year in which they are incurred.
When a mining project is considered to be commercially viable (normally
when the project has completed a pre-feasibility study, and the start
of a feasibility study has been approved) all further directly attributable
pre-production expenditure is capitalised. Capitalisation of pre-production
expenditure ceases when commercial levels of production are achieved.
Costs incurred in acquiring exploration licences are accounted for as mining
properties included in property, plant and equipment in accordance with the
policy in Note 2(k) and are stated at cost less accumulated amortisation and
accumulated impairment losses.
I) STRIPPING COSTS
Pre-stripping and operating stripping costs are incurred in the course of the
development and operation of open-pit mining operations.
Pre-stripping costs relate to the removal of waste material as part of the
initial development of an open-pit, in order to allow access to the ore body.
These costs are capitalised within mining properties within property, plant
and equipment. The capitalised costs are depreciated once production
commences on a unit of production basis, in proportion to the volume of ore
extracted in the year compared with total proven and probable reserves for
that pit at the beginning of the year.
ANTOFAGASTA.CO.UK
133
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS
2 PRINCIPAL ACCOUNTING POLICIES
CONTINUED
Operating stripping costs relate to the costs of extracting waste material
as part of the ongoing mining process. The on-going mining and development
of the Group’s open-pit mines is generally performed via a succession of
individual phases. The costs of extracting material from an open-pit mine
are generally allocated between ore and waste stripping in proportion to
the tonnes of material extracted. The waste stripping costs are generally
absorbed into inventory and expensed as that inventory is processed and sold.
Where the stripping costs relate to a significant stripping campaign which is
expected to provide improved access to an identifiable component of the ore
body (typically an individual phase within the overall mine plan), the costs of
removing waste in order to improve access to that part of the ore body will
be capitalised within mining properties within property, plant and equipment.
The capitalised costs will then be amortised on a unit of production basis,
in proportion to the volume of ore extracted compared with the total ore
contained in the component of the pit to which the stripping campaign relates.
INTANGIBLE ASSETS
J)
Intangible assets with finite useful lives that are acquired separately are
carried at cost less accumulated amortisation and accumulated impairment
losses. Intangible assets include the cost of acquiring exploration licences.
Amortisation is recognised on a straight-line basis over their estimated useful
lives. The estimated useful life and amortisation method are reviewed at the
end of each reporting period, with the effect of any changes in estimate being
accounted for on a prospective basis. Intangible assets with indefinite useful
lives that are acquired separately are carried at cost less accumulated
impairment losses.
Intangible assets acquired in a business combination and recognised
separately from goodwill are initially recognised at their fair value at the
acquisition date (which is regarded as their cost).
Subsequent to initial recognition, intangible assets acquired in a business
combination are reported at cost less accumulated amortisation and
accumulated impairment losses, on the same basis as intangible assets
that are acquired separately.
An intangible asset is derecognised on disposal, or when no future economic
benefits are expected from use or disposal. Gains or losses arising from
derecognition of an intangible asset, measured as the difference between
the net disposal proceeds and the carrying amount of the asset, are
recognised in profit or loss when the asset is derecognised.
K) PROPERTY, PLANT AND EQUIPMENT
The costs of mining properties and leases, which include the costs of
acquiring and developing mining properties and mineral rights, are capitalised
as property, plant and equipment in the year in which they are incurred, when
a mining project is considered to be commercially viable (normally when the
project has completed a pre-feasibility study, and the start of a feasibility study
has been approved). The cost of property, plant and equipment comprises the
purchase price and any costs directly attributable to bringing the asset to the
location and condition necessary for it to be capable of operating in the
manner intended. Once a project has been established as commercially viable,
related development expenditure is capitalised. This includes costs incurred
in preparing the site for mining operations, including pre-stripping costs.
Capitalisation ceases when the mine is capable of commercial production,
with the exception of development costs which give rise to a future benefit.
Interest on borrowings related to construction or development of projects
is capitalised, until such time as the assets are substantially ready for their
intended use or sale which, in the case of mining properties, is when they
are capable of commercial production.
L) DEPRECIATION OF PROPERTY, PLANT
AND EQUIPMENT AND AMORTISATION OF
INTANGIBLE ASSETS
Property, plant and equipment is depreciated over its useful life, or over
the remaining life of the operation if shorter, to residual value. The major
categories of property, plant and equipment are depreciated as follows:
(i)
Land – freehold land is not depreciated unless the value of the land is
considered to relate directly to a particular mining operation, in which
case the land is depreciated on a straight-line basis over the expected
mine life.
(ii) Mining properties – mining properties, including capitalised financing
costs, are depreciated on a unit of production basis, in proportion to the
volume of ore extracted in the year compared with total proven and
probable reserves at the beginning of the year.
(iii) Buildings and infrastructure – straight-line basis over 10 to 25 years.
(iv) Railway track (including trackside equipment) – straight-line basis over
20 to 25 years.
(v) Wagons and rolling stock – straight-line basis over 10 to 20 years.
(vi) Machinery, equipment and other assets – are depreciated on a unit of
production basis, in proportion to the volume of ore / material processed
or on a straight-line basis over 5 to 20 years.
(vii) Assets under construction – no depreciation until asset is available
for use.
(viii) Assets held under finance lease – are depreciated over the shorter of
the lease term and their useful life.
Residual values and useful lives are reviewed, and adjusted if appropriate, at
least annually, and changes to residual values and useful lives are accounted
for prospectively.
The concession right is amortised on a straight-line basis over the life of the
concession, or the useful life of any component part if less.
M) IMPAIRMENT OF PROPERTY, PLANT
AND EQUIPMENT AND INTANGIBLE ASSETS
(EXCLUDING GOODWILL)
Property, plant and equipment and finite life intangible assets are reviewed
for impairment if there is any indication that the carrying amount may not be
recoverable. If any such indication exists, the recoverable amount of the asset
is estimated in order to determine the extent of the impairment (if any). Where
the asset does not generate cash flows that are independent from other
assets, the Group estimates the recoverable amount of the cash-generating
unit to which the asset belongs. Any intangible asset with an indefinite useful
life is tested for impairment annually and whenever there is an indication that
the asset may be impaired.
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.
The estimates used in determining the present value of those cash flows are
those that an independent market participant would consider appropriate.
If the recoverable amount of an asset or cash-generating unit is estimated
to be less than its carrying amount, the carrying amount is reduced to the
recoverable amount. An impairment charge is recognised in the income
statement immediately. Where an impairment subsequently reverses, the
carrying amount is increased to the revised estimate of recoverable amount,
but so that the increased carrying amount does not exceed the carrying value
that would have been determined if no impairment had previously been
recognised. A reversal is recognised in the income statement immediately.
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STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
N) INVENTORY
Inventory consists of raw materials and consumables, work-in-progress and
finished goods. Work-in-progress represents material that is in the process
of being converted into finished goods. The conversion process for mining
operations depends on the nature of the copper ore. For sulphide ores,
processing includes milling and concentrating and results in the production
of copper concentrate. For oxide ores, processing includes leaching of
stockpiles, solvent extraction and electrowinning and results in the production
of copper cathodes. Finished goods consist of copper concentrate containing
gold and silver at Los Pelambres and Centinela and copper cathodes at
Centinela, Antucoya and Michilla. Los Pelambres also produces molybdenum
as a by-product.
Inventory is valued at the lower of cost, on a weighted average basis, and net
realisable value. Net realisable value represents estimated selling price less all
estimated costs of completion and costs to be incurred in marketing, selling
and distribution. Cost of finished goods and work-in-progress is production
cost and for raw materials and consumables it is purchase price. Production
cost includes:
– labour costs, raw material costs and other costs directly attributable to the
extraction and processing of ore;
– depreciation of plant, equipment and mining properties directly involved in
the production process; and
– an appropriate portion of production overheads.
Stockpiles represent ore that is extracted and is available for further
processing. Costs directly attributable to the extraction of ore are generally
allocated as part of production cost in proportion to the tonnes of material
extracted. Operating stripping costs are generally absorbed into inventory,
and therefore expensed as that inventory is processed and sold. If ore is not
processed within 12 months of the statement of financial position date it is
included within non-current assets. If there is significant uncertainty as to
when any stockpiled ore will be processed it is expensed as incurred.
O) TAXATION
Tax expense comprises the charges or credits for the year relating to both
current and deferred tax.
Current tax is based on taxable profit for the year. Taxable profit may differ
from net profit as reported in the income statement because it excludes items
of income or expense that are taxable and deductible in different years and
also excludes items that are not taxable or deductible. The liability for current
tax is calculated using tax rates for each entity in the consolidated financial
statements which have been enacted or substantively enacted at the balance
sheet date.
Deferred tax is the tax expected to be payable or recoverable on temporary
differences (i.e. differences between the carrying amount of assets and
liabilities in the financial statements and the corresponding tax basis used
in the computation of taxable profit). Deferred tax is accounted for using the
balance sheet liability method and is provided on all temporary differences
with certain limited exceptions as follows:
(i)
tax payable on undistributed earnings of subsidiaries, associates and
joint ventures is provided except where the Group is able to control the
remittance of profits and it is probable that there will be no remittance
of past profits earned in the foreseeable future;
(ii) deferred tax is not provided on the initial recognition of an asset or
liability in a transaction that does not affect accounting profit or taxable
profit and is not a business combination; nor is deferred tax provided on
subsequent changes in the carrying value of such assets and liabilities,
for example where they are depreciated; and
(iii)
the initial recognition of any goodwill.
Deferred tax assets are recognised only to the extent that it is probable that
they will be recovered through sufficient future taxable profit. The carrying
amount of deferred tax assets is reviewed at each balance sheet date.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised. Deferred tax is
charged or credited in the income statement, except when it relates to items
charged or credited directly to equity, in which case the deferred tax is also
taken directly to equity.
P) PROVISIONS
Provisions are recognised when the Group has a present obligation (legal or
constructive) as a result of a past event, it is probable that the Group will be
required to settle the obligation, and a reliable estimate can be made of the
amount of the obligation.
The amount recognised as a provision is the best estimate of the
consideration required to settle the present obligation at the end of the
reporting period, taking into account the risks and uncertainties surrounding
the obligation. When a provision is measured using the cash flows estimated
to settle the present obligation, its carrying amount is the present value of
those cash flows (when the effect of the time value of money is material).
When some or all of the economic benefits required to settle a provision are
expected to be recovered from a third party, a receivable is recognised as an
asset if it is virtually certain that reimbursement will be received and the
amount of the receivable can be measured reliably.
Q) PROVISIONS FOR DECOMMISSIONING AND
RESTORATION COSTS
An obligation to incur decommissioning and restoration costs occurs
when environmental disturbance is caused by the development or ongoing
production of a mining property. Costs are estimated on the basis of a formal
closure plan and are subject to regular formal review.
Such costs arising from the installation of plant and other site preparation
work, discounted to their net present value, are provided and capitalised at
the start of each project, as soon as the obligation to incur such costs arises.
These decommissioning costs are charged against profits over the life of the
mine, through depreciation of the asset and unwinding or amortisation of the
discount on the provision. Depreciation is included in operating costs while
the unwinding of the discount is included as financing costs. Changes in the
measurement of a liability relating to the decommissioning of plant or other
site preparation work are added to, or deducted from, the cost of the related
asset in the current year.
The costs for restoration of site damage, which is created on an ongoing
basis during production, are provided for at their net present values and
charged against operating profits as extraction progresses. Changes in the
measurement of a liability relating to site damage created during production
is charged against operating profit.
R) SHARE-BASED PAYMENTS
For cash-settled share-based payments, a liability is recognised for the goods
or services acquired, measured initially at the fair value of the liability. At the
end of each reporting period until the liability is settled, and at the date of
settlement, the fair value of the liability is remeasured, with any changes in fair
value recognised in profit or loss for the year. The Group currently does not
have any equity settled share-based payments to employees or third parties.
S) POST-EMPLOYMENT BENEFITS
The Group operates defined contribution schemes for a limited number of
employees. For such schemes, the amount charged to the income statement
is the contributions paid or payable in the year.
Employment terms may also provide for payment of a severance indemnity
when an employment contract comes to an end. This is typically at the rate
of one month for each year of service (subject in most cases to a cap as to
the number of qualifying years of service) and based on final salary level. The
severance indemnity obligation is treated as an unfunded defined benefit plan,
and the calculation is based on valuations performed by an independent
actuary using the projected unit credit method, which are regularly updated.
The obligation recognised in the balance sheet represents the present value of
the severance indemnity obligation. Actuarial gains and losses are immediately
recognised in other comprehensive income.
ANTOFAGASTA.CO.UK
135
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS
2 PRINCIPAL ACCOUNTING POLICIES
CONTINUED
T) CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash on hand, deposits held on call
with banks, highly liquid investments that are readily convertible into known
amounts of cash and which are subject to insignificant risk of changes in
value, net of bank overdrafts which are repayable on demand. Cash and
cash equivalents normally have a maturity period of 90 days or less.
U) LIQUID INVESTMENTS
Liquid investments represent highly liquid current asset investments such
as term deposits and managed funds invested in high quality fixed income
instruments. They do not meet the IAS 7 definition of cash and cash
equivalents, normally because even if readily accessible, the underlying
investments have an average maturity profile greater than 90 days from
the date first entered into. These assets are designated as fair value through
profit or loss.
V) LEASES
Rental costs under operating leases are charged to the income statement
account in equal annual amounts over the term of the lease.
Assets under finance leases are recognised as assets of the Group at
inception of the lease at the lower of fair value or the present value of the
minimum lease payments derived by discounting at the interest rate implicit
in the lease. The interest element is charged within financing costs so as to
produce a constant periodic rate of interest on the remaining balance of
the liability.
W) OTHER FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are recognised on the Group’s balance
sheet when the Group becomes a party to the contractual provisions of
the instrument
(i)
Investments – Investments which are not subsidiaries, associates or
joint ventures are initially measured at cost, including transaction costs.
Investments are classified as either held for trading or available-for-sale,
and are normally measured at subsequent reporting dates at fair value.
Fair value is determined in the manner described in Note 26(b).
Investments in equity instruments that do not have a quoted market
price in an active market and whose fair value cannot be reliably
measured are measured at cost. Securities are classified as “held-for-
trading” when they are acquired principally for the purpose of sale in the
short term, and gains and losses arising from changes in fair value are
included in profit or loss for the period. Other investments are classified
as “available-for-sale”, and gains and losses arising from changes in fair
value are recognised directly in equity, within the “Fair value reserve”,
until the security is disposed of or is determined to be impaired, at which
time the cumulative gain or loss previously recognised in equity is
included in profit or loss for the period. Dividends on available-for-sale
and held-for-trading equity investments are recognised in the income
statement when the right to receive payment is established.
(ii) Trade and other receivables – Trade and other receivables do not
generally carry any interest and are normally stated at their nominal
value less any impairment. Impairment losses on trade receivables are
recognised within an allowance account unless the Group considers that
no recovery of the amount is possible, in which case the carrying value
of the asset is reduced directly.
(iii) Trade and other payables – Trade and other payables are generally
not interest-bearing and are normally stated at their nominal value.
(iv) Borrowings (loans and preference shares) – Interest-bearing loans
and bank overdrafts are initially recorded at the proceeds received, net
of direct issue costs. They are subsequently measured at amortised cost
using the effective interest method, with interest expense recognised
on an effective yield basis. The effective interest method is a method
of calculating the amortised cost of a financial liability and of allocating
interest expense over the relevant period. The effective interest rate is
the rate that exactly discounts estimated future cash payments through
the expected life of the financial liability, or, where appropriate, a shorter
period. Finance charges, including premiums payable on settlement or
redemption and direct issue costs, are accounted for on an accruals
basis using the effective interest rate method. Amounts are either
recorded as financing costs in profit or loss or capitalised in accordance
with the accounting policy set out in Note 2(k). Finance charges are
added to the carrying amount of the instrument to the extent that they
are not settled in the period in which they arise.
The Sterling-denominated preference shares issued by the Company
carry a fixed rate of return without the right to participate in any surplus.
They are accordingly classified within borrowings and translated into US
dollars at period-end rates of exchange. Preference share dividends are
included within finance costs.
(v) Equity instruments – Equity instruments issued are recorded at
the proceeds received, net of direct issue costs. Equity instruments
of the Company comprise its Sterling-denominated issued ordinary
share capital and related share premium. As explained in Note 2(e), the
presentational currency of the Group and the functional currency of the
Company is US dollars, and ordinary share capital and share premium
are translated into US dollars at historical rates of exchange based on
dates of issue.
(vi) Derivative financial instruments – As explained in Note 25(d), the
Group uses derivative financial instruments to reduce exposure to
foreign exchange, interest rate and commodity price movements. The
Group does not use such derivative instruments for trading purposes.
The Group has applied the hedge accounting provisions of IAS 39
“Financial Instruments: Recognition and Measurement”. 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 excluded from the
designated hedging relationship, and is therefore recognised directly in
profit or loss within other finance items. 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.
The treatment of embedded derivatives arising from provisionally-priced
commodity sales contracts is set out in further detail in Note 2(f) relating
to revenue.
(vii) Impairment of financial assets – Financial assets, other than those
at fair value through profit or loss, are assessed for indicators of
impairment at each balance sheet date. Financial assets are impaired
where there is objective evidence that as a result of one or more events
that occurred after the initial recognition of the financial asset the
estimated future cash flows of the investment have been impacted. For
loans and receivables the amount of the impairment is the difference
between the asset’s carrying value and the present value of estimated
future cash flows, discounted at the original effective interest rate.
Any impairment loss is recognised in profit or loss immediately.
136
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
The carrying amount of the financial asset is reduced by the
impairment loss directly for all financial assets with the exception
of trade receivables.
With the exception of available-for-sale equity instruments, if, in a
subsequent period, the amount of the impairment loss decreases
and the decrease can be related objectively to an event occurring after
the impairment was recognised, the previously recognised impairment
loss is reversed through profit or loss immediately to the extent that
the carrying amount of the investment at the date the impairment is
reversed does not exceed what the amortised cost would have been
had the impairment not been recognised. In respect of available-for-sale
equity instruments, any increase in fair value subsequent to an
impairment loss is recognised directly in equity.
X) EXCEPTIONAL ITEMS
Exceptional items are material items of income and expense which are
non-regular or non-operating and typically non-cash movements.
Y) ROUNDING
All amounts disclosed in the Financial Statements and notes have been
rounded off to the nearest million dollars unless otherwise stated.
These policies have been consistently applied to all the years presented,
unless otherwise stated.
3 CRITICAL ACCOUNTING JUDGEMENTS
AND KEY SOURCES OF ESTIMATION
UNCERTAINTY
Determining many of the amounts included in the Financial Statements
involves the use of judgement and/or estimation. These judgements and
estimates are based on management’s best knowledge of the relevant facts
and circumstances having regard to prior experience, but actual results may
differ from the amounts included in the Financial Statements. Information
about such judgements and estimates is included in the principal accounting
policies in Note 2 or the other notes to the Financial Statements, and the key
areas are set out below.
A) CAPITALISATION OF PROPERTY, PLANT AND
EQUIPMENT AND OF PROJECT COSTS
As explained in Note 2(k) the costs of developing mining properties are
capitalised as property, plant and equipment in the year in which they are
incurred, when the mining project is considered to be commercially viable.
Management reviews amounts capitalised to ensure that the treatment of
that expenditure as capital rather than operating expenditure is reasonable,
in particular in respect of the commercial viability of the project. Commercial
viability is normally considered to be demonstrable when the project has
completed a pre-feasibility study, and the start of a feasibility study has
been approved.
B) USEFUL ECONOMIC LIVES OF PROPERTY, PLANT
AND EQUIPMENT AND ORE RESERVES ESTIMATES
As explained in Note 2(l), mining properties, including capitalised financing
costs, are depreciated in proportion to the volume of ore extracted in the
year compared with total proven and probable reserves at the beginning
of the year.
There are numerous uncertainties inherent in estimating ore reserves, and
assumptions that were valid at the time of estimation may change when new
information becomes available. These include assumptions as to grade
estimates and cut-off grades, recovery rates, commodity prices, exchange
rates, production costs, capital costs, processing and reclamation costs and
discount rates. The actual volume of ore extracted and any changes in these
assumptions could affect prospective depreciation rates and carrying values.
The majority of other items of property, plant and equipment are depreciated
on a straight-line basis over their useful economic lives. Management reviews
the appropriateness of useful economic lives at least annually and, again, any
changes could affect prospective depreciation rates and asset carrying values.
C) IMPAIRMENT OF ASSETS
As explained in Note 2(m), the Group reviews the carrying value of its
intangible assets and property, plant and equipment to determine whether
there is any indication that those assets are impaired. In making assessments
for impairment, assets that do not generate independent cash flows are
allocated to an appropriate cash-generating unit (“CGU”). The recoverable
amount of those assets, or CGU, is measured at the higher of their fair
value less costs to sell and value in use. Details of the impairment reviews
undertaken as at 31 December 2016 are set out in Note 4.
Management necessarily applies its judgement in allocating assets to CGUs,
in estimating the probability, timing and value of underlying cash flows and
in selecting appropriate discount rates to be applied within the fair value less
cost to dispose calculation. The key assumptions are set out in Note 2(m) and
Note 4. Subsequent changes to CGU allocation, licencing status, reserves and
resources, price assumptions or other estimates and assumptions in the fair
value less cost to dispose calculation could impact the carrying value of the
respective assets.
D) PROVISIONS FOR DECOMMISSIONING AND SITE
RESTORATION COSTS
As explained in Note 2(q), provision is made, based on net present values,
for decommissioning and site rehabilitation costs as soon as the obligation
arises following the development or ongoing production of a mining property.
The provision is based on a closure plan prepared with the assistance of
external consultants.
Management uses its judgement and experience to provide for and (in the
case of capitalised decommissioning costs) amortise these estimated costs
over the life of the mine. The ultimate cost of decommissioning and site
rehabilitation is uncertain and cost estimates can vary in response to many
factors including changes to relevant legal requirements, the emergence
of new restoration techniques or experience at other mine sites.
The expected timing and extent of expenditure can also change, for example
in response to changes in ore reserves or processing levels. As a result, there
could be significant adjustments to the provisions established which would
affect future financial results.
E) DEFERRED TAXATION
As explained in Note 2(o), deferred tax is not provided for future tax payable
on undistributed earnings where the Group is able to control the remittance of
profits and it is probable that there will be no remittance of past profits earned
in the foreseeable future.
Management uses its judgement in estimating the probability of such
remittances. These are based on Group forecasts and include assumptions
as to future profits and cash flows (which depend on several factors including
commodity prices, operating costs, production levels, capital expenditures,
interest costs, debt repayment and tax rates) and cash requirements (which
may also depend on several factors including future dividend levels). A change
in the assumptions used or in the estimate as to the probability that past
profits will be remitted would impact the deferred tax charge and balance
sheet provision.
ANTOFAGASTA.CO.UK
137
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS
4 EXCEPTIONAL ITEMS
Exceptional items are material items of income and expense which are non-regular or non-operating and typically non-cash movements. The exceptional items
in the year ended 31 December 2016 and their impact on the results are set out below. There were no exceptional items in 2015.
Before exceptional items
Provision against the carrying value
of assets:
Alto Maipo – Loan
Alto Maipo – Investment
Antucoya – PPE
Energia Andina – Investment
Total provision against the carrying
value of assets
OPERATING PROFIT
2016
$M
2015
$M
923.6
289.0
(241.0)
–
(215.6)
–
(456.6)
–
–
–
–
–
SHARE OF RESULTS
FROM ASSOCIATES
AND JOINT VENTURES
PROFIT BEFORE TAX
EARNINGS PER SHARE
2016
$M
23.4
–
(126.6)
–
(8.1)
(134.7)
2015
$M
(5.8)
2016
$M
2015
$M
875.9
242.8
–
–
–
–
–
(241.0)
(126.6)
(215.6)
(8.1)
(591.3)
–
–
–
–
–
2016
$M
38.6
6.3
5.8
10.7
(0.2)
(22.6)
2015
$M
61.7
–
–
–
–
–
After exceptional items
467.0
289.0
(111.3)
(5.8)
284.6
242.8
16.0
61.7
(i) Alto Maipo
The Group has a 40% interest in Alto Maipo SpA (“Alto Maipo”), which
is developing two run-of-river hydroelectric power stations located in the
upper section of the Maipo River, approximately 50 km to the southeast of
Santiago. The remaining 60% interest is held by AES Gener (“Gener”). The
Group has been reviewing its options with respect to its investment in Alto
Maipo following the announcement of a significant forecast cost overrun for
the project. In January 2017 the Group entered into an agreement with Gener
to dispose of its stake in Alto Maipo to Gener for a nominal consideration.
Accordingly, an impairment provision of $367.6 million has been recognised
in respect of the total carrying value relating to the project, comprising the
$74.0 million investment in associate balance and $52.6 million of mark-to-
market losses in respect of derivative financial instruments held by Alto Maipo
previously deferred in reserves, resulting in a $126.6 million loss reflected
on the profit from associates and joint ventures line and $241.0 million of
loan financing (including accrued interest) reflected in operating cost. This
impairment provision resulted in a deferred tax credit of $95.0 million and
so the post-tax impact is $272.6 million.
(ii) Antucoya
An impairment review has been conducted for the Antucoya operation.
Following the completion of construction, Antucoya achieved commercial
production in April 2016 and then reached full production capacity in August
2016. This process was slower than originally forecast, meaning that the
costs capitalised during the ramp-up period were greater than originally
forecast and net depreciation of the assets commenced later than originally
anticipated. The achievement of commercial production and full capacity
during the year has allowed a final determination of the total capital cost
of the project, including costs capitalised during the ramp-up to commercial
production, along with an understanding of the actual operating performance
of the mine.
The impairment review determined that the recoverable amount (fair value
less costs of disposal) of Antucoya’s assets was $1,502.3 million, compared
with the carrying value of $1,717.9 million, and accordingly an impairment
provision of $215.6 million (on a pre-tax basis) has been reflected in respect
of Antucoya. This impairment provision resulted in a deferred tax credit of
$99.4 million and so the post-tax impact is $116.2 million. All of the provision
has been allocated against Antucoya’s property, plant and equipment.
The key assumptions to which the value of the assets are most sensitive
are future commodity prices, the discount rate used to determine the
present value of the future cash flows, future operating costs, sustaining and
development capital expenditure and ore reserve estimates. The commodity
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 including both investment banks and commodity consultants for
the longer term. A long term copper price of 300 c/lb has been used in the
calculations. 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.
To illustrate the sensitivity of the valuation of Antucoya to negative
movements in these parameters, a 5% decrease in the forecast long-term
copper price would result in an increase in the impairment of $121 million, and
an increase in the discount rate from 8% to 9% would result in an increase
in the impairment of $89 million. These are simple sensitivities, looking at
illustrative movements in the long-term copper price and discount rate in
isolation. In reality, a deterioration in the long-term copper price environment
is likely to result in corresponding improvements in a range of input cost
factors, as well as potential operating changes, which could partly mitigate
these estimated potential sensitivities.
(iii) Energia Andina
The Group’s Energia Andina joint venture holds an investment in the Javiera
solar plant in Chile. In February 2017 the disposal of the interest in Javiera
was agreed. The terms of the sale agreement indicate a recoverable value
for the interest in Javiera which is $8.1 million below the carrying value, and
accordingly an impairment provision for this amount has been recognised.
The terms of the sale agreement is subject to certain closing conditions,
and the transaction is expected to complete during the first half of 2017.
(iv) Other asset sensitivities
There were no indicators of impairment for the Group’s other mining
operations, and accordingly no detailed impairment reviews have been
performed for those operations. However, in order to provide an indication
of the sensitivities of the valuations of these assets, a sensitivity analysis has
been performed. For all of the other mining operations a valuation exercise
using assumptions consistent with those used in the Antucoya impairment
review confirmed that the recoverable amount of the assets was in excess
of their carrying value. The recoverable amount of the assets still remained in
excess of their carrying value for all of the other mining operations with either
a 5% decrease in the forecast long-term copper price or an increase in the
discount rate from 8% to 9%.
138
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
5 SEGMENT INFORMATION
The Group’s reportable segments are as follows:
– Los Pelambres
– Centinela
– Michilla (sold in 2016)
– Antucoya
– Zaldívar
– Exploration and evaluation
– Railway and other transport services
– Water concession (sold in 2015)
– Corporate and other items
For management purposes, the Group is organised into two business
divisions based on their products – Mining and Railway and other transport
services. The Group disposed of its Water division in 2015. The mining division
is split further for management reporting purposes to show results by mine
and exploration activity. Los Pelambres, Centinela and Antucoya (since April
2016) are operating mines, Michilla was sold at the end of 2016 and Zaldívar,
in which the Group has acquired a 50% stake, was acquired in December
2015. The Michilla mine was placed on care and maintenance at the end
of 2015, and was disposed of in December 2016. Los Pelambres produces
primarily copper concentrate and molybdenum as a by-product. Centinela
produces primarily copper concentrate containing gold as a by-product
and copper cathodes. Antucoya and Zaldívar produce copper cathodes,
as did Michilla. The transport division provides rail cargo (based in Chile and
formerly Bolivia) and road cargo (based in Chile) together with a number of
ancillary services (based in Chile). The water division, which produced and
distributed potable water to domestic customers and untreated water to
industrial customers in Chile’s Antofagasta Region, was sold during 2015.
The Exploration and evaluation segment incurs exploration and evaluation
expenses. “Corporate and other items” comprises costs incurred by the
Company, Antofagasta Minerals SA, 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 monitors the operating results of
business segments separately for the purpose of making decisions about
resources to be allocated and of assessing performance. Segment
performance is evaluated based on the operating profit of each of
the segments.
ANTOFAGASTA.CO.UK
139
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS
5 SEGMENT INFORMATION CONTINUED
A) SEGMENT REVENUES AND RESULTS
For the year ended 31 December 2016
LOS
PELAMBRES
$M
CENTINELA
$M
ANTUCOYA
$M
ZALDÍVAR
$M
EXPLORATION
AND
EVALUATION2
$M
CORPORATE
AND OTHER
ITEMS
$M
MINING
$M
RAILWAY
AND OTHER
TRANSPORT
SERVICES
$M
TOTAL
$M
Revenue
1,845.6
1,338.0
277.9
Operating cost excluding depreciation
(923.8)
(775.5)
(213.0)
Depreciation and amortisation
(195.7)
(299.4)
(62.7)
(Loss)/gain on disposals
Provision against the carrying value of assets
Operating profit/(loss)
Equity accounting results
Provision against the carrying value of assets
Net share of results from associates
and joint ventures
Investment income
Interest expense
Other finance items
Profit/(loss) before tax
Tax
(0.2)
(241.0)
(17.1)
–
484.9
246.0
0.4
(126.6)
(126.2)
15.7
(6.5)
(2.7)
–
–
–
5.3
(32.0)
(5.4)
–
(215.6)
(213.4)
–
–
–
0.6
(30.5)
(5.0)
365.2
213.9
(248.3)
(117.4)
(73.3)
94.3
Profit/(loss) for the year from continuing operations
247.8
140.6
(154.0)
Profit for the year from discontinued operations
Profit/(loss) for the year
Non-controlling interests
Profit/(losses) attributable to the owners of
the parent
EBITDA1
Additions to non-current assets
–
247.8
(97.9)
149.9
921.0
–
140.6
(32.8)
107.8
562.5
–
(154.0)
74.3
(79.7)
64.9
Capital expenditure
316.6
617.4
27.4
Segment assets and liabilities
Segment assets
Deferred tax assets
Investment in associates and JV
3,606.2
5,008.0
1,740.5
–
–
–
–
–
–
Segment liabilities
(1,368.2)
(1,979.3)
(1,085.3)
-
–
–
–
–
–
29.5
–
29.5
–
–
–
29.5
–
29.5
–
29.5
–
29.5
85.1
–
–
–
983.7
–
-
–
3,461.5
160.2
3,621.7
(44.3)
(56.5)
(2,013.1)
–
–
–
(5.2)
(0.6)
(563.0)
(17.9)
–
(456.6)
(44.3)
(62.3)
410.9
–
–
–
–
–
–
(11.2)
18.7
(8.1)
(134.7)
(19.3)
(116.0)
4.7
26.3
(14.6)
(83.6)
3.0
(10.1)
(44.3)
(88.5)
227.5
–
5.3
(91.1)
(44.3)
(83.2)
136.4
–
38.3
38.3
(44.3)
(44.9)
174.7
–
0.1
(56.3)
(44.3)
(44.3)
(44.8)
118.4
(50.8)
1,538.4
(86.9)
(15.4)
(1.8)
–
56.1
4.7
–
4.7
0.6
(2.5)
(1.8)
57.1
(17.5)
39.6
–
39.6
–
39.6
87.7
(2,100.0)
(578.4)
(19.7)
(456.6)
467.0
23.4
(134.7)
(111.3)
26.9
(86.1)
(11.9)
284.6
(108.6)
176.0
38.3
214.3
(56.3)
158.0
1,626.1
–
31.0
992.4
16.9
1,009.3
9.5
1,867.2
12,231.4
323.0
12,554.4
–
–
78.6
25.1
78.6
1,008.8
4.2
77.8
82.8
1,086.6
(4.5)
(638.3)
(5,075.6)
(138.5)
(5,214.1)
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 flow from exploration and evaluation was $22.1 million.
140
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
For the year ended 31 December 2015 (Restated)
LOS
PELAMBRES
$M
CENTINELA
$M
MICHILLA
$M
ANTUCOYA
$M
ZALDÍVAR
$M
EXPLORATION
AND
EVALUATION2
$M
CORPORATE
AND OTHER
ITEMS
$M
MINING
$M
RAILWAY
AND OTHER
TRANSPORT
SERVICES
$M
WATER
CONCESSION
$M
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(3.4)
(3.4)
(21.8)
–
–
–
–
–
(2.8)
–
–
–
(2.8)
–
–
– 3,073.3
152.4
(101.9)
(67.6)
(2,255.1)
(94.0)
–
–
(3.1)
(562.3)
(4.4)
(8.9)
(101.9)
(75.1)
247.0
–
–
–
–
(7.5)
(14.0)
2.2
(1.8)
16.7
(30.7)
(7.5)
(25.2)
(13.8)
(2.6)
42.0
8.2
0.8
(3.0)
1.0
(101.9)
(89.7)
193.8
49.0
–
1.8
(132.2)
(22.2)
(25.2)
(2.8)
(101.9)
(87.9)
61.6
26.8
Revenue
1,807.2
1,266.1
Operating cost excluding
depreciation
(1,057.9)
(1,027.7)
Depreciation and Amortisation
(191.6)
(367.6)
(Loss)/gain on disposals
(2.7)
(1.8)
555.0
(131.0)
(3.7)
–
10.2
(1.8)
(4.6)
4.3
(27.1)
(9.7)
555.1
(163.5)
(161.8)
49.6
393.3
(113.9)
Operating profit/(loss)
Share of results from
associates and joint ventures
Investment income
Interest expense
Other finance items
Profit/(loss)
before tax
Tax
Profit/(loss) for the year from
continuing operations
(Loss)/profit for the year from
discontinued operations
Profit/(loss) for the year
Non-controlling interests
Profit/losses)attributable to the
owners of the parent
393.3
(151.8)
(113.9)
46.5
10.6
10.6
(0.2)
(25.2)
11.9
241.5
(67.4)
10.4
(13.3)
EBITDA1
748.7
238.4
Additions to non-current assets
Capital expenditure
188.3
535.1
–
–
–
147.9
Segment assets and liabilities
Segment assets
3,753.3
4,969.5
122.7
1,974.4
Deferred taxes assets
–
43.5
Investment in associates and JV
33.5
–
–
–
–
–
Segment liabilities
(1,205.9)
(2,068.9)
(46.0)
(1,185.5)
(2.8)
–
(2.8)
6.8
–
–
–
998.9
(101.9)
(87.9)
10.6
72.2
–
–
(93.6)
(101.9)
(101.9)
(87.9)
(21.4)
(60.7)
831.3
(13.1)
13.7
0.1
13.8
78.8
–
–
–
–
–
111.0
982.3
13.9
950.9 11,770.8
497.6
78.0
121.5
31.0
1,063.4
3.1
83.2
(154.1) (4,660.4)
(359.9)
TOTAL
$M
3,225.7
(2,349.1)
(576.1)
(11.5)
289.0
(5.8)
17.5
(33.7)
(24.2)
242.8
(154.4)
88.4
613.3
701.7
(93.5)
–
–
–
–
–
–
–
–
–
–
–
–
615.8
615.8
–
615.8
608.2
–
–
–
–
–
–
910.1
1,012.6
12,268.4
124.6
1,146.6
(5,020.3)
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. During the year, operating cash outflow from exploration and evaluation was $38.3 million.
ANTOFAGASTA.CO.UK
141
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS
5 SEGMENT INFORMATION CONTINUED
NOTES TO SEGMENT REVENUES AND RESULTS
(i)
Inter-segment revenues are eliminated on consolidation. Revenue from the Railway and other transport services segment is stated after eliminating
inter-segmental sales to the mining division of $1.2 million (year ended 31 December 2015 –$1.6 million). Revenue from the Water concession is stated
after eliminating inter-segmental sales to the mining division of nil (year ended 31 December 2015 –$2.0 million) and after eliminating sales to the Railway
and other transport services segment of nil (year ended 31 December 2015 –$0.1 million).
(ii) Revenue includes priced sales of copper and molybdenum concentrates and copper cathodes. Further details of such adjustments are given in Note 6.
(iii) Revenue includes a realised gain at Michilla of nil (year ended 31 December 2015 – nil) and a realised loss at Centinela of $2.2 million (year ended
31 December 2015 – loss of $0.1 million) relating to commodity derivatives. Further details of such gains or losses are given in Note 25 (d).
(iv) The copper and molybdenum concentrate sales are stated net of deductions for tolling charges. Tolling charges for copper and molybdenum concentrates
are detailed in Note 6.
(v) The effects of tax and non-controlling interests on the expenses within the Exploration and evaluation segment are allocated to the mine that the
exploration work relates to.
(vi) The assets of the Railway and transport services segment includes $71.3 million (31 December 2015 – $75.1 million) relating to the Group’s 40% interest in
Inversiones Hornitos SA (“Inversiones Hornitos”), which owns the 165MW Hornitos thermoelectric power plant in Mejillones in Chile’s Antofagasta Region
and $6.5 million (31 December 2015 – $8.1 million) relating to the Group’s 30% interest in Antofagasta Terminal International SA (“ATI”), which operates
a concession to manage installations in the port of Antofagasta. The assets of the Corporate and other items segment includes $22.0 million (31 December
2015 – $23.8 million) relating to the Group´s 30% interest in Parque Eólico El Arrayan SA, an energy company which operates a wind farm in Chile and
$3.2 million (31 December 2015 – $10.2 million) relating to the Group´s 50.1% interest in the Energia Andina joint venture. The assets of Los Pelambres
includes nil (31 December 2015 – $33.0 million) relating to the Group´s 40% interest in Alto Maipo SpA which is constructing a hydroelectric project
in Chile. Further details of these investments are set out in Note 17.
B) ENTITY-WIDE DISCLOSURES
REVENUE BY PRODUCT
Copper
– Los Pelambres
– Centinela concentrate
– Centinela cathodes
– Antucoya
Gold
– Los Pelambres
– Centinela
– Molybdenum
– Los Pelambres
Silver
– Los Pelambres
– Centinela
Total Mining
Railway and transport services
2016
$M
2015
(RESTATED)
$M
1,627.0
1,606.7
778.7
278.1
277.9
78.5
261.2
626.6
432.3
60.7
191.3
94.0
105.3
46.1
20.0
3,461.5
160.2
3,621.7
34.5
15.9
3,073.3
152.4
3,225.7
142
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
REVENUE BY LOCATION OF CUSTOMER
Europe
– United Kingdom
– Switzerland
– Spain
– Germany
– Rest of Europe
Latin America
– Chile
– Rest of Latin America
North America
– United States
Asia
– Japan
– China
– Rest of Asia
2016
$M
–
217.7
115.6
38.5
157.3
105.2
126.4
2015
(RESTATED)
$M
19.1
175.2
54.1
167.0
68.9
165.5
74.1
49.5
105.2
1,483.5
771.9
556.1
1,147.0
623.8
625.8
3,621.7
3,225.7
INFORMATION ABOUT MAJOR CUSTOMERS
In the year ended 31 December 2016 the Group’s mining revenues included $694.7 million related to one large customer that individually accounted for more
than 10% of the Group’s revenues (year ended 31 December 2015 – one large customer representing $426.0 million).
NON-CURRENT ASSETS BY LOCATION OF ASSETS
Chile
USA
Other
The above non-current assets disclosed by location of assets exclude available for sale investments and deferred tax assets.
2016
$M
9,996.3
204.4
0.1
2015
$M
10,287.1
171.2
0.8
10,200.8
10,459.1
ANTOFAGASTA.CO.UK
143
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS
6 REVENUE
An analysis of the Group’s total revenue is as follows:
Sales of goods
Rendering of services
Group revenue
Other operating income (included within net operating costs)
Investment income
Total income
2016
$M
3,486.8
134.9
3,621.7
20.2
26.9
2015
(RESTATED)
$M
3,097.0
128.7
3,225.7
33.9
17.5
3,668.8
3,277.1
Copper and molybdenum concentrate sale agreements and copper cathode sale agreements generally provide for provisional pricing of sales at the time
of shipment, with final pricing being based on the monthly average London Metal Exchange copper price or monthly average molybdenum price for specified
future periods. This normally ranges from one to five months after shipment to the customer. The provisional pricing mechanism within the sale agreements
is an embedded derivative under IFRS. Gains and losses from the marking-to-market of open sales are recognised through adjustments to revenue in the
income statement and to trade debtors in the balance sheet. The Group determines mark-to-market prices using forward prices at each period end for copper
concentrate and cathode sales, and period-end month average prices for molybdenum concentrate sales due to the absence of a futures market in the market
price references for that commodity in the majority of the Group’s contracts.
In addition to mark-to-market and final pricing adjustments, revenue also includes realised gains and losses relating to derivative commodity instruments.
Details of these realised gains or losses are shown in the tables below. Further details of derivative commodity instruments in place at the period end are given
in Note 25.
Copper and molybdenum concentrate sales are stated net of deductions for tolling charges, as shown in the tables below.
For the year ended 31 December 2016
Provisionally invoiced gross sales
Effects of pricing adjustments to
previous year invoices
Reversal of mark-to-market adjustments at the
end of the previous year
Settlement of sales invoiced in the previous year
Total effect of adjustments to previous year
invoices in the current year
Effects of pricing adjustments to
current year invoices
Settlement of sales invoiced in the current year
Mark-to-market adjustments at the end of
the current year
Total effect of adjustments to
current year invoices
Total pricing adjustments
Realised gains on commodity derivatives
Revenue before deducting tolling charges
Tolling charges
Revenue net of tolling charges
LOS
PELAMBRES
COPPER
CONCENTRATE
$M
CENTINELA
COPPER
CONCENTRATE
$M
CENTINELA
COPPER
CATHODES
$M
ANTUCOYA
COPPER
CATHODES
$M
LOS
PELAMBRES
GOLD IN
CONCENTRATE
$M
CENTINELA
GOLD IN
CONCENTRATE
$M
LOS
PELAMBRES
MOLYBDENUM
CONCENTRATE
$M
1,715.1
845.2
276.8
274.2
78.9
263.9
105.5
14.5
(18.9)
(4.4)
80.5
28.0
108.5
104.1
–
1,819.2
(192.2)
1,627.0
6.2
(7.8)
(1.6)
(0.2)
–
(0.2)
–
–
–
–
(0.1)
(0.1)
28.7
4.1
4.3
(0.1)
15.3
(0.4)
(0.6)
–
44.0
42.4
–
887.6
(108.9)
778.7
3.7
3.5
(2.2)
278.1
–
3.7
3.7
–
277.9
–
278.1
277.9
(0.1)
(0.2)
–
78.7
(0.2)
78.5
2.2
(1.0)
1.2
(1.6)
(1.3)
(2.9)
(1.7)
–
262.2
(1.0)
261.2
(1.0)
1.7
0.7
2.4
(0.7)
1.7
2.4
–
107.9
(13.9)
94.0
144
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
For the year ended 31 December 2015
Provisionally invoiced gross sales
Effects of pricing adjustments to
previous year invoices
Reversal of mark-to-market adjustments at the end of
the previous year
Settlement of sales invoiced in the previous year
Total effect of adjustments to previous year
invoices in the current year
Effects of pricing adjustments to
current year invoices
LOS PELAMBRES
COPPER
CONCENTRATE
$M
CENTINELA
COPPER
CONCENTRATE
$M
CENTINELA
COPPER
CATHODES
$M
MICHILLA
COPPER
CATHODES
$M
LOS PELAMBRES
GOLD IN
CONCENTRATE
$M
CENTINELA
GOLD IN
CONCENTRATE
$M
LOS PELAMBRES
MOLYBDENUM
CONCENTRATE
$M
2,001.6
805.8
443.4
173.3
63.0
200.7
147.0
45.5
(100.4)
19.6
(49.8)
1.4
(5.6)
0.4
(2.3)
(54.9)
(30.2)
(4.2)
(1.9)
–
–
–
1.8
3.6
5.4
2.0
(7.1)
(5.1)
Settlement of sales invoiced in the current year
(126.7)
(47.6)
(7.1)
(2.6)
(2.1)
(11.8)
(19.8)
Mark-to-market adjustments at the end of the
current year
Total effect of adjustments to current year invoices
Total pricing adjustments
Realised gains on commodity derivatives
Revenue before deducting tolling charges
Tolling charges
Revenue net of tolling charges
(14.5)
(141.2)
(196.1)
–
1,805.5
(198.8)
1,606.7
(6.2)
(53.8)
(84.0)
–
721.8
(95.2)
0.2
(6.9)
(11.1)
–
0.1
(2.5)
(4.4)
–
432.3
168.9
–
–
626.6
432.3
168.9
–
(2.1)
(2.1)
–
60.9
(0.2)
60.7
(2.2)
(14.0)
(8.6)
–
192.1
(0.8)
191.3
1.0
(18.8)
(23.9)
–
123.1
(17.8)
105.3
(I) COPPER CONCENTRATE
The typical period for which sales of copper concentrate remain open until settlement occurs is a range of approximately three to five months from
shipment date.
Sales
Average mark-to-market price
Average provisional invoice price
2016
2015
Tonnes
199,900
184,400
$/lb
$/lb
2.51
2.41
2.13
2.18
(II) COPPER CATHODES
The typical period for which sales of copper cathodes remain open until settlement occurs is approximately one month from shipment date.
Sales
Average mark-to-market price
Average provisional invoice price
2016
Tonnes
13,200
$/lb
$/lb
2.51
2.54
2015
7,700
2.13
2.12
ANTOFAGASTA.CO.UK
145
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS
6 REVENUE CONTINUED
(III) GOLD CONCENTRATES
The typical period for which sales of gold in concentrate remain open is approximately one month from shipment date.
Sales
Average mark-to-market price
Average provisional invoice price
(IV) MOLYBDENUM CONCENTRATE
The typical period for which sales of molybdenum remain open is approximately two months from shipment date.
Sales
Average mark-to-market price
Average provisional invoice price
2016
2015
Ounce
36,400
50,300
$/oz
$/oz
1,167
1,203
1,061
1,105
Tonnes
$/lb
$/lb
2016
1,300
6.6
6.9
2015
1,900
5.1
4.8
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 debtors in the balance sheet. The effect of mark-to-market adjustments on the balance sheet at the end of each period are as follows:
Los Pelambres – copper concentrate
Los Pelambres – molybdenum concentrate
Centinela – copper concentrate
Centinela – gold concentrate
Centinela – copper cathodes
Antucoya – copper cathodes
Michilla – copper cathodes
EFFECT ON DEBTORS OF YEAR END
MARK TO MARKET ADJUSTMENTS
2016
$M
28.0
(0.7)
14.8
(1.3)
0.1
(0.6)
–
40.3
2015
$M
(14.5)
1.0
(6.2)
(2.2)
0.2
–
0.1
(21.6)
7 PROFIT BEFORE TAX
Operating profit from subsidiaries and total profit from operations and associates and joint ventures is derived from Group revenue by deducting operating costs
as follows:
Group revenue
Cost of sales
Gross profit
Administrative and distribution expenses
Provision against carrying value of assets
Other operating income
Other operating expenses
Operating profit from subsidiaries
Equity accounting results
Provision against carrying value of assets
Net share of results from associates and joint ventures
Total profit from operations, associates and joint ventures
2016
$M
3,621.7
2015
(RESTATED)
$M
3,225.7
(2,087.0)
(2,349.0)
1,534.7
(479.1)
(456.6)
20.2
(152.2)
467.0
23.4
(134.7)
(111.3)
355.7
876.7
(437.5)
–
33.9
(184.1)
289.0
(5.8)
–
(5.8)
283.2
146
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
Profit before tax is stated after (charging)/crediting:
Foreign exchange (losses)/gains
– included in net finance costs
– included in income tax expense
Depreciation of property, plant and equipment
– owned assets
– assets held under finance leases
Loss on disposal at property, plant and equipment
Exceptional provision against carrying value of property, plant and equipment
Cost of inventories recognised as expense
Employee benefit expense
Closure provision
Severance charges
Exploration and evaluation cost
Auditors´ remuneration
A more detailed analysis of auditors´ remuneration on a worldwide basis is provided below:
GROUP
Fees payable to the Company´s auditor and its associates for the audit of parent company and consolidated
Financial Statements
Fees payable to the Company´s auditor and its associates for other services:
– The audit of the Company’s subsidiaries
– Audit-related assurance services
– Tax advisory services
– Tax compliance services
– Other assurance services
– Other non audit services
2016
$M
(2.9)
4.5
(552.6)
(25.8)
(19.7)
(215.6)
(1,520.8)
(368.2)
(9.3)
(15.6)
(44.3)
(1.6)
2016
$000
977
255
249
32
20
90
17
1,640
2015
(RESTATED)
$M
(14.8)
(1.0)
(569.9)
(6.2)
(11.5)
–
(1,762.1)
(380.0)
(32.5)
(16.6)
(101.9)
(1.7)
2015
$000
982
246
235
30
15
48
143
1,699
Details of the Company’s policy on the use of auditors for non-audit services, the reason why the auditor was used rather than another supplier and how the
auditors independence and objectivity was safeguarded are set out in the Audit Committee report on page 90. No services were provided pursuant to contingent
fee arrangements.
ANTOFAGASTA.CO.UK
147
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS
8 EMPLOYEES
A) AVERAGE MONTHLY NUMBER OF EMPLOYEES
Los Pelambres
Centinela
Michilla
Antucoya
Exploration and evaluation
Corporate and other employees
– Chile
– United Kingdom
– Other
Mining
Railway and other transport services
Water concession
2016
NUMBER
901
1,986
35
726
53
379
6
4
4,090
1,337
–
5,427
2015
NUMBER
928
2,100
395
698
58
417
5
25
4,626
1,324
–
5,950
(i)
The average number of employees for the year includes all the employees of subsidiaries. The average number of employees does not include contractors who are not directly
employed by the Group.
(ii)
The average number of employees does not include employees from associates and joint ventures.
(iii) The average number of employees includes Non-Executive Directors.
B) AGGREGATED REMUNERATION
The aggregated remuneration of the employees included in the table above was as follows:
Wages and salaries
Social security costs
2016
$M
(346.4)
(32.8)
(379.2)
2015
$M
(407.7)
(14.6)
(422.3)
During the year until 2016, the amount relating to Minera Antucoya of $11.0 million ($42.3 million in 2015) on wages, salaries and social security cost has
been capitalised.
C) KEY MANAGEMENT PERSONNEL
In accordance with IAS 24, key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities
of the Group, directly or indirectly, including any Directors (Executive and Non-Executive) of the Company. Key management personnel who are not Directors
have been treated as responsible senior management at the Corporate Centre and for the running of the key business divisions of the Group.
Compensation for key management personnel (including Directors) was as follows:
Salaries and short-term employee benefits
2016
$M
(15.1)
(15.1)
2015
$M
(19.2)
(19.2)
Disclosures on Directors’ remuneration required by Schedule 8 of the Large and Medium-sized Companies and Group (Accounts and Reports) Regulations
2008 including those specified for audit by that Schedule are included in the Remuneration report on page 96.
148
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
9 NET FINANCE EXPENSE
Investment income
Interest income
Fair value through profit or loss
Interest expense
Interest expense
Preference dividends
Other finance items
Time value effect of derivatives
Unwinding of discount on provisions
Impairment of available for sale investments
Foreign exchange
Net finance expense
2016
$M
20.4
6.5
26.9
(86.0)
(0.1)
(86.1)
1.0
(10.0)
–
(2.9)
(11.9)
(71.1)
2015
(RESTATED)
$M
16.1
1.4
17.5
(33.5)
(0.2)
(33.7)
0.1
(8.5)
(1.0)
(14.8)
(24.2)
(40.4)
During 2016, $9.2 million relating to net interest expense and other finance items at Antucoya (year ended 31 December 2015 – $29.6 million), $2.3 million at
Centinela (year ended 31 December 2015 – $4.1 million) and $0.5 million at Los Pelambres (year ended 31 December 2015 – $1.2 million) was capitalised, and
is consequently not included within the above table.
The fair value through profit or loss line represents the fair value gains relating to liquid investments.
ANTOFAGASTA.CO.UK
149
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS
10 INCOME TAX EXPENSE
The tax charge for the year comprised the following:
Current tax charge
– Corporate tax (principally first category tax in Chile)
– Mining tax (royalty)
– Withholding tax
– Exchange losses on corporate tax balances
Deferred tax charge
– Corporate tax (principally first category tax in Chile)
– Exceptional items
– Mining tax (royalty)
– Withholding tax provision
Total tax charge
2016
$M
2015
(RESTATED)
$M
(222.1)
(35.3)
(3.8)
–
(261.2)
(27.5)
204.9
(24.8)
–
152.6
(108.6)
(54.8)
(20.4)
(12.9)
(1.0)
(89.1)
(53.0)
–
(10.4)
(1.9)
(65.3)
(154.4)
The rate of first category (i.e. corporate) tax in Chile is currently 24% (2015 – 22.5%). The rate will increase to 25.5% in 2017 and then 27% from 2018 onwards.
In addition to first category tax, the Group incurs withholding taxes on remittance of profits from Chile and deferred tax is provided on undistributed earnings
to the extent that remittance is probable in the foreseeable future. Withholding tax is levied on remittances of profits from Chile at 35% less first category
(i.e. corporate) tax already paid in respect of the profits to which the remittances relate.
Profit before tax
Tax at the Chilean corporate tax rate of 24% (2015 – 22.5%)
Provision against carrying value of assets (exceptional items)
Effect of increase in future first category tax rates on deferred tax
balances
Items not deductible from first category tax
Items not subject to first category tax
Carry-back tax losses resulting in credits at historic tax rates
Mining tax (royalty)
Withholding taxes
Withholding taxes – adjustment to previous year
Tax effect of share of results of associates and joint ventures
Net other items
Tax expense and effective tax rate for the year
2016
BEFORE EXCEPTIONAL ITEMS
2016
AFTER EXCEPTIONAL ITEMS
$M
875.9
(210.2)
–
(24.6)
(23.7)
8.5
(5.4)
(60.1)
–
(3.8)
5.6
0.2
(313.5)
%
24.0
–
2.8
2.7
(1.0)
0.6
6.9
–
0.4
(0.6)
(0.0)
35.8
$M
284.6
(68.3)
63.0
(24.6)
(23.7)
8.5
(5.4)
(60.1)
–
(3.8)
5.6
0.2
(108.6)
%
24.0
(22.1)
8.6
8.3
(2.9)
1.8
21.1
–
1.3
(1.9)
(0.0)
38.2
2015
(RESTATED)
%
22.5
–
3.7
8.7
(1.7)
10.6
13.1
6.1
–
0.2
0.4
$M
242.8
(54.6)
–
(8.9)
(21.2)
4.1
(25.8)
(31.8)
(14.8)
–
(0.5)
(0.9)
(154.4)
63.6
The tax charge for 2016 was $108.6 million and the effective tax rate was 38.2%.The exceptional impairment provisions had an impact on the overall tax
charge and the reconciliation of the effective tax rate, and accordingly we have presented the tax reconciliation above both including and excluding the impact
of the exceptional items. Excluding these exceptional impairment provisions, the 2016 tax charge was $313.5 million and the effective tax rate was 35.8%. This
effective tax rate varied from the statutory rate principally due to the effect of increase in future first category tax rates on deferred tax balances (impact of
$24.6 million / 2.8%), the effect of expenses not deductible for Chilean corporate tax purposes (principally the funding of expenses outside of Chile) and items
not subject to first category tax (impact of $15.2 million / 1.7%) and the mining tax (impact of $60.1 million / 6.9%).
The current and deferred tax relating to items that are charged directly to equity was $2.1 million (2015 – $1.4 million).
The main factors which are expected to impact the sustainability of the Group’s existing effective tax rate (excluding exceptional items) is the increase in the rate
of first category (i.e. corporate) tax in Chile from the 2016 rate of 24% to 25.5% in 2017 and then 27% from 2018 onwards.
There are no significant tax uncertainties which would require critical judgements, estimates or potential provisions.
150
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
11 DISCONTINUED OPERATIONS
(I) PROFIT FOR THE PERIOD FROM DISCONTINUED OPERATIONS
On 30 December 2016 the Group completed the disposal of Minera Michilla SA (“Michilla”).
On 2 June 2015 the Group completed the disposal of its Water division, of Aguas de Antofagasta SA (“ADASA”). On 28 August, 2015 the Group completed the
disposal of its transport operation in Bolivia, Empresa Ferroviaria Andina (“FCA”).
The results of Michilla for the period prior to disposal as well as the profit on disposal have been presented on the “Profit for the period from discontinued
operations” line in the income statement, as were ADASA and FCA in 2015, reflecting the following amounts:
Revenue
Total operating costs
Net finance(expense)/ income
(Loss)/profit before tax
Attributable tax expense
(Loss)/profit of discontinued operations
(Loss)/profit on disposal of discontinued operations
Attributable tax expense
Net Profit attributable to discontinued operations
(attributable to owners of the Company)
YEAR ENDED
31 DECEMBER
2016
$M
MICHILLA
$M
3.8
(10.2)
(1.4)
(7.8)
4.4
(3.4)
42.9
(1.2)
38.3
3.8
(10.2)
(1.4)
(7.8)
4.4
(3.4)
42.9
(1.2)
38.3
FCA
$M
12.9
(20.2)
(0.2)
(7.5)
–
(7.5)
(5.6)
–
ADASA
$M
53.9
(34.9)
(0.1)
18.9
(3.9)
15.0
853.2
(252.4)
YEAR ENDED
31 DECEMBER
2015
$M
235.7
(208.6)
0.9
28.0
(9.9)
18.1
847.6
(252.4)
MICHILLA
$M
168.9
(153.5)
1.2
16.6
(6.0)
10.6
–
–
(13.1)
615.8
10.6
613.3
During the period Michilla contributed $13.6 million cash outflow (2015 – $23.0 million cash inflow) to the Group´s net cash flow from operating activities,
nil (2015 – nil) in respect to net cash used in investing activities and paid nil (2015 – nil) in net cash provided in financing activities.
During 2015 Aguas de Antofagasta SA contributed $21.7 million (2014 – $63.6 million) to the Group´s net cash flow from operating activities, $19.2 million
(2014 – $25.7 million) in respect to net cash used in investing activities and paid $2.0 million (2014 – $27.9 million) in net cash provided in financing activities.
During 2015 Empresa Ferroviaria Andina contributed $2.2 million (2014 – $4.8 million) to the Group´s net cash flow from operating activities, $2.1 million
(2014 – $4.5 million) in respect to net cash used in investing activities and paid $0.1 million (2014 – $0.3 million) in net cash provided in financing activities.
(II) DISPOSAL OF MINERA MICHILLA SA
On 30 December 2016 the Group disposed of its 100% interest in Minera Michilla SA (“Michilla”). The proceeds on disposal of $54.3 million were received
in cash ($52.3 million) and a short-term receivable ($2.0 million). The gain on disposal of Michilla is analysed below. No investment was retained in the
former subsidiary.
The net assets of Michilla. at the date of disposal were as follows:
Proceeds on disposal, cash and cash equivalents
Receivables
Assets disposed of:
Inventories
Trade receivables and other receivables
Cash and cash equivalents
Long-term provision
Deferred tax liabilities
Total carrying amount disposed
Profit on disposal of discontinued operations
Loss of the period
Total profit on disposal of discontinued operations (before tax)
Attributable tax expense
Profit on disposal of discontinued operations (after tax)
Net cash inflow arising on disposal:
Consideration received in cash and cash equivalents
Less: Cash and cash equivalents disposed of
AT 30
DECEMBER 2016
$M
52.3
2.0
54.3
(0.1)
(0.7)
(42.3)
35.8
(4.1)
(11.4)
42.9
(3.4)
39.5
(1.2)
38.3
52.3
(42.3)
10.0
ANTOFAGASTA.CO.UK
151
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS
12 EARNINGS PER SHARE
Profit for the year attributable to equity holders of the Company
Ordinary shares in issue throughout each year
Basic earnings per share
From continuing operations
From discontinued operations
Total continuing and discontinued operations
Total continuing and discontinued operations (excluding exceptional items)
2016
$M
158.0
2015
$M
608.2
2016
NUMBER
2015
NUMBER
985,856,695 985,856,695
2016
US CENTS
2015
US CENTS
12.1
3.9
16.0
38.6
(0.5)
62.2
61.7
61.7
Basic earnings per share are calculated as profit after tax and non-controlling interests, based on 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.
Reconciliation of basic earnings per share from continuing operations:
Profit for the year attributable to equity holders of the Company
Less: profit for discontinued operations
Loss from continuing operations
Ordinary shares
Basic earnings per share from continuing operations
13 DIVIDENDS
Amounts recognised as distributions to equity holders in the year:
Final dividend paid in June (proposed in relation to the previous year)
– ordinary
Interim dividend paid in October
– ordinary
$m
$m
$m
2016
158.0
(38.3)
119.7
2015
608.2
(613.3)
(5.1)
Number 985,856,695 985,856,695
$m
12.1
(0.5)
2016
$M
2015
$M
2016
CENTS
PER SHARE
2015
CENTS
PER SHARE
–
96.6
30.6
30.6
30.6
127.2
–
3.1
3.1
9.8
3.1
12.9
The proposed final dividend for each year, which is subject to approval by shareholders at the Annual General Meeting and has therefore not been included as
a liability in these Financial Statements, is as follows:
Final dividend proposed in relation to the year
– ordinary
2016
$M
151.0
151.0
2015
$M
–
–
2016
CENTS
PER SHARE
2015
CENTS
PER SHARE
15.3
15.3
–
–
This gives total dividends proposed in relation to 2016 (including the interim dividend) of 18.4 cents per share or $181.4 million (2015 – 3.1 cents per share
or $30.6 million).
In accordance with IAS 32, preference dividends have been included within interest expense (see Note 9) and amounted to $0.1 million (2015 –$0.2 million).
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 +44 870 702 0159.
Further details relating to dividends for each year are given in the Directors’ Report.
152
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
14 INTANGIBLE ASSETS
Cost
At 1 January 2015
Additions through acquisition of Twin Metals
Disposals
Foreign currency exchange difference
At 31 December 2015
Additions
Disposals
Foreign currency exchange difference
At 31 December 2016
Accumulated amortisation and impairment
At 1 January 2015
Charge for the year
Disposals
Foreign currency exchange difference
At 31 December 2015
Charge for the year
At 31 December 2016
Net book value
At 31 December 2016
At 31 December 2015
The $150.1 million intangible asset reflects the value of Twin Metals’ mining property assets. The mining properties will be amortised once
production commences.
$M
233.4
150.1
(228.6)
(4.8)
150.1
–
–
–
150.1
(114.8)
(2.4)
114.9
2.3
–
–
–
150.1
150.1
ANTOFAGASTA.CO.UK
153
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS
15 PROPERTY, PLANT AND EQUIPMENT
Cost
At 1 January 2015
Additions
Additions through acquisition of Twin Metals
Adjustment to capitalised decommissioning
provisions
Reclassifications
Disposal of subsidiary
Asset disposals
Foreign currency exchange difference
At 31 December 2015
Additions
Additions – depreciation capitalised
Adjustment to capitalised decommissioning
provisions
Reclassifications
Disposal of subsidiary
Asset disposals
At 31 December 2016
Accumulated depreciation and impairment
At 1 January 2015
Charge for the year
Additions through acquisition of Twin Metals
Depreciation capitalised in inventories
Depreciation capitalised in property, plant and
equipment
Disposal of subsidiary
Reclassifications
Asset disposals
Foreign currency exchange difference
At 31 December 2015
Charge for the year
Depreciation capitalised in inventories
Depreciation capitalised in property, plant and
equipment
Impairment
Disposal of subsidiary
Reclassifications
Asset disposals
At 31 December 2016
Net book value
At 31 December 2016
At 31 December 2015
Assets under finance leases included in
the totals above
Net book value
At 31 December 2016
At 31 December 2015
LAND
$M
MINING
PROPERTIES
$M
BUILDINGS AND
INFRASTRUCTURE
$M
RAILWAY
TRACK
$M
WAGONS
AND ROLLING
STOCK
$M
MACHINERY,
EQUIPMENT
AND OTHERS
$M
ASSETS
UNDER
CONSTRUCTION
$M
TOTAL
$M
26.4
1,326.9
3,760.6
75.3
163.1
4,695.0
2,503.9
12,551.2
–
0.6
–
12.0
(0.8)
–
–
81.1
9.9
–
95.5
(29.7)
(4.1)
–
0.2
0.1
(35.7)
590.9
(0.8)
–
(5.1)
–
–
–
4.6
–
(1.5)
–
1.8
–
–
6.4
(35.9)
(3.9)
–
93.9
11.4
–
1,227.9
(55.4)
(14.1)
(0.8)
835.6
1,012.6
–
–
(1,813.3)
(30.0)
(2.6)
(0.5)
22.0
(35.7)
124.0
(152.6)
(26.2)
(6.4)
38.2
1,479.6
4,310.2
78.4
131.5
5,957.9
1,493.1
13,488.9
–
–
–
–
–
–
6.4
–
–
–
(12.9)
(0.6)
0.2
–
16.9
398.6
(68.0)
(4.5)
37.7
1,473.0
4,653.4
–
–
–
4.6
–
(1.3)
81.7
1.5
–
–
10.4
–
(2.8)
376.2
87.6
–
510.3
(298.7)
(46.2)
537.4
–
–
(920.8)
–
(4.0)
921.7
87.6
16.9
3.1
(379.6)
(59.4)
140.6
6,587.1
1,105.7
14,079.2
(726.0)
(134.7)
(1,173.6)
(149.0)
(19.9)
(2.7)
–
–
–
–
–
–
–
–
3.5
(4.3)
–
3.6
–
–
–
–
(0.6)
–
(860.7)
(20.6)
(1,319.8)
(22.0)
(185.4)
(2.6)
–
–
–
12.9
(4.6)
–
–
–
–
68.0
(3.9)
4.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(100.3)
(1,869.9)
(447.6)
(4,337.3)
(18.1)
(286.2)
–
–
38.1
–
3.0
(0.1)
(77.4)
(8.4)
–
–
–
–
–
(1.2)
(24.8)
(20.1)
26.4
4.1
10.3
1.1
(2,160.3)
(361.4)
8.4
(87.6)
(215.6)
298.7
(438.5)
32.0
–
–
–
–
–
–
–
–
(590.7)
(1.2)
(24.8)
(20.1)
68.0
(0.2)
13.9
4.6
(447.6)
(4,887.8)
–
–
–
–
–
447.6
–
–
(578.4)
8.4
(87.6)
(215.6)
379.6
0.6
39.1
(5,341.7)
(873.0)
(1,436.6)
(24.1)
(83.7)
(2,924.3)
0.5
2.1
37.7
38.2
600.0
618.9
3,216.8
2,990.4
57.6
56.4
56.9
54.1
3,662.8
3,797.6
1,105.7
8,737.5
1,045.5
8,601.1
–
–
–
–
26.6
26.5
–
–
–
–
83.1
9.9
–
–
109.7
36.4
154
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
The depreciation charge for 2015 included $2.8 million related to the charge of the period for Aguas de Antofagasta SA (until May 2015) and $12.1 million
related to Empresa Ferroviaria Andina (until August 2015) and shown as discontinued operations in Note 10.
The Group has pledged assets with a carrying value of $1,086.4 million (2015 –$301.4 million) as security against bank loans provided to the Group.
At 31 December 2015 the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to $196.1 million
(2016 – $283.1 million) of which $129.8 million were related to the development of the Encuentro Oxides project.
Compensation from insurance companies related to property, plant and equipment included in the consolidated income statement was $2.3 million in 2016
(2015 – $15.2 million).
Borrowing costs of $12.0 million were capitalised, mainly at Antucoya (2015 – $60 million). The average interest rate for the amounts capitalised was 1.1%
(2015 – 1.2%).
Reclassifications in additions of $3.1 million are mainly related to the capitalisation of interest of $9.3 million, depreciation of machinery used in construction of
$14.6m and other expenses incurred during the commissioning of Antucoya, and credits related to a refund from a contractor for contract underperformance
of $24.9 million and credits related to sales.
At 31 December 2016, assets capitalised relating to the decommissioning provision were $147.2 million (at 31 December 2015 – $137.4 million).
Depreciation capitalised in property, plant and equipment of $87.6 million related to stripping cost depreciation of $64.8 million at Los Pelambres and Centinela
and $22.8 million related to Antucoya depreciation capitalised during the commissioning period.
ANTOFAGASTA.CO.UK
155
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS
16 INVESTMENTS IN SUBSIDIARIES
The subsidiaries of the Group, the percentage of equity owned and the main country of operation are set out below. These interests are consolidated within
these Financial Statements.
COUNTRY OF
INCORPORATION
COUNTRY OF
OPERATIONS
REGISTERED OFFICE
NATURE OF BUSINESS
ECONOMIC INTEREST
Direct subsidiaries of the Parent Company
Antofagasta Railway Company plc
Andes Trust Limited (The)
Chilean Northern Mines Limited
Andes Re Limited
Indirect subsidiaries of the Parent Company
Minera Los Pelambres SCM
Minera Centinela SCM
Minera Antucoya SCM
Compañía Minera Zaldívar SpA
Minera Encuentro SCM
Antofagasta Minerals SA
Alfa Estates Limited
Centinela Transmision SA
Zaldívar Transmision SA
Atacama Copper Company Pty Limited
Tethyan Copper Company Pty Limited
Tethyan Copper Company Pakistan (Private) Limited
Chagai Mineral Company Limited
Paktui Exploration Limited
Northern Minerals Investment (Jersey) Limited
Northern Metals (UK) Limited
Northern Minerals Holding Co
Duluth Metals Limited
Twin Metals (UK) Limited
Twin Metals (USA) Inc
Twin Metals Minnesota LLC
Duluth Metals Holdings (USA) Inc
Duluth Exploration (USA) Inc
DMC LLC (Minnesota)
DMC (USA) LLC (Delaware)
DMC (USA) Corporation
Antofagasta Investment Company Limited
Minprop Limited
Antomin 2 Limited
Antomin Investors Limited
Antofagasta Services Limited
Antofagasta Energy Jersey PCC
Antofagasta Minerals Australia Pty Limited
Antofagasta Minerals Adelaide Pty Limited
Antofagasta Minerals Perth Pty Limited
Minera Anaconda Peru
Los Pelambres Holding Company Limited
Los Pelambres Investment Company Limited
Antofagasta Metals Limited
Antofagasta Nickel Limited
Antofagasta (Chili) and Bolivia Railway Company Limited
Antofagasta Holdings Limited
Antofagasta Minerals Limited
UK
UK
UK
Bermuda
Chile
Chile
Chile
Chile
Chile
Chile
Jersey
Chile
Chile
Australia
Australia
Pakistan
Pakistan
Pakistan
Jersey
UK
USA
Chile
UK
Chile
Bermuda
Chile
Chile
Chile
Chile
Chile
Chile
Jersey
Chile
Chile
Australia
Australia
Pakistan
Pakistan
Pakistan
Jersey
UK
USA
Canada
Canada
UK
USA
USA
USA
USA
USA
USA
USA
Jersey
Jersey
BVI
BVI
UK
Jersey
Australia
Australia
Australia
Peru
Jersey
Jersey
UK
UK
UK
UK
UK
UK
USA
USA
USA
USA
USA
USA
USA
Jersey
Jersey
BVI
BVI
UK
Jersey
Australia
Australia
Australia
Peru
Jersey
Jersey
UK
UK
UK
UK
UK
1
1
1
4
2
2
2
18
2
2
3
2
18
5
5
6
6
6
3
1
7
9
1
8
8
16
17
16
16
16
3
3
10
10
1
3
11
11
11
12
3
3
1
1
1
1
1
Railway
Investment
Investment
Insurance
Mining
Mining
Mining
Mining
Mining
Mining
Investment
Energy
Energy
Investment
Investment
Mining
Investment
Investment
Investment
Investment
Investment
Investment
Investment
Investment
Mining
Investment
Investment
Investment
Investment
Investment
Investment
Mining
Mining
Mining
Group services
Investment
Mining
Mining
Mining
Mining
Investment
Investment
Investment
Investment
Investment
Investment
Investment
100%
100%
100%
100%
60%
70%
70%
50%
100%
100%
100%
100%
50%
50%
50%
50%
50%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
51%
51%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
156
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
Antofagasta Gold Limited
Antofagasta Mining Limited
Antofagasta Copper Limited
Lamborn Land Co
Anaconda South America Inc
El Tesoro (SPV Bermuda) Limited
Morrisville Holdings Co
Antofagasta Minerals Canada
Andes Investments Company (Jersey) Limited
Bolivian Rail Investors Co Inc
Blue Ocean Overseas Inc
Inversiones Ferrobol Limitada
Inversiones Los Pelambres Chile Ltda.
Equatorial Resources SpA
Minera Santa Margarita de Astillas SCM
Minera Penacho Blanco SA
Energia Andina SA
Javiera SpA
Parque Eolico El Arrayan SpA
Michilla Costa SpA
Pampa Fenix SA
Minera Mulpun Limitada
Fundación Minera Los Pelambres
Alto Maipo SpA
Inversiones Punta de Rieles Limitada
Inversiones Hornitos SA
Antofagasta Terminal Internacional SA
Ferrocarril Antofagasta a Bolivia
(Permanent Establishment)
Inversiones Chilean Northern Mines Ltda
The Andes Trust Chile SA
Forestal SA
Servicios de Transportes Integrados Limitada
Inversiones Train Limitada
Servicios Logisticos Capricornio Limitada
Embarcadores Limitada
FCAB Ingenieria y Servicios Limitada
Emisa Antofagasta SA
Registered offices:
COUNTRY OF
INCORPORATION
COUNTRY OF
OPERATIONS
REGISTERED OFFICE
NATURE OF BUSINESS
ECONOMIC INTEREST
UK
UK
UK
USA
USA
UK
UK
UK
Chile
USA
Bermuda
Bermuda
BVI
Canada
Jersey
USA
BVI
Bolivia
BVI
Canada
Jersey
USA
BVI
Bolivia
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
1
1
1
7
24
11
10
25
3
7
10
14
2
2
2
2
2
22
21
2
2
2
2
23
15
20
19
15
15
15
15
15
15
15
15
15
15
Investment
Investment
Investment
Investment
Investment
Investment
Investment
Mining
Investment
Investment
Investment
Investment
Investment
Investment
Mining
Mining
Energy
Energy
Energy
Logistics
Mining
Mining
Community
development
Energy
Investment
Energy
Logistics
Railway
Investment
Investment
Forestry
Road transport
Investment
Transport
Transport
Transport
Transport
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
75.5%
66.6%
50.1%
20.1%
30%
99.9%
90%
100%
100%
40%
100%
40%
30%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
1
2
3
4
5
Cleveland House, 33 King Street, London, SW1Y 6RJ, United Kingdom
Avenida Apoquindo N° 4001, Piso 18, Las Condes, Santiago, Chile
22 Grenville Street, St Helier, Jersey, JE4 8PX3
Crawford House, 50 Cedar Avenue, Hamilton HM 11, Bermuda
Level 9, The Quadrant, 1 William Street, Perth, Western Australia,
6000, Australia
6
House 11, Street 3, F-8/3, Islamabad, Pakistan
7
1209 Orange Street, Wilmington, DE 19801, USA
8
6040 Earle Brown Drive, 480 Brooklyn Center, MN 55430,USA
161 Bay Street, Suite 4320, Toronto, Ontario, M5J 2S1, Canada
9
10 PO Box 958, Road Town, Tortola VG1110, British Virgin Islands
11 Riparian Plaza, Level 28, 71 Eagle Street, Brisbane, Qld 4001, Australia
12 Av. Paseo de la Republica Nº 3245 Piso 3, Lima, Peru
13 Clarendon House, 2 Church Street, Hamilton, Bermuda
1010 Dale Street N, St Paul, MN 55117-5603 USA
14 Avenida 16 de Julio N° 1440, piso 19 oficina 1905, La Paz, Bolivia
15 Simon Bolivar 255, Antofagasta, Chile
16 6041 Earle Brown Drive, 480 Brooklyn Center, MN 55430, USA
17
18 Avenida Grecia N° 750, Antofagasta, Chile
19 Avenida Grecia S/N Costado Recinto Portuario, Antofagasta, Chile
20 Avenida El Bosque Norte N° 500 piso 9, Las Condes, Santiago, Chile
21 Avenida Presidente Riesco Nº 5335, piso 9, Las Condes, Santiago, Chile
22 Avenida Vitacura N°2939, piso 27, oficina 2701, Las Condes,
Santiago, Chile
23 Avenida. Rosario Norte N° 532, piso 19, Las Condes, Santiago, Chile
24 2711 Centerville Rd, Suite 400, Wilmington, DE 19808, USA
25
161 Bay Street, Suite 4320, Toronto, Canada
ANTOFAGASTA.CO.UK
157
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS
16 INVESTMENTS IN SUBSIDIARIES CONTINUED
With the exception of the Antofagasta Railway Company plc, all of the above Group companies have only one class of ordinary share capital in issue. The
Antofagasta Railway Company plc has ordinary and preference share capital in issue, with the ordinary share capital representing 76% of the company’s total
share capital, and the preference share capital representing 24% of the company’s total share capital; Antofagasta plc holds 100% of both the ordinary and
preference share capital of the Antofagasta Railway Company plc.
The proportion of the voting rights is proportional with the economic interest for the companies listed above.
During 2016, the Group sold its 100% participation in its subsidiary Minera Michilla SA. During 2015, the Group sold its 100% participation in its subsidiary
Aguas de Antofagasta SA together with its investment in Atacama Aguas y Tecnología Limitada and the Group´s 50% in Empresa Ferroviaria Andina. For more
detail of these transactions see Note 11.
17 INVESTMENT IN ASSOCIATES AND JOINT VENTURES
ALTO
MAIPO
2016
$M
INVERSIONES
HORNITOS
2016
$M
EL ARRAYAN
2016
$M
ATI
2016
$M
MINERA
ZALDÍVAR
2016
$M
ENERGÍA
ANDINA
2016
$M
TETHYAN
COPPER
2016
$M
TOTAL
2016
$M
Balance at the beginning of the year
75.1
8.1
23.2
33.5
998.9
10.3
–
1,149.1
Obligations on behalf of JV
Capital contribution
Capital decrease and others
Adjustment to purchase price
Gains/(losses) in fair value of cash flow
hedges deferred in reserves of associates
Derecognition of investment in associate upon
reclassification to subsidiary
Provision against carrying value of assets
Share of net profit/(loss) before tax
Share of tax
Share of income/(loss) from associates
Dividends received
Balance at the end of the year
Obligations on behalf of JV
–
–
–
–
–
–
–
8.9
(2.5)
6.4
(10.2)
71.3
–
–
–
–
–
–
–
–
(1.9)
0.2
(1.7)
–
6.5
–
–
–
(0.9)
–
–
36.0
–
–
0.3
4.1
–
–
–
(74.0)
(1.0)
0.4
(0.6)
–
22.0
–
0.4
–
0.4
–
–
–
–
–
0.3
(45.0)
–
–
–
41.9
(12.4)
29.5
–
983.7
–
TOTAL
2015
$M
198.1
–
48.1
–
–
1.0
(2.5)
10.0
(2.5)
47.0
(0.6)
–
–
–
–
(8.1)
–
–
–
–
3.2
–
–
–
–
–
–
(10.6)
–
(10.6)
–
–
(45.0)
1,001.7
4.4
(16.0)
–
(67.4)
(82.1)
36.4
(13.0)
23.4
(10.2)
–
(4.4)
(1.4)
(5.8)
(12.1)
1,086.6
1,149.1
(3.1)
(3.1)
(2.5)
Share of income/(loss) before tax
6.4
(1.7)
(0.6)
0.4
29.5
–
(10.6)
23.4
Provision against carrying value of assets
(exceptional items)
Other comprehensive income of associates to
profit for the year (exceptional items)
Net share of results from associates and
joint ventures
–
–
–
–
–
–
(74.0)
(52.6)
–
–
(8.1)
–
–
–
(82.1)
(52.6)
6.4
(1.7)
(0.6)
(126.2)
29.5
(8.1)
(10.6)
(111.3)
–
–
–
–
The investments which are included in the $1,083.5 million balances at 31 December 2016 are set out below:
158
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
INVESTMENT IN ASSOCIATES
(i) The Group’s 40% interest in Inversiones Hornitos SA, which owns the 165MW Hornitos thermoelectric power plant operating in Mejillones, in Chile’s
Antofagasta Region. The Group has a 16-year power purchase agreement with Inversiones Hornitos SA for the provision of up to 40MW of electricity
for Centinela.
(ii) The Group’s 30% interest in ATI, which operates a concession to manage installations in the port of Antofagasta.
(iii) The Group´s 30% interest in El Arrayan, which operates a 115MW wind-farm project, The Group has a 20-year power purchase agreement with
El Arrayan for the provision of up to 40MW of electricity for Los Pelambres.
(iv) The Group has a 40% interest in Alto Maipo SpA (“Alto Maipo”), which is developing two run-of-river hydroelectric power stations located in the upper
section of the Maipo River, approximately 50 kilometres to the southeast of Santiago. The remaining 60% interest is held by AES Gener SA (“Gener”).
As explained in Note 3, the Group has been reviewing its options with respect to its investment in Alto Maipo following the announcement of a significant
forecast cost overrun for the project. In January 2017 the Group entered into an agreement with Gener to dispose of its stake in Alto Maipo to Gener for
a nominal consideration. Accordingly, an impairment provision of $367.6 million has been recognised in respect of the total carrying value relating to
the project, comprising the $74.0 million investment in associate balance as shown above, $241.0 million of loan financing (including accrued interest)
and $52.6 million of mark-to-market losses in respect of derivative financial instruments held by Alto Maipo previously deferred in reserves.
During 2016 the Group made provision for capital contributions of $36.0 million (2015 – $42.8 million). During the year the Group provided nil
loan financing (2015 – $63.9 million) to Alto Maipo. The balance due from Alto Maipo to the Group at 31 December 2016 was nil after provision
(2015 – $229.7 million) representing loan financing with an interest rate of LIBOR six-month rate plus 4.25%. During 2016 a fair value loss of
$4.1 million (2015 – $14.4 million loss) was recognised in relation to the mark-to-market of the derivative financial instruments with this amount
deferred in reserves as it formed part of a designated cash flow hedging relationship.
The Group has a 20-year power purchase agreement with Alto Maipo for the provision of up to 110 MW of electricity for Los Pelambres from the
completion date of the project.
INVESTMENT IN JOINT VENTURES
(v) The Group’s 50% interest in Minera Zaldívar SpA (“Zaldívar”), was acquired on 1 December 2015 (see Note 19). Zaldívar is an open-pit, heap-leach copper
mine located in Northern Chile, which produces approximately 100,000 tonnes of copper cathodes annually.
Total preliminary consideration for the transaction was $1,005.0 million in cash, subject to adjustments based on the net debt and working capital levels of
Zaldívar at the completion date. The net debt and working capital adjustments were finalised in August 2016 and resulted in a final adjusted consideration
of $949.7 million. Including capitalised acquisition costs of $7.0 million the initial investment in joint venture balance is therefore $956.7 million. The
allocation of the fair values of the individual assets and liabilities effectively contained within the overall investment in joint venture balance was also
completed during 2016.
(vi) The Group’s 50.1% (2014 – 50.1%) interest in Energia Andina, which is a joint venture with Origin Geothermal Chile Limitada for the evaluation and
development of potential sources of geothermal and solar energy.
In February 2017 the disposal of the interest in Javiera was agreed. The terms of the sale agreement indicate a recoverable value for the interest in
Javiera which is $8.1 million below the carrying value, and accordingly an impairment provision for this amount has been recognised. The terms of the sale
agreement is subject to certain closing conditions, and the transaction is expected to complete during the first half of 2017.
(vii) The Group’s 50% interest in Tethyan Copper Company Limited (“Tethyan”), which is a joint venture with Barrick Gold Corporation over Tethyan’s mineral
interest in Pakistan, which is now subject to international arbitration. 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.
Summarised financial information for the associates is as follows:
Cash and cash equivalents
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Revenue
Profit/(loss) from continuing operations
Profit/(loss) after tax from continuing and discontinued
operations
Other comprehensive income
INVERSIONES
HORNITOS
2016
$M
16.0
37.7
294.0
(25.7)
(163.0)
136.2
16.0
–
–
ATI
2016
$M
0.4
13.5
138.5
(28.7)
(104.3)
46.1
(5.4)
–
–
EL ARRAYAN
2016
$M
3.1
14.0
248.7
(13.3)
(191.3)
29.1
(2.0)
–
–
Total comprehensive income/(expense)
16.0
(5.4)
(2.0)
ALTO
MAIPO
2016
$M
38.9
56.4
1,149.1
(115.5)
TOTAL
2016
$M
58.4
121.6
1,830.3
(183.2)
TOTAL
2015
$M
148.7
111.5
1,572.2
(167.2)
(1,070.2)
(1,528.8)
(1,289.8)
–
(0.7)
–
10.3
9.6
211.4
7.9
–
10.3
18.2
214.5
10.0
10.0
(36.2)
188.3
ANTOFAGASTA.CO.UK
159
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS
17 INVESTMENT IN ASSOCIATES AND JOINT VENTURES CONTINUED
Summarised financial information for the joint ventures is as follows:
Cash and cash equivalent
Current assets
Non-current assets
Currents liabilities
Non-current liabilities
Revenue
Depreciation and amortisation
Interest expenses
Profit/(loss) after tax from continuing and discontinued operations
Other comprehensive income
Total comprehensive income/(expense)
MINERA
ZALDÍVAR
2016
$M
101.7
493.7
1,592.0
(107.6)
(112.8)
517.7
–
–
59.0
–
59.0
ENERGÍA
ANDINA
2016
$M
0.3
–
11.4
–
–
–
–
–
(10.8)
–
(10.8)
TETHYAN
COPPER
2016
$M
1.6
0.1
0.2
(7.8)
(0.2)
–
–
–
(21.1)
–
(21.1)
TOTAL
2016
$M
103.6
493.8
1,603.6
(115.4)
(113.0)
517.7
–
–
27.1
–
27.1
TOTAL
2015
$M
20.8
616.9
1,609.7
(123.9)
(97.3)
51.7
–
–
(18.8)
(3.2)
29.7
NOTES TO THE SUMMARISED FINANCIAL INFORMATION
(i) The summarised financial information is based on the amounts included in the IFRS Financial Statements of the associate or joint venture (ie. 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.
(ii) Non-current liabilities at Alto Maipo include a loan related to the project finance and financial derivatives of $454.9 million (2015 – $192.7 million) and
subordinated debt of $602.9 million (2015 – $574.8 million).
18 AVAILABLE-FOR-SALE INVESTMENTS
Balance at the beginning of the year
Additions
Movement in fair value
Reclassification
Disposal
Foreign currency exchange differences
Balance at the end of the year
2016
$M
2.7
–
1.7
–
–
0.2
4.6
2015
$M
15.6
0.2
(3.2)
(9.4)
(0.2)
(0.3)
2.7
Available for sale investments represent those investments which are not subsidiaries, associates or joint ventures and are not held for trading purposes.
The fair value of all equity investments are based on quoted market prices.
19 COMPAÑIA MINERA ZALDÍVAR SPA TRANSACTION
On 1 December 2015 Antofagasta completed its acquisition of a 50% stake in Compañia Minera Zaldívar SpA (“Zaldívar”) from Barrick Gold Corporation
(“Barrick”), pursuant to an agreement entered into on 30 July 2015. As a result, Antofagasta has become operator of the Zaldívar mine. Zaldívar is an open-pit,
heap-leach copper mine located in Northern Chile, which produces approximately 100,000 tonnes of copper cathodes annually.
Given that Antofagasta and Barrick have joint control over Zaldívar, Antofagasta is accounting for its 50% stake in Zaldívar as a joint venture.
Total preliminary consideration for the transaction was $1,005.0 million in cash, subject to adjustments based on the net debt and working capital levels of
Zaldívar at the completion date. The net debt and working capital adjustments were finalised in August 2016 and resulted in a final adjusted consideration of
$949.7 million. Including capitalised acquisition costs of $7.0 million the initial investment in joint venture balance is therefore $956.7 million. The allocation of
the fair values of the individual assets and liabilities effectively contained within the overall investment in joint venture balance was also completed during 2016.
160
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
20 INVENTORIES
Current:
Raw materials and consumables
Work in progress
Finished goods
Non-current:
Work in progress
Total
2016
$M
189.4
141.9
62.1
393.4
157.3
157.3
550.7
2015
$M
162.0
97.7
37.4
297.1
263.9
263.9
561.0
The amount of write down of inventory related to Net Realisable Value (NRV) recognised as an expense was nil at 31 December, 2016 (2015 – $17.7 million).
Non-current work-in-progress represents inventory expected to be processed more than 12 months after the balance sheet date.
21 TRADE AND OTHER RECEIVABLES
Trade and other receivables do not generally carry any interest, are principally short term in nature and are normally stated at their nominal value less
any impairment.
Trade debtors
Other debtors
Loans provided to associates and joint ventures
DUE IN ONE YEAR
DUE AFTER ONE YEAR
2016
$M
606.1
130.0
–
736.1
2015
$M
382.8
222.0
–
604.8
2016
$M
–
66.7
–
66.7
2015
$M
–
76.6
216.3
292.9
2016
$M
606.1
196.7
–
802.8
TOTAL
2015
$M
382.8
298.6
216.3
897.7
The largest balances of trade receivables are held with equity participants in the key mining projects. Many other significant trade receivables are secured
by letters of credit or other forms of security. The average credit period given on sale of goods and rendering of service is 60 days (2015 – 41 days). There
is no material element which is interest-bearing. Trade debtors include mark-to-market adjustments in respect of provisionally priced sales of copper and
molybdenum concentrates which remain open as to final pricing. Where these have resulted in credit balances, they have been reclassified to trade creditors.
Other debtors are mainly related to interest receivables, VAT receivable and prepayment to suppliers.
During 2016 the loan provided to Alto Maipo was impaired (see Note 4).
Movements in the provision for doubtful debts were as follows:
Balance at the beginning of the year
Charge for the year
Amounts written off
Disposal of subsidiaries
Unused amounts reversed
Foreign currency exchange difference
Balance at the end of the year
The ageing analysis of the trade receivables balance is as follows:
2016
2015
2016
$M
(1.0)
(0.1)
–
–
–
–
(1.1)
NEITHER
PAST DUE
NOR IMPAIRED
$M
749.7
892.4
UP TO
3 MONTHS
PAST DUE
$M
39.4
1.0
PAST DUE BUT NOT IMPAIRED
3-6 MONTHS
PAST DUE
$M
MORE THAN
6 MONTHS
PAST DUE
$M
–
–
13.7
4.3
2015
$M
(4.9)
(0.1)
–
3.9
0.1
–
(1.0)
TOTAL
$M
802.8
897.7
With respect to the trade receivables that are neither past due nor impaired, there are no indications that the debtors will not meet their payment obligations.
The carrying value of the trade receivables recorded in the Financial Statements represents the Group’s maximum exposure to credit risk. The Group does not
hold any collateral as security.
At 31 December 2016, the other debtors include $6.2 million (2015 – $35.3 million) relating to prepayments.
ANTOFAGASTA.CO.UK
161
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS
22 CASH, CASH EQUIVALENTS AND LIQUID INVESTMENTS
The fair value of cash, cash equivalents and liquid investments is not materially different from the carrying values presented. The credit risk on cash and cash
equivalents is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies.
Cash, cash equivalents and liquid investments comprised:
Cash and cash equivalents
Liquid investments
At 31 December 2016 and 2015 there is no cash which is subject to restriction.
The currency exposure of cash, cash equivalents and liquid investments was as follows:
US dollars
Chilean pesos
Australian dollars
Sterling
Other
The credit quality of cash, cash equivalents and liquid investments are as follow:
CASH AT BANK AND SHORT-TERM BANK DEPOSITS
AAA
AA+
AA
AA-
A+
A
BBB+
Total
Cash in hand
Total Cash, cash equivalents and liquid investments
2016
$M
716.3
1,332.2
2,048.5
2016
$M
1,939.0
95.8
–
1.2
12.5
2015
$M
807.5
924.1
1,731.6
2015
$M
1,492.3
237.5
0.2
0.5
1.1
2,048.5
1,731.6
2016
$M
1,230.3
–
18.2
149.1
262.8
168.0
–
1,828.4
220.1
2,048.5
2015
$M
978.7
22.7
22.3
59.0
139.6
36.8
15.0
1,274.0
457.6
1,731.6
162
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
23 BORROWINGS
A) ANALYSIS BY TYPE OF BORROWING
Borrowings may be analysed by business segment and type as follows:
Los Pelambres
– Corporate loans
– Short-term loan
– Finance leases
Centinela
– Corporate loans
– Shareholder loan (subordinated debt)
– Short-term loan
Antucoya
– Project financing (senior debt)
– Shareholder loan (subordinated debt)
– Short-term loan
– Finance leases
Corporate and other items
– Long-term loan
– Finance leases
Railway and other transport services
– Long-term loans
– Finance leases
Preference shares
Total
NOTES
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
(xii)
(xiii)
(xvi)
(xv)
2016
$M
(17.5)
(312.0)
(62.2)
(743.8)
(183.6)
(200.0)
(608.7)
(330.4)
(30.0)
(16.2)
(497.2)
(25.1)
(89.4)
(1.6)
(2.5)
2015
$M
(52.3)
(312.1)
(7.9)
(889.8)
(174.5)
(200.0)
(630.2)
(308.7)
(30.0)
–
–
(24.6)
(119.1)
(2.9)
(3.0)
(3,120.2)
(2,755.1)
(i)
(ii)
Corporate loans at Los Pelambres are unsecured and US dollar denominated. These loans have a remaining term of 1 year and have an interest rate of LIBOR six-month rate
plus margins of between 0.9% – 1.6%.
The short-term loan (PAE) is US dollar denominated, comprising a working capital loan for an average period of 1 year and has an interest rate of LIBOR six-month rate plus
margin of between 0.05% – 0.16%.
(iii) Finance leases at Los Pelambres are US dollar denominated, comprising $62.2 million at an interest rate of LIBOR six months rate plus 3.43% with a remaining duration
of 8.4 years.
(iv) Senior debt at Centinela is US dollar denominated, comprising $743.8 million in respect of syndicated loans. These loans are for a remaining term of 3.5 years and have an
interest rate of LIBOR six-month rate plus 1%. The loans are subject to financial covenants which require that specified net debt to EBITDA and EBITDA to finance expense ratios
are maintained.
The Group has used interest rate swaps to swap the floating rate interest for fixed rate interest. At 31 December 2016 the current notional amount hedged of the senior debt at
Centinela was $70 million.
(v)
The long-term subordinated debt is US dollar denominated, provided to Centinela by Marubeni Corporation with a duration of 5.5 years and weighted average interest rate of
LIBOR six-month rate plus 3.75%. Long term subordinated debt provided by Group companies to Centinela has been eliminated on consolidation
(vi) The short-term loan (PAE) is US dollar denominated, comprising a range of working capital loans for an average period of 1 year and has an interest rate of LIBOR six-month
plus margins of between 0.1% – 0.3%
(vii) Senior debt at Antucoya is US dollar denominated, comprising $608.7 million in respect of syndicated loans. These loans are for a remaining term of 10.5 years and have an
interest rate of LIBOR six-month rate plus 1.9%.
(viii) The long-term subordinated debt is US dollar denominated, provided to Antucoya by Marubeni with duration of 10.5 years and an interest rate of LIBOR six-month rate plus
3.65%. Long-term subordinated debt provided by Group companies to Antucoya has been eliminated on consolidation.
(ix) The short-term loan is US dollar denominated, comprising a working capital loan for an average period of 1 year and has an interest rate of LIBOR six-month rate plus 0.9%
(x)
Finance leases at Antucoya are US dollar denominated, with a maximum remaining duration of 7 years and with an average interest rate of approximately LIBOR three-month
rate plus 2.0%.
(xi) The long term loan at Corporate (Antofagasta plc) of $497.2 million has variable interest rate of LIBOR six-month rate plus 1.5% with a duration of five years.
(xii) Finance leases at Corporate and other items are denominated in Unidades de Fomento (i.e. inflation-linked Chilean pesos) and have a remaining duration of 11.5 years and are at
fixed rates with an average interest rate of 5.29%.
(xiii) Long-term loans at Railway and other transport services are US dollar denominated, mainly comprise a loan for $89.4 million with a duration of 3.5 years and with an interest
rate of LIBOR six-month rate plus 0.48%.The Group has used interest rate swaps to swap the floating rate interest for fixed rate interest. At 31 December 2016 the current
notional amount hedged of the long-term debt at Railway and other transport services was $90.0 million.
(xiv) Finance leasing at Railway and other transport services are Chilean peso denominated, with a maximum remaining duration of 1.5 years and with a fixed interest rate of 4.8%
(xv) The preference shares are sterling-denominated and issued by the Company. There were 2 million shares of £1 each authorised, issued and fully paid at 31 December 2016.
The preference shares are non-redeemable and are entitled to a fixed cumulative dividend of 5% per annum. On winding up they are entitled to repayment and any arrears
of dividend in priority to ordinary shareholders, but are not entitled to participate further in any surplus. Each preference share carries 100 votes in any general meeting of
the Company.
ANTOFAGASTA.CO.UK
163
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS
23 BORROWINGS CONTINUED
B) ANALYSIS OF BORROWINGS BY CURRENCY
The exposure of the Group’s borrowings to currency risk is as follows:
AT 31 DECEMBER 2016
Corporate loans
Other loans (including short-term loans)
Finance leases
Preference shares
AT 31 DECEMBER 2015
Corporate loans
Other loans (including short-term loans)
Finance leases
Preference shares
CHILEAN
PESOS
$M
–
–
(26.8)
–
(26.8)
CHILEAN
PESOS
$M
–
–
(27.4)
–
(27.4)
C) ANALYSIS OF BORROWINGS BY TYPE OF INTEREST RATE
The exposure of the Group’s borrowings to interest rate risk is as follows:
AT 31 DECEMBER 2016
Corporate loans
Other loans (including short-term loans)
Finance leases
Preference shares
AT 31 DECEMBER 2015
Corporate loans
Other loans (including short-term loans)
Finance leases
Preference shares
STERLING
$M
OTHER
$M
US DOLLARS
$M
–
–
–
(2.5)
(2.5)
–
–
–
–
–
(1,370.0)
(1,642.6)
(78.3)
–
STERLING
$M
OTHER
$M
US DOLLARS
$M
2016
TOTAL
$M
(1,370.0)
(1,642.6)
(105.1)
(2.5)
2015
TOTAL
$M
(1,572.3)
(1,144.4)
(35.4)
(3.0)
(3,090.9)
(3,120.2)
(1,572.3)
(1,144.4)
(8.0)
–
(2,724.7)
(2,755.1)
FLOATING
$M
(1,370.0)
(1,642.6)
(76.0)
–
2016
TOTAL
$M
(1,370.0)
(1,642.6)
(105.1)
(2.5)
(3,088.6)
(3,120.2)
FLOATING
$M
(1,572.3)
(1,144.4)
(7.9)
–
2015
TOTAL
$M
(1,572.3)
(1,144.4)
(35.4)
(3.0)
(2,724.6)
(2,755.1)
–
–
–
(3.0)
(3.0)
–
–
–
–
–
FIXED
$M
–
–
(29.1)
(2.5)
(31.6)
FIXED
$M
–
–
(27.5)
(3.0)
(30.5)
The above floating rate corporate loans include the project financing at Centinela and long-term loans at the Railway and other transport services segment,
where the Group has used interest rate swaps to swap the floating rate interest for fixed rate interest. At 31 December 2016 the current notional amount
hedged of the senior debt at Centinela was $70.0 million (2015 – $105.0 million) and the current notional amount hedged of the long-term loans at the Railway
and other transport services segment was $90.0 million (2015 – $120.0 million).
164
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
D) MATURITY PROFILE
The maturity profile of the Group’s borrowings is as follows:
AT 31 DECEMBER 2016
Corporate loans
Other loans
Finance leases
Preference shares
AT 31 DECEMBER 2015
Corporate loans
Other loans
Finance leases
Preference shares
WITHIN
1 YEAR
$M
(242.4)
(571.7)
(22.7)
–
BETWEEN
1-2 YEARS
$M
(222.8)
(29.7)
(18.7)
–
BETWEEN
2-5 YEARS
$M
(651.9)
(59.7)
(32.7)
–
AFTER
5 YEARS
$M
(252.9)
(981.5)
(31.0)
(2.5)
2016
TOTAL
$M
(1,370.0)
(1,642.6)
(105.1)
(2.5)
(836.8)
(271.2)
(744.3)
(1,267.9)
(3,120.2)
WITHIN
1 YEAR
$M
(181.8)
(571.6)
(5.5)
–
BETWEEN
1-2 YEARS
$M
(315.9)
(59.7)
(7.9)
–
BETWEEN
2-5 YEARS
$M
(684.1)
(29.9)
(22.0)
–
AFTER
5 YEARS
$M
(390.5)
(483.2)
–
(3.0)
2015
TOTAL
$M
(1,572.3)
(1,144.4)
(35.4)
(3.0)
(758.9)
(383.5)
(736.0)
(876.7)
(2,755.1)
The amounts included above for finance leases are based on the present value of minimum lease payments.
The total minimum lease payments for these finance leases may be analysed as follows:
Within 1 year
Between 1-2 years
Between 2-5 years
After 5 years
Total minimum lease payment
Less amounts representing finance charges
Present value of minimum lease payment
2016
$M
(28.9)
(20.1)
(39.8)
(33.6)
(122.4)
17.3
(105.1)
2015
$M
(6.8)
(9.0)
(8.6)
(19.6)
(44.0)
8.6
(35.4)
All leases are on a fixed payment basis and no arrangements have been entered into for contingent rental payments.
E) BORROWINGS FACILITIES
The undrawn committed borrowing facilities available at the end of each year, in respect of which all conditions precedent had been met at those dates,
were as follows:
Expiring in one year or less
Expiring in more than one but not more than two years
Expiring in more than two years
2016
$M
631.7
414.0
30.0
2015
$M
1,378.1
–
–
1,075.7
1,378.1
The available facilities comprise general working capital facilities at the Group’s operating subsidiaries all of which were undrawn at the end of each year.
Of these facilities, $892.3 million (2015 – $1,351.7 million) are denominated in US dollars and $183.4 million (2015 – $26.4 million) in Unidades de Fomento
(i.e. inflation-linked Chilean pesos) mainly related to closure provision guarantees.
ANTOFAGASTA.CO.UK
165
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS
24 TRADE AND OTHER PAYABLES
Trade creditors
Other creditors and accruals
DUE IN ONE YEAR
DUE AFTER ONE YEAR
2016
$M
(422.7)
(173.1)
(595.8)
2015
$M
(207.6)
(271.3)
(478.9)
2016
$M
–
(7.9)
(7.9)
2015
$M
–
(24.4)
(24.4)
2016
$M
(422.7)
(181.0)
(603.7)
TOTAL
2015
$M
(207.6)
(295.7)
(503.3)
Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. Other creditors are mainly related to property
plant and equipment payables, finance interest and employee retentions.
The average credit period taken for trade purchases is 72 days (2015 – 30 days).
25 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
A) CATEGORIES OF FINANCIAL INSTRUMENTS
The Group’s financial instruments, grouped according to the categories defined in IAS 39 “Financial instruments: Recognition and Measurement”, are as follows:
Financial assets
Derivatives in designated hedge accounting relationships
Available-for-sale investments
Loans and receivables at amortised cost (including cash and cash equivalents)
Fair value through profit and loss (liquid investments and mark-to-market debtors)
Financial liabilities
Derivatives in designated hedge accounting relationships
Financial liabilities measured at amortised cost
Fair value through profit and loss (mark-to-market creditors)
B) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of financial assets and financial liabilities are determined as follows:
2016
$M
2.4
4.6
2015
$M
0.2
2.7
1,519.1
1,375.5
1,703.9
925.4
(2.5)
(3.5)
(3,725.5)
(3,235.5)
(3.0)
(829.4)
(22.9)
(629.7)
– the fair values of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference
to quoted market prices;
– the fair values of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with generally accepted pricing
models based on discounted cash flow analysis using prices from observable current market transactions; and
– the fair values of derivative instruments are calculated using quoted prices. Where such prices are not available, use is made of discounted cash flow analysis
based on the applicable yield curve for the duration of the instruments for non-optional derivatives, and option pricing models for optional derivatives.
The fair value of each category of financial asset and liability is not materially different from the carrying values presented for either 2016 or 2015.
Financial assets and liabilities measurement as fair value through profit and loss are designated as such upon initial recognition.
The following table provides an analysis of the financial instruments that are measured subsequent to initial recognition at fair value, grouped into levels 1 to 3
based on the degree to which the fair value is observable:
– level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
– level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1 that are observable for the asset or liability,
either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
– level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
166
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
Financial assets
Derivatives in designated hedge accounting relationships
Available for sale investments
Debtors mark-to-market
Fair value through profit and loss
Financial liabilities
Derivatives in designated hedge accounting relationships
Creditors mark-to-market
LEVEL 1
$M
LEVEL 2
$M
LEVEL 3
$M
–
4.6
–
1,332.2
–
–
1,336.8
2.4
–
43.3
–
(2.5)
(3.0)
40.2
–
–
–
–
–
–
–
TOTAL
2016
$M
2.4
4.6
43.3
TOTAL
2015
$M
0.2
2.7
1.3
1,332.2
924.1
(2.5)
(3.0)
1,377.0
(3.5)
(22.9)
903.2
There were no transfers between level 1 and 2 during the year.
C) FINANCIAL RISK MANAGEMENT
The Group’s activities expose it to a variety of financial risks: market risk (including commodity price risk, currency risk, interest rate risk and other price risk),
credit risk and liquidity risk. The Group uses derivative financial instruments, in general to reduce exposure to commodity price, foreign exchange and interest
rate movements. The Group does not use such derivative instruments for speculative trading purposes.
The Board of Directors is responsible for overseeing the Group’s risk management framework. The Audit and Risk Committee assists the Board with its review
of the effectiveness of the risk management process, and monitoring of key risks and mitigations. Internal Audit undertakes both regular and ad hoc reviews of
risk management controls and procedures, the results of which are reported to the Audit and Risk Committee.
(I) COMMODITY PRICE RISK
The Group generally sells its copper and molybdenum concentrate and copper cathode output at prevailing market prices, subject to final pricing adjustments
which may range from one to five months after delivery to the customer, and it is therefore exposed to changes in market prices for copper and molybdenum
both in respect of future sales and previous sales which remain open as to final pricing. In 2016, sales of copper and molybdenum concentrate and copper
cathodes represented 84.4% of Group revenue and therefore revenues and earnings depend significantly on LME and realised copper prices.
The Group uses futures, min-max instruments and options to manage its exposure to copper prices. These instruments may give rise to accounting volatility
due to fluctuations in their fair value prior to the maturity of the instruments. Details of those copper and molybdenum concentrate sales and copper cathode
sales which remain open as to final pricing are given in Note 6. Details of commodity rate derivatives entered into by the Group are given in Note 25(d).
Commodity price sensitivity
The sensitivity analysis below shows the impact of a movement in the copper price on the financial instruments held as at the reporting date. A movement in
the copper forward price as at the reporting date will affect the final pricing adjustment to sales which remain open at that date, impacting the trade receivables
balance and consequently the income statement. A movement in the copper forward price will also affect the valuation of commodity derivatives, impacting
the hedging reserve in equity if the fair value movement relates to an effective designated cash flow hedge, and impacting the income statement if it does not.
The calculation assumes that all other variables, such as currency rates, remain constant.
– If the copper forward price as at the reporting date had increased by 10 cents, profit attributable to the owners of the parent would have increased by
$21.0 million (2015 – increase by $18.5 million) and hedging reserves in equity would have increased by $0.1 million (2015 – decrease less than $0.4 million).
– If the copper forward price as at the reporting date had decreased by 10 cents, profit attributable to the owners of the parent would have decreased by
$20.5 million (2015 – decrease by $17.2 million) and hedging reserves in equity would have increased by $0.4 million (2015 – increase less than $0.4 million).
In addition, a movement in the average copper price during the year would impact revenue and earnings. A 10 cents change in the average copper price
during the year would have affected profit attributable to the owners of the parent by $69.4 million (2015 – $62.5 million) and earnings per share by 7.0 cents
(2015 – 6.3 cents), based on production volumes in 2016, without taking into account the effects of provisional pricing and hedging activity. A $1 change in the
average molybdenum price for the year would have affected profit attributable to the owners of the parent by $6.7 million (2015 – $9.4 million), and earnings
per share by 0.7 cents (2015 – 1.0 cents), based on production volumes in 2016, and without taking into account the effects of provisional pricing. A $100
change in the average gold price for the year would have affected profit attributable to the owners of the parent by $12.2 million (2015 – $10.4 million), and
earnings per share by 1.2 cents (2015 – 1.1 cents), based on production volumes in 2016, and without taking into account the effects of provisional pricing.
(II) CURRENCY RISK
The Group is exposed to a variety of currencies. The US dollar, however, is the currency in which the majority of the Group’s sales are denominated. Operating
costs are influenced by the countries in which the Group’s operations are based (principally in Chile) as well as those currencies in which the costs of imported
equipment and services are determined. After the US dollar, the Chilean peso is the most important currency influencing costs and to a lesser extent sales.
Given the significance of the US dollar to the Group’s operations, this is the presentational currency of the Group for internal and external reporting. The US
dollar is also the currency for borrowing and holding surplus cash, although a portion of this may be held in other currencies, notably Chilean pesos and sterling,
to meet short-term operating and capital commitments and dividend payments.
ANTOFAGASTA.CO.UK
167
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS
25 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT CONTINUED
When considered appropriate, the Group uses forward exchange contracts and currency swaps to limit the effects of movements in exchange rates in foreign
currency denominated assets and liabilities. The Group may also use these instruments to reduce currency exposure on future transactions and cash flows.
Details of any exchange rate derivatives entered by the Group in the year are given in Note 25.d.
The currency exposure of the Group’s cash, cash equivalents and liquid investments is given in Note 22, and the currency exposure of the Group’s borrowings
is given in Note 23.b. The effects of exchange gains and losses included in the income statement are given in Note 9. Exchange differences on translation of
the net assets of entities with a functional currency other than the US dollar are taken to the currency translation reserve and are disclosed in the Consolidated
Statement of Changes in Equity on page 128.
Currency sensitivity
The sensitivity analysis below shows the impact of a movement in the US dollar/Chilean peso exchange rate on the financial instruments held as at the
reporting date.
The impact on profit or loss is as a result of the retranslation of monetary financial instruments (including cash, cash equivalents, liquid investments, trade
receivables, trade payables and borrowings). The impact on equity is as a result of changes in the fair value of derivative instruments which are effective
designated cash flow hedges, and changes in the fair value of available-for-sale equity investments. The calculation assumes that all other variables, such
as interest rates, remain constant.
If the US dollar had strengthened by 10% against the Chilean peso as at the reporting date, profit attributable to the owners of the parent would have decreased
by $1.3 million (2015 – decrease of $2.9 million); and hedging reserves in equity would have decreased by nil (2015 – nil). If the US dollar had weakened by
10 % against the Chilean peso as at the reporting date, profit attributable to the owners of the parent would have increased by $3.2 million (2015 – increase
of $1.7 million); and hedging reserves in equity would have increased by nil (2015 – nil).
(III) INTEREST RATE RISK
The Group’s policy is generally to borrow and invest cash at floating rates. Fluctuations in interest rates may impact the Group’s net finance income or cost, and
to a lesser extent the value of financial assets and liabilities. The Group occasionally uses interest rate swaps and collars to manage interest rate exposures on a
portion of its existing borrowings. Details of any interest rate derivatives entered into by the Group are given in Note 25.d.(i)
Interest rate exposure of the Group’s borrowings is given in Note 23.
Interest rate sensitivity
The sensitivity analysis below shows the impact of a movement in interest rates in relation to the financial instruments held as at the reporting date. The impact
on profit or loss reflects the impact on annual interest expense in respect of the floating rate borrowings held as at the reporting date, and the impact on annual
interest income in respect of cash and cash equivalents held as at the reporting date. The impact on equity is as a result of changes in the fair value of derivative
instruments which are effective designated cash flow hedges. The calculation assumes that all other variables, such as currency rates, remain constant.
If the interest rate increased by 1%, based on the financial instruments held as at the reporting date, profit attributable to the owners of the parent would
have decreased by $3.8 million (2015 – increase of $4.4 million) and hedging reserves in equity would have increased by $0.3 million (2015 – increase of
$0.7 million). This does not include the effect on the income statement of changes in the fair value of the Group’s liquid investments relating to the underlying
investments in fixed income instruments.
(IV) OTHER PRICE RISK
The Group is exposed to equity price risk on its available-for-sale equity investments.
Equity price sensitivity
The sensitivity analysis below shows the impact of a movement in the equity values of the available-for-sale financial assets held as at the reporting date.
If the value of the available-for-sale investments had increased by 10% as at the reporting date, equity would have increased by $0.5 million (2015 – increase
of $0.3 million). There would have been no impact on the income statement.
(V) CASH FLOW RISK
The Group’s future cash flows depend on a number of factors, including commodity prices, production and sales levels, operating costs, capital expenditure
levels and financial income and costs. Its cash flows are therefore subject to the exchange, interest rate and commodity price risks described above as well as
operating factors and input costs. To reduce the risk of potential short-term disruptions to the supply of key inputs such as electricity and sulphuric acid, the
Group enters into medium– and long-term supply contracts to help ensure continuity of supply. Long-term electricity supply contracts are in place at each of
the Group’s mines, in most cases linking the cost of electricity under the contract to the current cost of electricity on the Chilean grids. The Group seeks to lock
in supply of sulphuric acid for future periods of a year or longer, with contract prices agreed in the latter part of the year, to be applied to purchases of acid in
the following year. Further information on production and sales levels and operating costs are given in the Operating review on pages 32 to 51.
(VI) CREDIT RISK
Credit risk arises from trade and other receivables, cash, cash equivalents, liquid investments and derivative financial instruments. The Group’s credit risk is
primarily to trade receivables. The credit risk on cash, cash equivalents and liquid investments and on derivative financial instruments is limited as the
counterparties are financial institutions with high credit ratings assigned by international credit agencies.
All customers are subject to credit review procedures, including the use of external credit ratings where available. Credit is provided only within set limits, which
are regularly reviewed. The main customers are recurrent with a good credit history during the years while they have been customers.
Outstanding receivable balances are monitored on an ongoing basis.
The carrying value of financial assets recorded in the Financial Statements represents the maximum exposure to credit risk. The amounts presented in the
balance sheet are net of allowances for any doubtful receivables.
168
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
As detailed in Note 4 the Group provided a total of $241.0 million of loan financing to its associated company Alto Maipo SpA (“Alto Maipo”). This loan financing
formed part of the Group’s total funding of the Alto Maipo project, along with the capital contributions the Group has made to Alto Maipo, and the recovery of
this balance would have derived from the cash flows generated by the project once construction is complete and the project is operating.
(VII) LIQUIDITY RISK
The Group manages liquidity risk by maintaining adequate cash reserves and financing facilities, through the review of forecast and actual cash flows.
The Group typically holds surplus cash in demand or term deposits or highly liquid investments, which typically can be accessed or liquidated within 24 hours.
The majority of borrowings comprise a short-term loan at Los Pelambres, repayable over a period of up to one year, project financing (senior debt)
at Centinela, repayable over approximately 3.5 years, project financing (senior debt) at Antucoya repayable over approximately 10.5 years, long-term
subordinated debt at Antucoya repayable over approximately 10.5 years, and a corporate loan at Antofagasta plc repayable over approximately 5 years.
At the end of the 2016 the Group was in a net debt position (2015 – net debt position), as disclosed in Note 32.c. Details of cash, cash equivalents and liquid
investments are given in Note 22, while details of borrowings including the maturity profile are given in Note 23.d. Details of undrawn committed borrowing
facilities are also given in Note 23.e.
The following table analyses the maturity of the Group’s contractual commitments in respect of its financial liabilities and derivative financial instruments. The
table has been drawn up based on the undiscounted cash flows on the earliest date on which the Group can be required to pay. The table includes both interest
and principal cash flows.
AT 31 DECEMBER 2016
Corporate loans
Other loans (including short-term loans)
Finance leases
Preference shares*
Trade and other payables
Derivative financial instruments
AT 31 DECEMBER 2015
Corporate loans
Other loans (including short-term loans)
Finance leases
Preference shares
Trade and other payables
Derivative financial instruments
LESS THAN
6 MONTHS
$M
BETWEEN
6 MONTHS
TO 1 YEAR
$M
BETWEEN
1-2 YEARS
$M
(257.0)
(29.8)
(19.8)
(2.5)
(8.7)
–
AFTER
2 YEARS
$M
(983.5)
(1,241.7)
(73.5)
–
(0.1)
–
2016
TOTAL
$M
(1,519.1)
(1,843.9)
(122.2)
(2.5)
(603.7)
(2.5)
(161.5)
(381.9)
(14.3)
–
(4.1)
(1.5)
(563.3)
(317.8)
(2,298.8)
(4,093.9)
BETWEEN
6 MONTHS
TO 1 YEAR
$M
(286.5)
(29.6)
(2.7)
–
(1.9)
(1.1)
BETWEEN
1-2 YEARS
$M
(276.9)
(59.5)
(7.9)
(3.0)
(23.7)
(1.5)
AFTER
2 YEARS
$M
(1,231.4)
(708.9)
(22.0)
–
(0.7)
–
2015
TOTAL
$M
(2,103.8)
(998.2)
(35.4)
(3.0)
(503.3)
(3.6)
(321.8)
(372.5)
(1,963.0)
(3,647.3)
(117.1)
(190.5)
(14.6)
–
(590.8)
(1.0)
(914.0)
LESS THAN
6 MONTHS
$M
(309.0)
(200.2)
(2.8)
–
(477.0)
(1.0)
(990.0)
* The preference shares pay an annual dividend of £100,000 in perpetuity, and accordingly it is not possible to determine total amounts payable for periods without a fixed end date.
(VIII) CAPITAL RISK MANAGEMENT
The Group’s objectives are to return capital to shareholders while leaving the Group with sufficient funds to progress its short, medium and long-term
growth plans as well as preserving the financial flexibility to take advantage of opportunities as they may arise. This policy remains unchanged. The Group
monitors capital on the basis of net cash (defined as cash, cash equivalents and liquid investments less borrowings) which was a net debt of $1,071.7 million
at 31 December 2016 (2015 – net debt $1,023.5 million), as well as gross cash (defined as cash, cash equivalents and liquid investments) which was $2,048.5
million at 31 December 2016 (2015 – $1,731.6 million). The Group’s total cash is held in a combination of on demand and term deposits and managed funds
investing in high quality, fixed income instruments. Some of the managed funds have been instructed to invest in instruments with average maturities greater
than 90 days. These amounts are presented as liquid investments but are included in net cash for monitoring and decision-making purposes. The Group has a
risk averse investment strategy. The Group’s borrowings are detailed in Note 23. Additional project finance or shareholder loans are taken out by the operating
subsidiaries to fund projects on a case-by-case basis.
ANTOFAGASTA.CO.UK
169
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS
25 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT CONTINUED
D) DERIVATIVE FINANCIAL INSTRUMENTS
The Group occasionally uses derivative financial instruments, in general 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.
The Group has applied the hedge accounting provisions of IAS 39 “Financial Instruments: Recognition and Measurement”. Changes in the fair value of derivative
financial instruments that are designated and effective as hedges of future cash flows have been recognised directly in equity, with such amounts subsequently
recognised in the income statement in the period when the hedged item affects profit or loss. Any ineffective portion is recognised immediately in the income
statement. Realised gains and losses on commodity derivatives recognised in the income statement have been recorded within revenue. The time value element
of changes in the fair value of derivative options is excluded from the designated hedging relationship, and is therefore recognised directly in the income
statement within other finance items. Realised gains and losses and changes in the fair value of exchange and interest derivatives are recognised within
other finance items for those derivatives where hedge accounting has not been applied. When hedge accounting has been applied the realised gains and
losses on exchange and interest derivatives are recognised within other finance items and interest expense respectively.
(I) MARK-TO-MARKET ADJUSTMENTS AND INCOME STATEMENT IMPACT
The gains or losses recorded in the income statement or in reserves during the year, and the fair value recorded on the balance sheet at the end of the year in
respect of derivatives are as follows:
For the year ended 31 December 2016
IMPACT ON INCOME STATEMENT
IMPACT ON RESERVES
FAIR VALUE RECORDED
ON BALANCE SHEET
GAINS
RESULTING FROM
MARK-TO-MARKET
ADJUSTMENTS
ON HEDGING
INSTRUMENTS 2016
$M
GAINS
RESULTING FROM
MARK-TO-MARKET
ADJUSTMENTS
ON HEDGING
INSTRUMENTS 2016
$M
NET FINANCIAL
(LIABILITY)/ASSET
31 DECEMBER 2016
$M
TOTAL NET
(LOSS)/GAIN 2016
$M
REALISED
(LOSSES)/GAINS 2016
$M
(2.2)
(2.6)
(1.0)
(5.8)
1.0
–
–
1.0
(1.2)
(2.6)
(1.0)
(4.8)
–
1.8
0.5
2.3
1.1
(1.2)
–
(0.1)
IMPACT ON INCOME STATEMENT
IMPACT ON RESERVES
FAIR VALUE RECORDED
ON BALANCE SHEET
GAINS
RESULTING FROM
MARK-TO-MARKET
ADJUSTMENTS
ON HEDGING
INSTRUMENTS 2015
$M
(LOSSES)/GAINS
RESULTING FROM
MARK-TO-MARKET
ADJUSTMENTS ON
HEDGING INSTRUMENTS
2015
$M
TOTAL NET
(LOSS)/GAIN 2015
$M
NET FINANCIAL
(LIABILITY)/ASSET
31 DECEMBER 2015
$M
REALISED
(LOSSES)/GAINS 2015
$M
(0.1)
0.2
(3.6)
(2.3)
(5.8)
–
–
–
–
–
(0.1)
0.2
(3.6)
(2.3)
(5.8)
(0.1)
4.0
3.1
0.5
7.5
0.1
–
(2.9)
(0.5)
(3.3)
Commodity Derivatives
– Centinela
Interest Derivatives
– Centinela
– Railway and other transport services
For the year ended 31 December 2015
Commodity Derivatives
– Centinela
Exchange Derivatives
– Antucoya
Interest Derivatives
– Centinela
– Railway and other transport services
The gains/ (losses) recognised in reserves are disclosed before non-controlling interests and tax.
At December 2016 the credit risk implicit in the liability is less than $0.1 million (2015 – $0.1 million). The differences between the carrying amount and the
amount the entity would be contractually required to pay at the maturity date are not material.
170
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
The net financial liability resulting from the balance sheet mark-to-market adjustments are analysed as follows:
ANALYSED BETWEEN:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
2016
$M
2.2
0.2
(2.0)
(0.5)
(0.1)
2015
$M
0.2
–
(2.0)
(1.5)
(3.3)
(II) OUTSTANDING DERIVATIVE FINANCIAL INSTRUMENTS
Commodity derivatives
The Group periodically uses commodity derivatives to reduce its exposure to fluctuation in the copper price.
Min-Max Instruments
The group has min-max options for copper production according to the Group’s Pricing Policy.
Centinela
AT 31 DECEMBER
2016
COPPER
PRODUCTION
HEDGED
AVERAGE
MIN
AVERAGE
MAX
WEIGHTED AVERAGE
REMAINING PERIOD FROM
1 JANUARY 2016
COVERING A PERIOD UP TO:
FOR INSTRUMENTS HELD AT 31 DECEMBER 2016
TONNES
$/LB
72,000
2.25
$/LB
2.84
MONTHS
12
31-12-2017
Interest derivatives
The Group periodically uses interest derivatives to reduce its exposure to interest rate movements.
Interest rate swaps
The Group has used interest rate swaps to swap the floating rate interest relating to the Centinela project financing and long-term loans at the Railway for fixed
rate interest. At 31 December 2015 the Group had entered into the contracts outlined below.
Centinela concentrates
Railway and other transport services
START DATE
15/02/11
12/08/14
MATURITY DATE
15/08/18
12/08/19
MAXIMUM NOTIONAL
AMOUNT $M
WEIGHTED AVERAGE
FIXED RATE %
70.0
90.0
3.372
1.634
The actual notional amount hedged depends upon the amount of the related debt currently outstanding.
26 LONG-TERM INCENTIVE PLAN
The long-term incentive plan (the “Plan”) was introduced at the end of 2011. Awards granted pursuant to the Plan form part of the remuneration of senior
managers in the Group. Directors are not eligible to participate in the Plan.
DETAILS OF THE AWARDS
Under the Plan, the Group may grant awards based on the price of ordinary shares in the Company and cannot grant awards over actual shares.
– Restricted Awards: These awards are conditional rights to receive cash payment by reference to a specified number of the Company’s ordinary shares,
subject to the relevant employee remaining employed by the Group when the Restricted Award vests; and
– Performance Awards: These awards are conditional rights to receive cash payment by reference to a specified number of the Company’s ordinary shares
subject to both the satisfaction of a performance condition and the relevant employee remaining employed by the Group when the Performance Award vests.
When awards vest under the Plan, participants become entitled to receive a cash payment by reference to the number and portion of awards that have vested
and the market value of the Company’s ordinary shares on the date of vesting. There is no exercise price payable by participants in respect of the awards.
Restricted Awards can only vest in full if participants remain employed by the Group for three years from the date that Restricted Awards are granted. In
ordinary circumstances, the first one-third of a Restricted Award will vest after one year, the second one-third will vest after two years and the remaining
one-third will vest after three years. There are no performance criteria attached to Restricted Awards. The fair value of Restricted Awards granted under the
Plan is recorded as a compensation expense over the vesting periods, with a corresponding liability recognised for the fair value of the liability at the end of each
period until settled.
Performance Awards only vest if certain performance criteria are met. The performance criteria reflect a number of factors including total shareholder return,
earnings levels, growth in the Group’s reserves and resources and project delivery targets. The fair value of Performance Awards under the Plan is recorded
as a compensation expense over the vesting period, with a corresponding liability at the end of each period until settled.
ANTOFAGASTA.CO.UK
171
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS
26 LONG-TERM INCENTIVE PLAN CONTINUED
VALUATION PROCESS AND ACCOUNTING FOR THE AWARDS
The fair value of the awards is determined using a Monte Carlo simulation model. The inputs into the Monte Carlo simulation model are as follows:
Weighted average forecast share price at vesting date
Expected volatility
Expected life of awards
Expected dividend yields
Risk free rate
2016
$9.20
36.39%
3 years
0.34%
0.44%
2015
$10.07
27.31%
3 years
1.90%
0.13%
Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous five years. The expected life of awards
used in the model has been adjusted based on management’s best estimate for the effects of non-transferability and compliance of the objectives determined
according to the characteristic of each plan.
The number of awards outstanding at the end of the year is as follows:
Outstanding at 1 January 2016
Granted during the year
Cancelled during the year
Payments during the year
Outstanding at 31 December 2016
Number of awards that have vested
RESTRICTED
AWARDS
PERFORMANCE
AWARDS
669,864
264,503
(109,700)
(262,531)
1,019,316
617,163
(33,634)
(429,753)
562,136
1,173,092
403,209
The Group has recorded a liability for $6.8 million at 31 December 2016, of which $3.6 million is due after more than one year (31 December 2015 –
$8.9 million, of which $3.4 million was due after more than one year) and total expenses of $3.4 million for the year (2015 – expense of $4.0 million).
The intrinsic value is $6.8 million.
27 POST-EMPLOYMENT BENEFIT OBLIGATIONS
A) DEFINED CONTRIBUTION SCHEMES
The Group operates defined contribution schemes for a limited number of employees. The amount charged to the income statement in 2016 was $0.1 million
(2015 – $0.1 million), representing the amount paid in the year. There were no outstanding amounts which remain payable at the end of either year.
B) SEVERANCE PROVISIONS
Employment terms at some of the Group’s operations provide for payment of a severance indemnity when an employment contract comes to an end. This
is typically at the rate of one month for each year of service (subject in most cases to a cap as to the number of qualifying years of service) and based on final
salary level. The severance indemnity obligation is treated as an unfunded defined benefit plan, and the obligation recognised is based on valuations performed
by an independent actuary using the projected unit credit method, which are regularly updated. The obligation recognised in the balance sheet represents the
present value of the severance indemnity obligation. Actuarial gains and losses are immediately recognised in other comprehensive income.
The most recent valuation was carried out in 2016 by Ernst & Young, a qualified actuary in Santiago, Chile who is not connected with the Group.
The main assumptions used to determine the actuarial present value of benefit obligations were as follows:
Average nominal discount rate
Average rate of increase in salaries
Average staff revenue
Amounts included in the income statement in respect of severance provisions are as follows:
Current service cost (charge to operating profit)
Interest cost (charge to interest expenses)
Foreign exchange credit to other finance items
Total charge to income statement
2016
4.5%
1.7%
11.8%
2016
$M
(15.5)
(4.4)
(6.2)
(26.1)
2015
4.8%
1.6%
8.6%
2015
$M
(16.6)
(4.1)
15.5
(5.2)
172
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
Movement in the present value of severance provisions were as follows:
Balance at the beginning of the year
Current service cost
Actuarial gains
Charge capitalised
Interest cost
Reclassification
Paid in the year
Disposals of subsidiaries
Foreign currency exchange difference
Balance at the end of the year
ASSUMPTIONS DESCRIPTION
Discount rate
Nominal discount rate
Reference rate name
Governmental or corporate rate
Reference rating
Corresponds to an Issuance market (primary) or secondary market
Issuance currency associated to the reference rate
Date of determination of the reference interest rate
Source of the reference interest rate
2016
$M
(86.9)
(15.5)
7.8
(0.5)
(4.4)
1.3
12.2
–
(6.2)
(92.2)
2015
$M
(103.0)
(16.6)
2.3
(3.6)
(4.1)
(0.3)
14.0
8.9
15.5
(86.9)
31 DECEMBER 2016
4.53%
31 DECEMBER 2015
4.84%
20–year Chilean Central Bank Bonds 20–year Chilean Central Bank Bonds
Governmental
AA–/AA+
Secondary
Chilean Peso
14 September 2016
Bloomberg
Governmental
AA–/AA+
Secondary
Chilean Peso
3 December 2015
Bloomberg
The discount rate is the interest rate used to discount the estimated future severance payments to their present value. The table below shows the principal
instruments and assumptions utilised in determining the discount rate:
Rate of increase in salaries
This represents the estimated average rates of future salary increases, reflecting likely future promotions and other changes. This has been based on historical
information for the Group for the period from 2013 to 2016.
Revenue rate
This represents the estimated average level of future employee revenue. This has been based on historical information for the Group for the period from
2013 to 2016.
Sensitivity analysis
Significant actuarial assumptions for the determination of the defined obligation are discount rate, expected salary increase and staff revenue. The sensitivity
analysis below have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while
holding all other assumptions constant.
– If the discount rate is 100 basis points higher the defined benefit obligation would decrease by $8.3 million. If the discount rate is 100 basis points lower the
defined benefit obligation would increase by $9.7 million.
– If the expected salary growth increases by 1% the defined benefit obligation would increase by $8.9 million. If the expected salary growth decreases by 1%
the defined benefit obligation would decrease by $7.8 million.
– If the staff revenue increases by 1% the defined benefit obligation would decrease by less than $0.1 million. If the staff revenue decreases by 1% the defined
benefit obligation would increase by less than $0.1 million.
ANTOFAGASTA.CO.UK
173
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS
28 DEFERRED TAX AND LIABILITIES
ACCELERATED
CAPITAL
ALLOWANCES
$M
TEMPORARY
DIFFERENCES
ON PROVISIONS
$M
WITHHOLDING
TAX
$M
SHORT-TERM
DIFFERENCES
$M
MINING TAX
(ROYALTY)
$M
TAX LOSSES
$M
At 1 January 2015
(Charge)/credit to income
Reclassification
Disposal of subsidiary
Charge deferred in equity
At 1 January 2016
(Charge)/credit to income
Deferred tax credit relating to exceptional
impairments provisions
Disposal of subsidiary
Charge deferred in equity
Reclassifications
At 31 December 2016
(977.3)
(99.3)
–
8.8
–
(1,067.8)
(21.4)
99.4
–
–
5.2
158.5
(24.1)
–
–
(1.4)
133.0
(6.8)
105.5
(3.7)
(2.3)
(5.1)
(984.6)
220.6
(9.5)
(1.9)
–
–
–
(11.4)
–
–
–
–
0.1
(11.3)
(6.2)
56.0
(0.8)
–
–
49.0
4.4
–
–
0.5
2.8
56.7
(42.2)
(12.9)
–
–
–
(55.1)
(24.8)
–
–
(0.3)
–
(80.2)
TOTAL
$M
(875.2)
(83.0)
(0.8)
8.8
(1.4)
(951.6)
(48.6)
204.9
(3.7)
(2.1)
3.0
1.5
(0.8)
–
–
–
0.7
–
–
–
–
–
0.7
(798.1)
The credit to the income statement of $48.6 million (2015 – $83.0 million charge) includes a credit for foreign exchange differences of $0.1 million (2015 –
includes a credit of $1.1 million).
Certain deferred tax assets and liabilities have been offset. Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so.
The following is the analysis of the deferred tax balance (after offset):
Deferred tax assets
Deferred tax liabilities
Net deferred tax balances
2016
$M
82.8
(880.9)
(798.1)
2015
$M
124.6
(1,076.2)
(951.6)
At 31 December 2016, the Group had unused tax losses of $7.4 million (2015 – $9.9 million) available for offset against future profits. A deferred tax asset of
$2.7 million has been recognised in respect of these losses in 2016 (2015 – $2.7 million). These losses may be carried forward indefinitely.
At 31 December 2016, the aggregate amount of temporary differences associated with undistributed earnings of subsidiaries for which deferred tax liabilities
have not been recognised was $4,826.8 million (2015 – 4,963.9 million). No liability has been recognised in respect of these differences because the Group is
in a position to control the timing of the reversal of the temporary differences and it is likely that such differences will not reverse in the foreseeable future.
Temporary differences arising in connection with interests in associates are insignificant.
The deferred tax balance of $798.1 million (2015 – $951.6 million) includes $878.8 million (2015 – $965.0 million) due in more than one year. All amounts are
shown as non-current on the face of the balance sheet as required by IAS 12.
29 DECOMMISSIONING & RESTORATION AND PROVISIONS
Balance at the beginning of the year
Charge to operating profit in the year
Unwind of discount to net interest in the year
Capitalised adjustment to provision
Reclassification
Utilised in year
Disposal
Foreign currency exchange difference
Balance at the end of the year
2016
$M
(394.0)
(9.3)
(5.5)
(16.9)
(1.1)
3.7
35.8
(4.8)
2015
$M
(434.3)
(25.8)
(5.0)
35.7
–
30.1
1.5
3.8
(392.1)
(394.0)
Decommissioning and restoration costs relate to the Group’s mining operations. Costs are estimated on the basis of a formal closure plan and are subject to
regular independent formal review. It is estimated that the provision will be utilised from 2024 until 2059 based on current mine plans.
During the year ended 31 December 2016, the decommissioning and restoration provisions at the Group’s mining operations decreased by a net total
of $1.9 million.
174
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
30 SHARE CAPITAL AND OTHER RESERVES
(I) SHARE CAPITAL
The ordinary share capital of the Company is as follows:
Authorised
Ordinary shares of 5p each
Issued and fully paid
Ordinary shares of 5p each
2016
NUMBER
2015
NUMBER
2016
$M
2015
$M
1,300,000,000
1,300,000,000
118.9
118.9
2016
NUMBER
2015
NUMBER
2016
$M
2015
$M
985,865,695
985,856,695
89.8
89.8
The Company has one class of ordinary shares which carry no right to fixed income. Each ordinary share carries one vote at any general meeting.
There were no changes in the authorised or issued share capital of the Company in either 2015 or 2016. Details of the Company’s preference share capital,
which is included within borrowings in accordance with IAS 32, are given in Note 23A (xv).
(II) OTHER RESERVES AND RETAINED EARNINGS
Details of the share premium account, hedging, fair value and translation reserves and retained earnings for both 2016 and 2015 are included within the
consolidated statement of changes in equity on page 128.
Hedging reserves1
At 1 January
Parent and subsidiaries net cash flow hedge fair value (losses)/gains
Parent and subsidiaries net cash flow hedge gains/(losses) transferred to the income statement
Share of other comprehensive income/(losses) of equity accounted units, net of tax
Share of other comprehensive gains of equity accounted units, net of tax transferred to the income statement
Tax on the above
At 31 December
Available for sale revaluation reserves2
At 1 January
Gains/(losses) on available for sale investment
(Losses)/gains on available for sale securities transferred to the income statement
At 31 December
Foreign currency translation reserves3
At 1 January
Currency translation reclassified on disposal
At 31 December
Total other reserves per balance sheet
Retained earnings4
At 1 January
Parent and subsidiaries profit for the year
Equity accounted units’ losses after tax for the year
Actuarial gains/(losses)5
Tax relating to components of other comprehensive income
Total comprehensive income for the year
Dividends paid
At 31 December
2016
$M
(44.1)
(2.4)
4.1
3.1
31.6
(1.1)
(8.8)
(12.9)
1.7
–
(11.2)
(2.3)
–
(2.3)
(22.3)
2015
$M
(36.2)
0.1
3.5
(10.2)
–
(1.3)
(44.1)
(10.7)
(3.2)
1.0
(12.9)
(0.5)
(1.8)
(2.3)
(59.3)
6,416.4
269.3
(111.3)
5.1
(0.3)
5,932.1
614.0
(5.8)
4.5
(1.2)
6,579.2
6,543.6
(30.6)
6,548.6
(127.2)
6,416.4
1. The hedging reserve records gains or losses on cash flow hedges that are recognised initially in equity (through other comprehensive income), as described in Note 25.
2. The available for sale revaluation reserves record fair value gains or losses relating to available for sale investment, as described in Note 18.
3. Exchange differences arising on the translation of the Group’s net investment in foreign controlled companies are taken to the foreign currency translation reserve. The cumulative
differences relating to an investment are transferred to the income statement when the investment is disposed of.
4. Retained earnings and movements in reserves of subsidiaries include those arising from the Group’s share of associates and joint ventures.
5. Actuarial gains or losses relating to long – term employee benefits, as described in Note 27.
ANTOFAGASTA.CO.UK
175
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS
31 NON-CONTROLLING INTERESTS
The non-controlling interests of the Group during 2016 and 2015 are as follows:
NON-
CONTROLLING
INTEREST
%
40.0
30.0
0.1
30.0
COUNTRY
Chile
Chile
Chile
Chile
NON-
CONTROLLING
INTEREST
%
40.0
30.0
0.1
30.0
COUNTRY
Chile
Chile
Chile
Chile
50.0
Bolivia
SHARE OF
PROFIT/
(LOSSES)
FOR THE
FINANCIAL
YEAR
$M
97.9
32.8
–
(74.3)
56.4
SHARE OF
PROFIT/
(LOSSES)
FOR THE
FINANCIAL
YEAR
$M
151.8
(46.5)
0.2
(11.9)
(0.1)
93.5
SHARE OF
DIVIDENDS
$M
(260.0)
–
–
–
(260.0)
SHARE OF
DIVIDENDS
$M
(80.0)
–
–
–
–
(80.0)
AT
1 JANUARY
2016
$M
1,040.4
814.1
0.1
18.6
1,873.2
AT
1 JANUARY
2015
$M
971.3
861.1
0.7
14.5
13.4
1,861.0
CAPITAL
CONTRIBUTION
ON NON-
CONTROLLING
INTEREST
$M
DISPOSAL
OF NON-
CONTROLLING
INTEREST
$M
HEDGING AND
ACTUARIAL
GAINS
$M
AT
31 DECEMBER
2016
$M
–
–
–
–
–
–
–
(0.1)
–
(0.1)
22.8
1.6
–
0.5
901.1
848.5
–
(55.2)
24.9
1,694.4
CAPITAL
CONTRIBUTION
ON NON-
CONTROLLING
INTEREST
$M
DISPOSAL
OF NON-
CONTROLLING
INTEREST
$M
HEDGING AND
ACTUARIAL
GAINS/LOSSES
$M
AT
31 DECEMBER
2015
$M
–
–
–
14.6
–
14.6
–
–
–
–
(13.3)
(13.3)
(2.7)
(0.5)
(0.8)
1.4
–
(2.6)
1,040.4
814.1
0.1
18.6
0.0
1,873.2
Los Pelambres
Centinela
Michilla
Antucoya
Total
Los Pelambres
Centinela
Michilla
Antucoya
Railway and other
transport services
Total
The proportion of the voting rights is proportional with the economic interest under the companies listed above.
176
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
Summarised financial position and cash flow for the years ended 2016 and 2015
Non-controlling interest (%)
Cash and cash equivalent
Current assets
Non-currents assets
Current liabilities
Non-currents liabilities
Accumulated non-controlling interest
Net cash flow from operating activities
Net cash flow from investing activities
Net cash flow from financing activities
Non-controlling interest (%)
Cash and cash equivalent
Current assets
Non-currents assets
Current liabilities
Non-currents liabilities
Accumulated non-controlling interest
Net cash flow from operating activities
Net cash flow from investing activities
Net cash flow from financing activities
LOS PELAMBRES
2016
$M
CENTINELA
2016
$M
ANTUCOYA
2016
$M
40.0%
143.0
645.5
2,960.7
(638.9)
(729.3)
901.3
907.3
(215.2)
(711.1)
30.0%
384.0
890.1
4,117.9
(631.7)
(1,347.6)
848.6
523.6
(555.1)
(150.0)
30.0%
152.9
334.8
1,405.7
(166.2)
(919.1)
(55.6)
50.6
(9.0)
(36.1)
LOS PELAMBRES
2015
$M
CENTINELA
2015
$M
MICHILLA
2015
$M
40.0%
248.8
670.5
2,853.6
(429.0)
(770.1)
1,040.4
490.1
(333.4)
(139.9)
30.0%
598.8
474.7
4,195.7
(561.5)
(1,517.6)
814.1
197.9
(429.7)
199.9
0.1%
96.4
26.9
0.0
(13.5)
(32.6)
0.1
26.3
(36.8)
–
ANTUCOYA
2015
$M
30.0%
138.6
166.3
1,747.0
(136.1)
(1,068.8)
18.6
(104.5)
(215.0)
287.0
NOTES TO THE SUMMARISED FINANCIAL POSITION AND CASH FLOW
(i) The amounts disclosed for each subsidiary are based on the amounts included in the consolidated Financial Statements (ie. 100% of the results and
balances of the subsidiary rather than the non-controlling interest proportionate share) before inter-company eliminations.
(ii) Summarised income statement information is shown in the segment information in Note 5.
32 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
A) RECONCILIATION OF PROFIT BEFORE TAX TO NET CASH INFLOW FROM OPERATING ACTIVITIES
Profit before tax from continuing operations
Profit before tax from discontinued operations
Depreciation and amortisation
Net loss on disposals
Impairment
Profit on disposal of discontinued operations
Net finance expense
Share of results from associates and joint ventures
Decrease in inventories
(Increase)/Decrease in debtors
Increase/(Decrease) in creditors and provisions
Cash flow from operations from continuing and discontinued operations
2016
$M
284.6
35.1
578.4
19.7
456.6
(35.1)
71.1
111.3
3.9
(124.9)
56.6
1,457.3
2015
$M
242.8
875.6
576.1
10.2
–
(859.0)
39.2
5.8
60.5
137.7
(230.6)
858.3
ANTOFAGASTA.CO.UK
177
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS
32 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT CONTINUED
B) ANALYSIS OF CHANGES IN NET DEBT
Cash and cash equivalents
Liquid investments
Total cash and cash equivalents and liquid investments
Bank borrowings due within one year
Bank borrowings due after one year
Finance leases due within one year
Finance leases due after one year
Preference shares
Total borrowings
Net (debt)/cash
Cash and cash equivalents
Liquid investments
Total cash and cash equivalents and liquid investments
Bank borrowings due within one year
Bank borrowings due after one year
Finance leases due within one year
Finance leases due after one year
Preference shares
Total borrowings
Net (debt)/cash
C) NET DEBT
Cash, cash equivalents and liquid investments
Total borrowings
AT
1 JANUARY 2016
$M
CASH FLOWS
$M
OTHER
$M
EXCHANGE
$M
807.5
924.1
1,731.6
(753.4)
(1,963.3)
(5.5)
(29.9)
(3.0)
(2,755.1)
(1,023.5)
(103.1)
408.1
305.0
215.0
(460.7)
1.5
29.7
0.1
(214.4)
90.6
–
–
–
(275.8)
225.6
(18.5)
(80.3)
(0.1)
(149.1)
(149.1)
11.9
–
11.9
–
–
–
(2.1)
0.5
(1.6)
10.3
AT
1 JANUARY 2015
$M
CASH FLOWS
$M
OTHER
$M
EXCHANGE
$M
845.4
1,529.1
2,374.5
(276.0)
(2,050.5)
(8.5)
(38.0)
(3.1)
(1.5)
(605.0)
(606.5)
(306.9)
(139.2)
11.5
0.3
–
(2,376.1)
(434.3)
(1.6)
(1,040.8)
–
–
–
(171.3)
225.0
(8.5)
4.8
–
50.0
50.0
(36.4)
–
(36.4)
0.8
1.4
–
3.0
0.1
5.3
AT
31 DECEMBER
2016
$M
716.3
1,332.2
2,048.5
(814.2)
(2,198.4)
(22.5)
(82.6)
(2.5)
(3,120.2)
(1,071.7)
AT
31 DECEMBER
2015
$M
807.5
924.1
1,731.6
(753.4)
(1,963.3)
(5.5)
(29.9)
(3.0)
(2,755.1)
(31.1)
(1,023.5)
2016
$M
2,048.5
(3,120.2)
(1,071.7)
2015
$M
1,731.6
(2,755.1)
(1,023.5)
2016
$M
70.3
2015
$M
27.8
33 OPERATING LEASE ARRANGEMENTS
Minimum lease payments expense under operating leases recognised for the year
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due
as follows:
Within one year
In their second to fifth years inclusive
After five years
Operating lease payments relate mainly to rental of plant and equipment by operating subsidiaries of the Group.
2016
$M
75.1
37.0
–
112.1
2015
$M
32.4
33.8
–
66.2
178
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
34 EXCHANGE RATES IN US DOLLARS
Assets and liabilities denominated in foreign currencies are translated into dollars and sterling at the period end rates of exchange.
Results denominated in foreign currencies have been translated into dollars at the average rate for each period.
Year end rates
Average rates
2016
2015
$1.2185 = £1;
$1 = Ch$669.47
$1.3593 = £1;
$1 = Ch$676.80
$1.4828 = £1;
$1 = Ch$710.16
$1.5284 = £1;
$1 = Ch$654.47
35 RELATED PARTY TRANSACTIONS
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.
Transactions between the Group and its associates are disclosed below.
The transactions which Group companies entered into with related parties who are not members of the Group are set out below. There are not guarantees
given or received and no provisions for doubtful debts related to the amount of outstanding balances.
A) QUIÑENCO SA
Quiñenco SA (“Quiñenco”) is a Chilean financial and industrial conglomerate, the shares of which are traded on the Santiago Stock Exchange. The Group and
Quiñenco are both under the control of the Luksic family, and three Directors of the Company, Jean-Paul Luksic, Andronico Luksic and Gonzalo Menéndez, are
also directors of Quiñenco.
The following material transactions took place between the Group and the Quiñenco group of companies, all of which were on normal commercial terms:
– the Group earned interest income of $0.1 million (2015 – $0.6 million) during the year on deposits with Banco de Chile SA, a subsidiary of Quiñenco. Deposit
balances at the end of the year were $34.5 million (2015 – $110.4 million);
– the Group earned interest income of $0.3 million (2015 – $0.7 million) during the year on investments with BanChile Corredores de Bolsa SA, a subsidiary of
Quiñenco. Investment balances at the end of the year were nil (2015 – $12.1 million);
– the Group made purchases of fuel from ENEX SA a subsidiary of Quiñenco of $161.6 million (2015 – $32.4 million). The balance due to ENEX SA at the end
of the year was nil (2015 – nil).
B) COMPAÑÍA DE INVERSIONES ADRIÁTICO SA
In 2016, the Group leased office space on normal commercial terms from Compañía de Inversiones Adriático SA, a company controlled by the Luksic family, at
a cost of less than $0.6 million (2015 – less than $0.5 million).
C) ANTOMIN LIMITED, ANTOMIN 2 LIMITED AND ANTOMIN INVESTORS LIMITED
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,
which continues to hold the remaining 49% of Antomin 2 and Antomin Investors. Mineralinvest is owned by a Liechtenstein foundation, in which members
of the Luksic family are interested. During the year ended 31 December 2016 the Group incurred $1.0 million (year ended 31 December 2015 – $4.2 million)
of exploration work at these properties.
D) TETHYAN COPPER COMPANY LIMITED
As explained in Note 17 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 2016 the Group contributed $10.0 million (2015 – $4.0 million) to Tethyan. The balance due from Tethyan to
Group companies at the end of the year was nil (2015 – nil).
E) ENERGÍA ANDINA SA
As explained in Note 17, the Group has a 50.1% interest in Energia Andina SA, which is a joint venture with Origin Energy Geothermal Chile Limitada for the
evaluation and development of potential sources of geothermal and solar energy. The balance due from Energía Andina SA to the Group at 31 December 2016
was nil (2015 – nil). During the year ended 31 December 2016 the Group contributed $1.0 million to Energía Andina (2015 – $1.3 million).
F) COMPAÑIA MINERA ZALDÍVAR SPA
The Group´s 50% interest in Minera Zaldívar which was acquired on 1 December 2015 (see Note 16), which is a joint venture with Barrick Gold Corporation.
Antofagasta is the operator of Zaldívar from 1 December 2015 onwards. The balance due from Zaldívar to Group companies at the end of the year was less
than $4.2 million (2015 – less than $0.1 million).
G) INVERSIONES HORNITOS SA
As explained in Note 17, the Group has a 40% interest in Inversiones Hornitos SA, which is accounted for as an associate. The Group paid $144.0 million
(year ended 31 December 2015 – $140.5 million) to Inversiones Hornitos in relation to the energy supply contract at Centinela. During 2016 the Group received
dividends from Inversiones Hornitos SA of $10.2 million (2015 – $12.1 million).
H) PARQUE EÓLICO EL ARRAYAN SA
As explained in Note 17, the Group has a 30% interest in Parque Eólico El Arrayán SA (“El Arrayán”), which is accounted for as an associate. The Group paid
$23.2 million (year ended 31 December 2015 – $42.0 million) to El Arrayán in relation to the energy supply contract at Los Pelambres. During 2016 there was
a capital decrease of $0.9 million.
ANTOFAGASTA.CO.UK
179
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS
35 RELATED PARTY TRANSACTIONS CONTINUED
I) ALTO MAIPO SPA
As explained in Note 17, the Group has a 40% interest in Alto Maipo SpA (“Alto Maipo”), which is accounted for as an associate. During 2016 the Group made
provision for capital contributions of $36.0 million to Alto Maipo (2015 – $42.8 million). The balance due from Alto Maipo to the Group at 31 December 2016 was
nil after provision (2015 – $229.7 million).
J) DIRECTORS AND OTHER KEY MANAGEMENT PERSONNEL
Information relating to Directors’ remuneration and interests is given in the Remuneration Report on page 96. Information relating to the remuneration of key
management personnel including the Directors is given in Note 8.
36 LITIGATION AND CONTINGENT LIABILITIES
Antofagasta plc or its subsidiaries are subject to various claims which arise in the ordinary course of business. None of these claims are currently expected
to result in any material loss to the Group. Details of the principal claims in existence either during, or at the end of, the period and the current status of these
claims are set out below:
LOS PELAMBRES – CERRO AMARILLO WASTE DUMP
In 2004, Los Pelambres received all of the required authorisations from the Chilean government to deposit waste-rock from its mining activities in its current
location (the “Cerro Amarillo Waste Dump”). According to the then official Chilean maps (1996), this area was located entirely within Chile. In 2007, Chile
modified the official maps in this area without making the changes public.
In February 2012, a binational border commission, established to clarify the exact position of the Chile/Argentina border, determined accurately the location of
the border in the area of the Cerro Amarillo Waste Dump, showing that part of the Cerro Amarillo Waste Dump was located in Argentina.
In May 2014, Xstrata Pachón SA (“Xstrata Pachón”), a subsidiary of Glencore plc and the holder of the mining properties on the Argentinian side of the border, filed
a claim against Los Pelambres before the Federal Court of San Juan, Argentina, alleging that Los Pelambres had unlawfully deposited waste-rock on its property.
Xstrata Pachón has also filed a criminal complaint before a different Federal Court of San Juan alleging that when Los Pelambres was depositing rock on the
Cerro Amarillo Waste Dump it violated several Argentinian laws relating to the misappropriation of land, unlawful appropriation of water bodies and that peoples’
health was in jeopardy from the alleged contamination that the Cerro Amarillo Waste Dump might generate.
In both cases, Los Pelambres has submitted preliminary objections to the Argentinian courts.
In the civil case, a final decision on these preliminary objections is still pending and substantive arguments will not be made until and unless these preliminary
objections are finally rejected.
In April 2016, in accordance with a preliminary measure required by the Federal Court of San Juan, Los Pelambres and the Province of San Juan executed an
agreement by means of which Los Pelambres has committed itself to perform a preventative process to isolate any environmental impacts of the Cerro Amarillo
Waste Dump, regularly monitor underground and surface waters, and undertake other additional actions requested by the Province.
In November 2016, the Province set aside the agreement. Notwithstanding so, between November 2016 and January 2017, Los Pelambres completed the
retirement of the pneumatic tyres formerly placed at the Cerro Amarillo Waste Dump.
In February 2017, at the Province of San Juan’s request, Los Pelambres filed a Provisional Action Plan for the Cerro Amarillo Waste Dump’s closing before the
civil courts, which is currently subject to review by the parties to the proceedings and the judge.
In the criminal proceedings, current and former directors and officers of Los Pelambres are in the process of providing testimony as named co-defendants
in this case.
TWIN METALS MINNESOTA – FEDERAL MINERAL LEASES MNES-1352 AND MNES-1353
On 8 March, 2016, the Solicitor of the Department of the Interior issued a legal opinion concluding that the Bureau of Land Management (BLM) has discretion to
deny Twin Metals’ application for renewal of federal mineral leases MNES-1352 and MNES-1353. The United States Forest Service (USFS) declined to consent
to renewal of the leases on 14 December, 2016, and BLM rejected Twin Metals’ application to renew the leases the next day.
The BLM’s denial relied on the Solicitor’s Opinion’s conclusion that it had discretion to deny the renewal, and BLM took the view that USFS consent was
required to renew the leases. According to BLM, because the USFS refused consent, BLM was required to reject the lease renewal application.
The Forest Service’s decision was based on the potential environmental impacts of sulfide-ore copper mining in the Boundary Waters watershed. The USFS
decision did not discuss the terms and conditions of the leases or the project, nor did it address Twin Metals’ legal rights to the leases.
On 12 September, 2016, Twin Metals filed a complaint in the U.S. District Court in Minnesota against the United States, the U.S. Department of the Interior,
Secretary of the Interior Sally Jewell, Solicitor Hilary C. Tompkins, and BLM. Twin Metals brought claims under the Quiet Title Act (QTA) and the Administrative
Procedure Act (APA) seeking to secure its rights to the two federal mineral leases. Following the USFS withholding of consent and BLM’s denial of renewal,
Twin Metals filed an amended complaint on 3 January, 2017, adding the U.S. Department of Agriculture, Secretary of Agriculture Thomas J. Vilsack, the USFS,
and Chief of the USFS Thomas L. Tidwell as defendants. The amended complaint seeks similar relief under the QTA and APA, and also requests that the court
overturn the government’s denial of the leases.
The government has not yet responded to the amended complaint.
37 ULTIMATE PARENT COMPANY
The immediate parent of the Group is Metalinvest Establishment, which is controlled by E. Abaroa Foundation, in which members of the Luksic family are interested.
Both Metalinvest Establishment and the E. Abaroa Foundation are domiciled in Liechtenstein. Information relating to the interest of Metalinvest Establishment
and the E. Abaroa Foundation are given in the Directors’ report.
180
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
PARENT COMPANY FINANCIAL STATEMENTS
38 ANTOFAGASTA PLC – BALANCE SHEET OF THE PARENT COMPANY AND
RELATED NOTES
At 31 December 2016
Non-current assets
Investment in subsidiaries
Other receivables
Property, plant and equipment
Current assets
Other receivables
Liquid investment
Cash and cash equivalents
Total assets
Current liabilities
Short-term borrowings
Other payables
Non-current liabilities
Medium and long-term borrowings
Total liabilities
Net assets
Equity
Share capital
Share premium
Retained earnings
Total equity
The profit for the year for the parent company was $4.4 million (2015 – $680.0 million).
Approved by the Board and signed on its behalf on 13 March 2017.
JEAN-PAUL LUKSIC
CHAIRMAN
OLLIE OLIVEIRA
SENIOR INDEPENDENT DIRECTOR
NOTES
38D
38D
38E
2016
$M
538.6
500.0
0.4
2015
$M
535.6
500.0
0.7
1,039.0
1,036.3
52.3
488.4
166.2
706.9
1,745.9
(298.9)
(6.4)
(305.3)
(499.7)
(499.7)
(805.0)
940.9
89.8
199.2
651.9
940.9
50.8
184.1
3.4
238.3
1,274.6
(297.7)
(6.8)
(304.5)
(3.0)
(3.0)
(307.5)
967.1
89.8
199.2
678.1
967.1
ANTOFAGASTA.CO.UK
181
FINANCIAL STATEMENTS CONTINUED
38 ANTOFAGASTA PLC – BALANCE SHEET OF THE PARENT COMPANY AND
RELATED NOTES CONTINUED
STATEMENT OF CHANGES IN EQUITY OF THE PARENT COMPANY
At 1 January 2015
Comprehensive profit for the year
Dividends
At 31 December 2015
Comprehensive profit for the year
Dividends
At 31 December 2016
SHARE CAPITAL
$M
SHARE PREMIUM
$M
89.8
199.2
–
–
–
–
89.8
199.2
–
–
–
–
89.8
199.2
RETAINED
EARNINGS
$M
TOTAL EQUITY
$M
125.3
680.0
(127.2)
678.1
4.4
(30.6)
651.9
414.3
680.0
(127.2)
967.1
4.4
(30.6)
940.9
The ordinary shares rank after the preference shares in entitlement to dividend and on a winding-up. Each ordinary share carries one vote at any general meeting.
Antofagasta Plc is a company limited by shares, incorporated and domiciled in the United Kingdom at Cleveland House, 33 King Street, London.
38A BASIS OF PREPARATION OF THE BALANCE SHEET AND RELATED NOTES OF THE PARENT COMPANY
The Antofagasta plc Parent Company balance sheet and related notes have been prepared in accordance with FRS 101, which applies the recognition and
measurement bases of IFRS with reduced disclosure requirements. The financial information has been prepared on a historical cost basis. The Financial
Statements have been prepared on a going concern basis. The functional currency of the Company and the presentational currency adopted is US dollars.
The following exemptions from the requirements of IFRS have been applied in the preparation of these Financial Statements, in accordance with FRS 101:
– Paragraphs 45(b) and 46 to 52 of IFRS 2, ‘Share-based payment’ (details of the number and weighted-average exercise prices of share options, and how
the fair value of goods or services received was determined)
– IFRS 7, ‘Financial Instruments: Disclosures’
– Paragraphs 91 to 99 of IFRS 13, ‘Fair value measurement’ (disclosure of valuation techniques and inputs used for fair value measurement of assets
and liabilities)
– Paragraph 38 of IAS 1, ‘Presentation of Financial Statements’ comparative information requirements in respect of:
(i) paragraph 79(a)(iv) of IAS 1;
(ii) paragraph 73(e) of IAS 16 Property, plant and equipment;
(iii) paragraph 118(e) of IAS 38 Intangible assets (reconciliations between the carrying amount at the beginning and end of the period)
– The following paragraphs of IAS 1, ‘Presentation of Financial Statements’:
– 10(d), (statement of cash flows)
– 10(f) (a statement of financial position as at the beginning of the preceding period when an entity applies an accounting policy retrospectively or makes a
retrospective restatement of items in its Financial Statements, or when it reclassifies items in its Financial Statements),
– 16 (statement of compliance with all IFRS),
– 38A (requirement for minimum of two primary statements, including cash flow statements),
– 38B-D (additional comparative information),
– 40A-D (requirements for a third statement of financial position
– 111 (cash flow statement information), and
– 134-136 (capital management disclosures)
– IAS 7, ‘Statement of cash flows’
– Paragraph 30 and 31 of IAS 8 ‘Accounting policies, changes in accounting estimates and errors’ (requirement for the disclosure of information when an
entity has not applied a new IFRS that has been issued but is not yet effective)
– Paragraph 17 of IAS 24, ‘Related party disclosures’ (key management compensation)
The requirements in IAS 24, ‘Related party disclosures’ to disclose related party transactions entered into between two or more members of a group.
As permitted by section 408 of the Companies Act 2006, the profit and loss account of the Parent Company is not presented as part of these Financial
Statements. The profit after tax for the year of the Parent Company amounted to $680.0 million (2015 – $948.2 million).
182
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
A summary of the principal accounting policies is set out below.
38B PRINCIPAL ACCOUNTING POLICIES OF THE PARENT COMPANY
A) CURRENCY TRANSLATION
The Company’s functional currency is the US dollar. Transactions in currencies other than the functional currency are translated at the exchange rate ruling
at the date of the transaction. Monetary assets and liabilities, including amounts due from or to subsidiaries, denominated in currencies other than the functional
currency are retranslated at year end exchange rates. Gains and losses on retranslation are included in net profit or loss for the year.
B) REVENUE RECOGNITION
Dividends proposed by subsidiaries are recognised as income by the Company when they represent a present obligation of the subsidiaries, i.e. in the period in
which they are formally approved for payment.
Interest income is accrued on a time basis, by reference to the principal outstanding and the effective interest rate applicable, which is the rate that exactly
discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.
C) DIVIDENDS PAYABLE
Dividends proposed are recognised when they represent a present obligation, i.e. in the period in which they are formally approved for payment. Accordingly,
an interim dividend is recognised when paid and a final dividend is recognised when approved by shareholders.
D) INVESTMENTS IN SUBSIDIARIES
Investments in subsidiaries represent equity holdings in subsidiaries and long-term amounts owed by subsidiaries. Such investments are valued at cost
less any impairment provisions. Investments are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may
not be recoverable. The recoverable amount of the investment is the higher of fair value less cost to dispose. As explained in Note 39D, amounts owed by
subsidiaries due in currencies other than the functional currency are translated at year end rates of exchange with any exchange differences taken to the
profit and loss account.
E) CURRENT ASSET INVESTMENTS AND CASH AT BANK AND IN HAND
Current asset investments comprise highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk
of changes in value, typically maturing within 12 months.
Cash at bank and in hand comprise cash in hand and deposits repayable on demand
F) BORROWINGS
Interest-bearing loans and bank overdrafts are initially recorded at the proceeds received, net of direct issue costs. They are subsequently measured at
amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of
calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly
discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. Finance charges, including
premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis using the effective interest rate method.
G) BORROWINGS – PREFERENCE SHARES
The sterling-denominated preference shares issued by the Company carry a fixed rate of return without the right to participate in any surplus. They are
accordingly classified as borrowings and translated into US dollars at year-end rates of exchange. Preference share dividends are included within finance costs.
H) EQUITY INSTRUMENTS – ORDINARY SHARE CAPITAL AND SHARE PREMIUM
Equity instruments issued are recorded at the proceeds received, net of direct issue costs. Equity instruments of the Company comprise its sterling-
denominated issued ordinary share capital and related share premium.
As explained above, the presentational and the functional currency of the Company is US dollars, and ordinary share capital and share premium are translated
into US dollars at historical rates of exchange based on dates of issue.
38C EMPLOYEE BENEFIT EXPENSE
A) AVERAGE NUMBER OF EMPLOYEES
The average number of employees was 4 (2015 – 5).
B) AGGREGATE REMUNERATION
The aggregate remuneration of the employees mentioned above was as follows:
Wages and salaries
Social security costs
2016
$M
0.6
0.1
0.7
2015
$M
0.6
0.1
0.7
The above employee figures exclude Directors who receive Directors’ fees from Antofagasta plc. Details of fees payable to Directors are set out in the
Remuneration Report.
ANTOFAGASTA.CO.UK
183
FINANCIAL STATEMENTS CONTINUED
38 ANTOFAGASTA PLC – BALANCE SHEET OF THE PARENT COMPANY AND
RELATED NOTES CONTINUED
38D SUBSIDIARIES
A) INVESTMENT IN SUBSIDIARIES
Shares in subsidiaries at cost
Amounts owed by subsidiaries due after more than one year
1 January 2016
New shares in subsidiaries
31 December 2016
2016
$M
60.6
478.0
538.6
LOANS
$M
478.0
–
478.0
2015
$M
57.6
478.0
535.6
TOTAL
$M
535.6
3.0
538.6
SHARES
$M
57.6
3.0
60.6
The above amount of $478.0 million (2015 – $478.0 million) in respect of amounts owed by subsidiaries due after more than one year relates to long-term
funding balances which form an integral part of the Company’s long-term investment in those subsidiary companies.
A one-off repayment of capital following the sale of ADASA was made during 2015 and therefore it is still appropriate to consider the rest of the loans as part of
the investment in subsidiary.
B) TRADE AND OTHER RECEIVABLES – AMOUNTS OWED BY SUBSIDIARIES DUE AFTER ONE YEAR
At 31 December 2015 an amount of $500.0 million was owed to the Company by an indirect subsidiary, pursuant to a 10 year loan agreement.
C) TRADE AND OTHER RECEIVABLES – AMOUNTS OWED BY SUBSIDIARIES DUE WITHIN ONE YEAR
At 31 December 2016, amounts owed by subsidiaries due within one year were $50.9 million (2015 – $49.8 million).
38E BORROWINGS – PREFERENCE SHARES
The authorised, issued and fully paid preference share capital of the Company comprised 2,000,000 5% cumulative preference shares of £1 each at both
31 December 2016 and 31 December 2015. As explained in Note 23 B, the preference shares are measured in the balance sheet in US dollars at period-end
rates of exchange.
The preference shares are non-redeemable and are entitled to a fixed 5% cumulative dividend, payable in equal instalments in June and December of each
year. On a winding-up, the preference shares are entitled to repayment and any arrears of dividend in priority to ordinary shareholders, but are not entitled
to participate further in any surplus. Each preference share carries 100 votes (see Note 23A (xv)) at any general meeting.
184
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
39 ALTERNATIVE PERFORMANCE MEASURES
This Annual Report 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) EBTIDA
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.
EBTIDA is considered to provide a useful and comparable indication of the current operating earnings performance of the business, excluding the impact of the
historic cost of property, plant & equipment or the particular financing structure adopted by the business.
For the year ended 31 December 2016
Operating profit
Depreciation and amortisation
(Loss)/gain on disposals
Exceptional impairment provision
EBITDA from subsidiaries
Proportional share of the EBITDA
from associates and JV
Total EBITDA
LOS PELAMBRES
$M
CENTINELA
$M
ANTUCOYA
$M
ZALDÍVAR
$M
484.9
195.7
0.2
241.0
921.8
246.0
299.4
17.1
–
562.5
(0.8)
–
921.0
562.5
(213.4)
62.7
–
215.6
64.9
–
64.9
–
–
–
–
–
85.1
85.1
EXPLORATION
AND
EVALUATION2
$M
CORPORATE
AND OTHER
ITEMS
$M
(44.3)
(62.3)
–
–
–
5.2
0.6
–
MINING
$M
410.9
563.0
17.9
456.6
(44.3)
(56.5)
1,448.4
–
5.7
90.0
(44.3)
(50.8)
1,538.4
For the year ended 31 December 2015
LOS PELAMBRES
$M
CENTINELA
$M
ANTUCOYA
$M
ZALDÍVAR
$M
Operating profit
Depreciation and amortisation
(Loss)/gain on disposals
555.0
191.6
2.7
(131.0)
367.6
1.8
EBITDA from subsidiaries
749.3
238.4
Proportional share of the EBITDA
associates and JV
Total EBITDA
(0.6)
–
748.7
238.4
–
–
–
–
–
–
–
–
–
–
6.8
6.8
EXPLORATION
AND
EVALUATION2
$M
(101.9)
–
–
CORPORATE
AND OTHER
ITEMS
$M
(75.1)
3.1
4.4
MINING
$M
247.0
562.3
8.9
(101.9)
(67.6)
818.2
–
(101.9)
6.9
(60.7)
13.1
831.3
RAILWAY
AND OTHER
TRANSPORT
SERVICES
$M
56.1
15.4
1.8
–
73.3
14.4
87.7
RAILWAY
AND OTHER
TRANSPORT
SERVICES
$M
42.0
13.8
2.6
58.4
20.4
78.8
TOTAL
$M
467.0
578.4
19.7
456.6
1,521.7
104.4
1,626.1
TOTAL
$M
289.0
576.1
11.5
876.6
33.5
910.1
ANTOFAGASTA.CO.UK
185
FINANCIAL STATEMENTS CONTINUED
39 ALTERNATIVE PERFORMANCE MEASURES CONTINUED
B) CASH COSTS
Cash costs are a measure of the cost of operating 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 lb 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).
Reconciliation of cash costs excluding tolling charges and by-product revenues:
Total Group operating cost (Note 4)
Less:
Depreciation and amortisation (Note 4)
Loss on disposal (Note 4)
Provision against the carrying value of assets (Note 4)
Elimination of non-mining operations:
Corporate and other items – Total operating cost (Note 4)
Exploration and evaluation – Total operating cost (Note 4)
Railway and other transport services – Total operating cost (Note 4)
Closure provision and other expenses not included within cash cost
Total cost relevant to the mining operations’ cash cost
2016
$M
2015
$M
3,154.7
2,936.7
(578.4)
(19.7)
(456.6)
(56.5)
(44.3)
(86.9)
(53.4)
(576.1)
(11.5)
–
(67.6)
(101.9)
(94.0)
(75.4)
1,858.9
2,165.0
Copper sales volumes – excluding Antucoya Q1 2016/full year 2015 and Zaldivar (tonnes)
634,000
621,200
Cash costs excluding tolling charges and by-product revenues ($ per tonne)
2,932
3,485
Cash costs excluding tolling charges and by-product revenues ($ per lb)
1.33
1.58
Reconciliation of cash costs before deducting by-products:
Tolling charges – copper – Los Pelambres (Note 5)
Tolling charges – copper – Centinela (Note 5)
Tolling charges – copper – total
192.2
108.9
301.1
198.8
95.2
294.0
Copper sales volumes – excluding Antucoya Q1 2016/full year 2015 and Zaldivar (tonnes)
634,000
621,200
Tolling charges ($ per tonne)
Tolling charges ($ per lb)
Cash costs excluding tolling charges and by-product revenues ($ per lb)
Tolling charges ($ per lb)
Cash costs before deducting by-products ($ per lb)
475
0.22
1.33
0.22
1.54
473
0.22
1.58
0.22
1.81
186
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
Reconciliation of cash costs (net of by-products):
Gold revenue – Los Pelambres (Note 4)
Gold revenue – Centinela (Note 4)
Molybdenum revenue – Los Pelambres (Note 4)
Silver revenue – Los Pelambres (Note 4)
Silver revenue – Centinela (Note 4)
Total by-product revenue
2016
$M
78.5
261.2
94.0
46.1
20.0
499.8
2015
$M
60.7
191.3
105.3
34.5
15.9
407.7
Copper sales volumes – excluding Antucoya Q1 2016/full year 2015 and Zaldivar (tonnes)
634,000
621,200
Tolling charges ($ per tonne)
Tolling charges ($ per lb)
Cash costs before deducting by-products ($ per lb)
By-product revenue ($ per lb)
Cash costs (net of by-products) ($ per lb)
788
0.35
1.54
(0.35)
1.20
656
0.30
1.81
(0.30)
1.50
The totals in the tables above may include some small apparent differences as the specific individual figures have not been rounded.
C) 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 tends to be at the level of the individual operations, and
hence only a proportion is attributable to the equity holders of the Company.
2016
2015
TOTAL
AMOUNT
ATTRIBUTABLE
SHARE
ATTRIBUTABLE
AMOUNT
TOTAL
AMOUNT
ATTRIBUTABLE
SHARE
ATTRIBUTABLE
AMOUNT
Cash, cash equivalents and liquid investments:
Los Pelambres
Centinela
Antucoya
Corporate
143.0
384.0
152.9
60%
70%
70%
85.8
268.8
107.0
1,328.1
100%
1,328.1
Railway and other transport services
Total (Note 25)
40.5
2,048.5
100%
40.5
1,830.2
248.8
598.8
138.6
531.5
213.9
1,731.6
Borrowings:
Los Pelambres (Note 18)
Centinela (Note 18)
Antucoya (Note 18)
Corporate (Note 18)
Railway and other transport services (Note 18)
(391.7)
(1,127.4)
(985.3)
(524.8)
(91.0)
60%
70%
70%
100%
100%
(235.0)
(789.2)
(689.7)
(524.8)
(91.0)
(372.3)
(1,264.3)
(968.9)
(27.6)
(122.0)
Total (Notes 18 and 25)
(3,120.2)
(2,329.7)
(2,755.1)
Net debt
(1,071.7)
(499.5)
(1,023.5)
60%
70%
70%
100%
100%
60%
70%
70%
100%
100%
149.3
419.1
97.0
531.5
213.9
1,410.8
(223.4)
(885.0)
(678.2)
(27.6)
(122.0)
(1,936.2)
(525.4)
ANTOFAGASTA.CO.UK
187
FIVE YEAR SUMMARY
Consolidated Balance Sheet
Intangible asset
Property plant & equipment
Investment property
Inventories
Investment in associates and joint ventures1
Trade and other receivables
Derivative financial instruments
Available for sale investments
Deferred tax assets
Non-current assets1
Current assets1
Current liabilities1
Non current liabilities1
Share capital
Share premium
Reserves (retained earnings and hedging, translation and fair value reserves)
Equity attributable to equity holders of the Company
Non-controlling interests
Consolidated Income Statement4
Group revenue
2016
$M
2015
$M
2014
$M
2013
$M
2012
$M
150.1
8,737.5
2.6
157.3
1,086.6
66.7
0.2
4.6
82.8
150.1
8,601.1
2.0
263.9
1,149.1
292.9
–
2.7
124.6
118.6
133.0
157.6
8,227.1
7,424.8
6,513.2
2.6
247.8
198.5
239.5
–
15.6
104.6
3.3
252.7
176.0
180.8
–
16.6
76.9
162.5
3.5
109.0
108.3
8.0
44.5
103.8
10,288.4
10,583.9
3,435.4
(1,554.0)
(3,660.1)
2,953.2
(1,438.6)
(3,581.7)
9,153.9
3,661.2
8,263.3
4,126.3
(1,163.4)
(1,130.6)
7,207.9
5,655.9
(1,295.1)
(3,617.4)
(2,596.2)
(2,766.4)
8,509.7
8,519.3
8,034.7
8,663.6
8,804.8
89.8
199.2
6,526.3
6,815.3
1,694.4
8,509.7
89.8
199.2
6,357.1
6,646.1
1,873.2
8,519.3
89.8
199.2
89.8
199.2
5,884.7
6,435.5
6,173.7
1,861.0
6,724.5
1,939.1
89.8
199.2
6,821.6
7,110.6
1,694.2
8,034.7
8,663.6
8,804.8
2016
$M
2015
$M
2014
$M
2013
$M
2012
$M
3,621.7
3,225.7
4,810.2
5,509.2
6,280.1
Total profit from operations and associates
355.7
283.2
1,608.5
2,137.8
2,754.9
Profit before tax1,2
Income tax expense1
Profit for the financial year from continuing operations
Profit for the financial year from discontinued operations4
Profit for the year
Non-controlling interests
Net earnings (profit attributable to equity holders of the Company)
284.6
(108.6)
176.0
38.3
214.3
(56.3)
158.0
242.8
(154.4)
88.4
613.3
701.7
1,558.5
2,076.5
(703.6)
(843.2)
854.9
1,233.3
2,679.1
(999.5)
1,679.6
(4.2)
6.5
60.0
850.7
1,239.8
1,739.6
(93.5)
608.2
(390.9)
459.8
(580.2)
659.6
(702.4)
1,037.2
EBITDA3,4
1,626.1
910.1
2,102.9
2,625.8
3,748.4
Earnings per share
Basic and diluted earnings per share1,4
2016
CENTS
2015
CENTS
2014
CENTS
2013
CENTS
2012
CENTS
16.0
61.7
46.6
66.9
105.2
188
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
Dividends per Share Proposed in relation to the Year
Ordinary dividends (interim and final)
Special dividends
2016
CENTS
2015
CENTS
2014
CENTS
2013
CENTS
2012
CENTS
18.4
–
18.4
3.1
–
3.1
21.5
–
21.5
95.0
–
95.0
21.0
77.5
98.5
Dividends per share paid in the year and deducted from equity
3.1
12.9
97.8
90.0
44.5
Consolidated Cash Flow Statement
Cash flow from operations1,4
Interest paid
Income tax paid1
Net cash from operating activities1
Investing activities
Acquisition and disposal of subsidiaries, joint venture and associates
Dividends from associates
Available for sale investments, investing activities and recovery of VAT1
Purchases and disposals of intangible assets, property, plant and equipment
Interest received
Net cash used in investing activities1
Financing activities
Dividends paid to equity holders of the Company
Dividends paid to preference holders and non-controlling interests
New borrowings less repayment of borrowings and finance leases
Net cash used in financing activities
2016
$M
2015
$M
2014
$M
2013
$M
2012
$M
1,457.3
(46.3)
(272.6)
1,138.4
858.3
(38.6)
(427.1)
392.6
2,507.8
2,659.2
3,826.0
(45.4)
(641.5)
(57.2)
(896.5)
(88.1)
(901.2)
1,820.9
1,705.5
2,836.7
30.0
10.2
(425.2)
(794.6)
14.4
(29.9)
12.1
414.8
–
20.0
372.7
–
–
278.9
(1,046.9)
(1,613.7)
(1,334.2)
11.0
16.5
14.0
–
1.1
(496.0)
(868.1)
24.8
(1,165.2)
(638.9)
(1,204.5)
(1,041.3)
(1,338.2)
(30.6)
(260.0)
214.3
(76.3)
(127.2)
(80.0)
452.0
244.8
(964.2)
(412.4)
1,019.4
(975.0)
(452.3)
(418.2)
(438.7)
(702.7)
105.6
(357.2)
(1,845.5)
(1,035.8)
Net (decrease)/increase in cash and cash equivalents1
(103.1)
(1.5)
259.2
(1,181.3)
462.7
Consolidated Net Cash
Cash, cash equivalents and liquid investments1
Short-term borrowings3
Medium and long-term borrowings3
2016
$M
2015
$M
2014
$M
2013
$M
2012
$M
2,048.5
1,731.6
2,374.5
2,685.1
4,291.9
(836.8)
(758.9)
(284.5)
(341.0)
(447.0)
(2,283.4)
(1,996.2)
(2,091.6)
(1,032.9)
(1,442.2)
(3,120.2)
(2,755.1)
(2,376.1)
(1,373.9)
(1,889.2)
Net (debt)/cash at the year-end1
(1,071.7)
(1,023.5)
(1.6)
1,311.2
2,402.7
1. The 2012 figures have been restated as a result of the adoption of IFRS 11 Joint Arrangements and the application of the amendments to IAS 19 Employee Benefits in 2013. The
investment in associate balance relating to Tethyan Copper Company Limited (“Tethyan”) is a negative balance $3.1 million. The negative balance has been recognised because the
Group funds the on-going expenses and liabilities of Tethyan. Given the balance is negative it has been included within non-current liabilities. The 2015, 2014, 2013 and 2012
negatives balance have been reclassified to non-current liabilities.
2. In 2012 the income statement included $500.0 million as a provision against the carrying value of property, plant and equipment relating to the Antucoya project. Excluding this
exceptional item profit before tax was $3,179.1 million.
3. 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.
4. The 2015, 2014, 2013 and 2012 figures have been restated as results of IFRS 5 Non-current Assets Held for sale and Discontinued Operations related to ADASA and FCA sale
during 2015 and Michilla during 2016.
ANTOFAGASTA.CO.UK
189
OTHER INFORMATION: ORE RESERVES AND MINERAL RESOURCES ESTIMATES
AT 31 DECEMBER 2016
An ‘Ore Reserve’ is the economically mineable part of a Measured and/or
Indicated Mineral Resource. It includes diluting materials and allowances for
losses, which may occur when the material is mined. Appropriate
assessments and studies have been carried out, and include consideration of
and modification by realistically assumed mining, metallurgical, economic,
marketing, legal, environmental, social and governmental factors. These
assessments demonstrate at the time of reporting that extraction could
reasonably be justified. Ore Reserves are sub-divided in order of increasing
confidence into Probable Ore Reserves and Proved Ore Reserves.
A ‘Probable Ore Reserve’ is the economically mineable part of an Indicated,
and in some circumstances, a Measured Mineral Resource. It includes diluting
materials and allowances for losses which may occur when the material is
mined. Appropriate assessments and studies have been carried out, and
include consideration of and modification by realistically assumed mining,
metallurgical, economic, marketing, legal, environmental, social and
governmental factors. These assessments demonstrate at the time of
reporting that extraction could reasonably be justified.
A ‘Proved Ore Reserve’ is the economically mineable part of a Measured
Mineral Resource. It includes diluting materials and allowances for losses
which may occur when the material is mined. Appropriate assessments and
studies have been carried out, and include consideration of and modification
by realistically assumed mining, metallurgical, economic, marketing, legal,
environmental, social and governmental factors. These assessments
demonstrate at the time of reporting that extraction could reasonably
be justified.
INTRODUCTION
The ore reserves and mineral resources estimates presented in this report
comply with the requirements of the Australasian Code for Reporting of
Exploration Results, Mineral Resources and Ore Reserves 2012 edition (the
JORC Code) which has been used by the Group as minimum standard for the
preparation and disclosure of the information contained herein. The definitions
and categories of Ore Reserves and Mineral Resources are set out below.
The information on ore reserves and mineral resources was prepared by or
under the supervision of Competent Persons as defined in the JORC Code.
The Competent Persons have sufficient experience relevant to the style of
mineralisation and type of deposit under consideration and to the activity
which they are undertaking. The Competent Persons consent to the inclusion
in this report of the matters based on their information in the form and
context in which it appears. The Competent Person for Exploration Results
and Mineral Resources is Aquiles Gonzalez (CP, Chile), Manager of Mineral
Resource Evaluation for Antofagasta Minerals S.A. The Competent Person for
Ore Reserves is Murray Canfield (P.Eng. Ontario), Technical Manager of
Mining for Antofagasta Minerals S.A.
The Group’s operations and projects are subject to a comprehensive
programme of audits aimed at providing assurance in respect of ore reserves
and mineral resources estimates. The audits are conducted by suitably
qualified Competent Persons from within a particular division, another division
of the Company or from independent consultants.
The ore reserves and mineral resources estimates represent full reserves
and resources, with the Group’s attributable share for each mine shown in the
‘Attributable Tonnage’ column. The Group’s economic interest in each mine is
disclosed in the notes following the estimates on pages 198 to 199. The totals
in the table may include some small apparent differences as the specific
individual figures have not been rounded.
DEFINITIONS AND CATEGORIES OF ORE
RESERVES AND MINERAL RESOURCES
A ‘Mineral Resource’ is a concentration or occurrence of material of intrinsic
economic interest in or on the Earth’s crust in such form, quality and quantity
that there are reasonable prospects for eventual economic extraction. The
location, quantity, grade, geological characteristics and continuity of a Mineral
Resource are known, estimated or interpreted from specific geological
evidence and knowledge. Mineral Resources are sub-divided, in order of
increasing geological confidence, into Inferred, Indicated and Measured
categories.
An ‘Inferred Mineral Resource’ is that part of a Mineral Resource for which
tonnage, grade and mineral content can be estimated with a low level of
confidence. It is inferred from geological evidence and assumed but not
verified geological and/or grade continuity. It is based on information gathered
through appropriate techniques from locations such as outcrops, trenches,
pits, workings and drill holes which may be limited or of uncertain quality and
reliability.
An ‘Indicated Mineral Resource’ is that part of a Mineral Resource for which
tonnage, densities, shape, physical characteristics, grade and mineral content
can be estimated with a reasonable level of confidence. It is based on
exploration, sampling and testing information gathered through appropriate
techniques from locations such as outcrops, trenches, pits, workings and drill
holes. The locations are too widely or inappropriately spaced to confirm
geological and/or grade continuity but are spaced closely enough for
continuity to be assumed.
A ‘Measured Mineral Resource’ is that part of a Mineral Resource for which
tonnage, densities, shape, physical characteristics, grade and mineral content
can be estimated with a high level of confidence. It is based on detailed and
reliable exploration, sampling and testing information gathered through
appropriate techniques from locations such as outcrops, trenches, pits,
workings and drill holes. The locations are spaced closely enough to confirm
geological and grade continuity.
190
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
ORE RESERVES ESTIMATES
TONNAGE
(MILLIONS OF TONNES)
2016
2015
2016
COPPER
(%)
2015
MOLYBDENUM
(%)
GOLD
(G/TONNE)
ATTRIBUTABLE TONNAGE
(MILLIONS OF TONNES)
2016
2015
2016
2015
2016
2015
GROUP SUBSIDIARIES
Ore reserves
Los Pelambres (see note (a))
Proved
Probable
Total
Centinela (see note (b))
Centinela Cathodes (oxides)
Proved
Probable
Sub-Total
Centinela Concentrates
(sulphides)
Proved
Probable
Sub-Total
Proved
Probable
Total
Encuentro Oxides
(see note (c))
Proved
Probable
Total
Antucoya (see note (i))
Proved
Probable
Total
661.9
595.7
704.4
604.3
1,257.6
1,308.7
38.8
151.1
189.9
45.6
142.9
188.5
549.8
577.0
1,252.6
1,263.4
1,802.3
1,840.4
588.5
622.6
1,403.7
1,406.3
1,992.2 2,028.9
110.0
109.4
5.3
115.3
6.2
115.6
360.1
337.0
697.0
374.0
312.6
686.6
0.63
0.59
0.61
0.66
0.35
0.42
0.50
0.41
0.44
0.51
0.41
0.44
0.55
0.41
0.54
0.36
0.30
0.33
0.61
0.60
0.61
0.023
0.016
0.020
0.022
0.015
0.019
0.05
0.04
0.05
0.05
0.04
397.1
357.4
0.05
754.6
422.6
362.6
785.2
0.68
0.36
0.44
0.50
0.41
0.44
0.51
0.41
0.44
0.55
0.42
0.54
0.36
0.31
0.34
–
–
–
–
–
–
–
–
–
–
–
–
27.1
105.8
132.9
31.9
100.0
132.0
0.011
0.012
0.012
0.012
0.012
0.012
0.20
0.13
0.15
0.20
384.8
0.13
876.8
403.9
884.4
0.15
1,261.6
1,288.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
412.0
982.6
435.8
984.4
1,394.5
1,420.2
110.0
109.4
5.3
115.3
6.2
115.6
252.1
235.9
261.8
218.8
487.9
480.6
–
– 2,752.4
2,801.7
Total Group Subsidiaries
4,062.2
4,139.8
0.48
0.48
GROUP JOINT VENTURES
Zaldívar (see note (m))
Proved
Probable
Total Group Joint Ventures
TONNAGE
(MILLIONS OF TONNES)
2016
2015
2016
285.3
175.5
374.1
81.2
460.8
455.3
0.50
0.54
0.51
COPPER
(%)
2015
0.55
0.53
0.55
Total Group
4,523.0
4,595.1
0.48
0.49
MOLYBDENUM
(%)
GOLD
(G/TONNE)
ATTRIBUTABLE TONNAGE
(MILLIONS OF TONNES)
2016
2015
2016
2015
2016
2015
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
142.7
87.7
187.1
40.6
230.4
227.7
– 2,982.8
3,029.3
ANTOFAGASTA.CO.UK
191
OTHER INFORMATION: ORE RESERVES AND MINERAL RESOURCES ESTIMATES CONTINUED
AT 31 DECEMBER 2016
MINERAL RESOURCES ESTIMATES (INCLUDING ORE RESERVES)
GROUP SUBSIDIARIES
Los Pelambres (see note (a))
Sulphides
Measured
Indicated
Measured + Indicated
Inferred
Total
Los Pelambres Total
Measured
Indicated
Measured + Indicated
Inferred
Total
Centinela (see note (b))
Centinela Cathodes (Oxides)
Measured
Indicated
Measured + Indicated
Inferred
Sub-Total
Centinela Concentrates
(Sulphides)
Measured
Indicated
Measured + Indicated
Inferred
Sub-Total
Centinela Total
Measured
Indicated
Measured + Indicated
Inferred
Total
Encuentro (see note (c))
Oxides
Measured
Indicated
Measured + Indicated
Inferred
Sub-Total
Sulphides
Measured
Indicated
Measured + Indicated
Inferred
Sub-Total
Encuentro Total
Measured
Indicated
Measured + Indicated
Inferred
Total
TONNAGE
(MILLIONS OF TONNES)
2016
2015
2016
COPPER
(%)
2015
MOLYBDENUM
(%)
GOLD
(G/TONNE)
ATTRIBUTABLE TONNAGE
(MILLIONS OF TONNES)
2016
2015
2016
2015
2016
2015
1,095.7
1,151.2
2,260.4
2,262.8
3,356.1
3,414.0
2,728.4
2,690.1
6,084.5
6,104.1
1,095.7
1,151.2
2,260.4
2,262.8
3,356.1
3,414.0
2,728.4
2,690.1
6,084.5
6,104.1
82.9
87.9
235.6
230.0
318.6
317.9
12.1
19.8
330.7
337.7
579.5
599.8
1,662.3
1,650.2
2,241.8
2,249.9
1,040.4
965.7
3,282.2
3,215.7
662.4
687.6
1,897.9
1,880.2
2,560.4
2,567.8
1,052.5
985.6
3,612.9
3,553.4
134.4
43.8
178.1
1.2
134.5
43.8
178.2
1.2
179.3
179.4
407.7
407.9
478.9
498.2
886.6
92.5
906.1
126.9
979.1
1,032.9
542.0
542.3
522.7
542.0
1,064.7
1,084.3
93.7
128.1
1,158.4
1,212.4
0.59
0.52
0.54
0.46
0.51
0.59
0.52
0.54
0.46
0.51
0.55
0.35
0.40
0.37
0.40
0.48
0.38
0.41
0.31
0.38
0.49
0.38
0.41
0.31
0.38
0.52
0.31
0.47
0.31
0.47
0.53
0.36
0.44
0.32
0.42
0.53
0.35
0.44
0.32
0.43
0.59
0.53
0.55
0.46
0.51
0.59
0.53
0.55
0.46
0.51
0.59
0.34
0.41
0.35
0.41
0.49
0.39
0.41
0.32
0.38
0.50
0.38
0.41
0.32
0.39
0.52
0.31
0.47
0.31
0.46
0.53
0.35
0.43
0.31
0.42
0.53
0.35
0.44
0.31
0.42
0.022
0.022
0.015
0.018
0.015
0.016
0.015
0.018
0.015
0.016
0.022
0.022
0.015
0.018
0.015
0.016
0.015
0.018
0.015
0.016
–
–
–
–
–
–
–
–
–
–
0.05
0.05
0.05
0.06
0.06
0.05
0.05
0.05
0.06
0.06
–
–
–
–
–
0.05
657.4
690.7
0.05
1,356.2
1,357.7
0.05
2,013.7
2,048.4
0.06
1,637.0
1,614.1
0.06
3,650.7
3,662.5
0.05
657.4
690.7
0.05
1,356.2
1,357.7
0.05
2,013.7
2,048.4
0.06
1,637.0
1,614.1
0.06
3,650.7
3,662.5
–
–
–
–
–
58.1
165.0
61.5
161.0
223.0
222.5
8.5
13.9
231.5
236.4
0.011
0.012
0.012
0.011
0.011
0.012
0.012
0.012
0.011
0.012
0.19
0.12
0.14
0.09
0.12
0.19
405.6
419.8
0.12
1,163.6
1,155.1
0.14
1,569.3
1,575.0
0.09
728.3
676.0
0.13
2,297.5
2,251.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
463.7
481.3
1,328.6
1,316.1
1,792.3
1,797.5
736.8
689.9
2,529.0
2,487.4
134.4
43.8
178.1
1.2
134.5
43.8
178.2
1.2
179.3
179.4
0.015
0.014
0.015
0.012
0.015
0.015
0.014
0.015
0.012
0.014
0.21
0.18
0.19
0.15
0.19
0.21
0.17
0.19
0.13
0.18
407.7
478.9
886.6
92.5
407.9
498.2
906.1
126.9
979.1
1,032.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
542.0
522.7
542.3
542.0
1,064.7
1,084.3
93.7
128.1
1,158.4
1,212.4
192
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
GROUP SUBSIDIARIES
Mirador (see note (d))
Oxides
Measured
Indicated
Measured + Indicated
Inferred
Sub-Total
Sulphides
Measured
Indicated
Measured + Indicated
Inferred
Sub-Total
Mirador Total
Measured
Indicated
Measured + Indicated
Inferred
Total
Llano (see note (e))
Oxides
Measured
Indicated
Measured + Indicated
Inferred
Sub-Total
Llano Total
Measured
Indicated
Measured + Indicated
Inferred
Total
Paleocanal (see note (f))
Oxides
Measured
Indicated
Measured + Indicated
Inferred
Sub-Total
Paleocanal Total
Measured
Indicated
Measured + Indicated
Inferred
Total
TONNAGE
(MILLIONS OF TONNES)
2016
2015
2016
COPPER
(%)
2015
MOLYBDENUM
(%)
GOLD
(G/TONNE)
ATTRIBUTABLE TONNAGE
(MILLIONS OF TONNES)
2016
2015
2016
2015
2016
2015
0.7
17.6
18.3
25.6
44.0
1.2
23.1
24.2
14.1
38.3
1.9
40.7
42.6
39.7
82.3
27.9
4.0
31.9
0.6
32.5
27.9
4.0
31.9
0.6
32.5
11.3
4.4
15.7
1.3
17.0
11.3
4.4
15.7
1.3
17.0
0.2
8.0
8.2
13.4
21.6
1.1
17.7
18.8
10.2
29.0
1.3
25.7
27.0
23.5
50.6
26.9
3.8
30.8
0.6
31.4
26.9
3.8
30.8
0.6
31.4
10.3
3.4
13.7
0.5
14.2
10.3
3.4
13.7
0.5
14.2
0.42
0.36
0.36
0.29
0.32
0.40
0.35
0.35
0.28
0.33
0.41
0.36
0.36
0.28
0.32
0.52
0.42
0.51
0.42
0.51
0.52
0.42
0.51
0.42
0.51
0.50
0.42
0.48
0.30
0.46
0.50
0.42
0.48
0.30
0.46
0.47
0.47
0.47
0.28
0.35
0.41
0.36
0.37
0.29
0.34
0.42
0.40
0.40
0.29
0.34
0.53
0.43
0.52
0.44
0.51
0.53
0.43
0.52
0.44
0.51
0.52
0.41
0.49
0.33
0.49
0.52
0.41
0.49
0.33
0.49
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.15
0.13
0.13
0.09
0.11
0.15
0.14
0.14
0.09
0.12
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.6
13.8
14.3
20.0
34.3
1.2
23.1
24.2
14.1
38.3
1.8
36.8
38.6
34.1
72.7
19.8
2.8
22.7
0.4
23.1
19.8
2.8
22.7
0.4
23.1
10.2
3.9
14.2
1.2
15.4
10.2
3.9
14.2
1.2
15.4
0.2
8.0
8.2
13.4
21.6
1.1
17.7
18.8
10.2
29.0
1.3
25.7
27.0
23.5
50.6
19.1
2.7
21.9
0.4
22.3
19.1
2.7
21.9
0.4
22.3
9.1
3.0
12.2
0.5
12.6
9.1
3.0
12.2
0.5
12.6
ANTOFAGASTA.CO.UK
193
OTHER INFORMATION: ORE RESERVES AND MINERAL RESOURCES ESTIMATES CONTINUED
AT 31 DECEMBER 2016
MINERAL RESOURCES ESTIMATES (INCLUDING ORE RESERVES) CONTINUED
GROUP SUBSIDIARIES
Polo Sur (see note (g))
Oxides
Measured
Indicated
Measured + Indicated
Inferred
Sub-Total
Sulphides
Measured
Indicated
Measured + Indicated
Inferred
Sub-Total
Polo Sur Total
Measured
Indicated
Measured + Indicated
Inferred
Total
Penacho Blanco (see note (h))
Oxides
Measured
Indicated
Measured + Indicated
Inferred
Sub-Total
Sulphides
Measured
Indicated
Measured + Indicated
Inferred
Sub-Total
Penacho Blanco Total
Measured
Indicated
Measured + Indicated
Inferred
Total
TONNAGE
(MILLIONS OF TONNES)
2016
2015
2016
COPPER
(%)
2015
MOLYBDENUM
(%)
GOLD
(G/TONNE)
ATTRIBUTABLE TONNAGE
(MILLIONS OF TONNES)
2016
2015
2016
2015
2016
2015
–
86.8
86.8
38.8
–
86.8
86.8
38.7
125.6
125.5
–
704.1
704.1
684.8
–
706.1
706.1
712.2
1,388.9
1,418.2
–
–
790.9
792.9
790.9
723.6
792.9
750.8
1,514.5
1,543.7
–
0.43
0.43
0.35
0.40
–
0.37
0.37
0.30
0.34
–
0.38
0.38
0.31
0.34
–
–
–
–
–
–
–
–
–
–
0.43
0.43
0.35
0.40
–
0.37
0.37
0.30
0.34
–
0.38
0.38
0.31
0.34
–
–
–
18.3
18.3
11.0
11.0
0.29
0.29
0.30
0.30
–
–
–
–
–
–
–
–
–
–
–
–
321.9
321.9
281.8
281.8
0.38
0.38
0.41
0.41
–
–
–
–
–
–
–
–
–
–
–
–
340.2
292.8
340.2
292.8
0.37
0.37
0.41
0.41
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.007
0.007
0.007
0.007
0.007
0.007
0.007
0.007
0.06
0.06
0.05
0.05
–
–
–
–
–
–
0.06
0.06
0.05
–
86.8
86.8
38.8
–
86.8
86.8
38.7
125.6
125.5
–
704.1
704.1
684.8
–
706.1
706.1
712.2
0.05
1,388.9
1,418.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
790.9
790.9
723.6
–
792.9
792.9
750.8
1,514.5
1,543.7
–
–
–
9.3
9.3
–
–
–
–
–
–
5.6
5.6
–
–
–
0.05
0.05
0.05
0.05
164.2
164.2
143.7
143.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
173.5
173.5
149.3
149.3
194
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
GROUP SUBSIDIARIES
Antucoya (see note (i))
Oxides
Measured
Indicated
Measured + Indicated
Inferred
Total
Antucoya Total
Measured
Indicated
Measured + Indicated
Inferred
Total
Los Volcanes (see note (j))
Oxides
Measured
Indicated
Measured + Indicated
Inferred
Sub-Total
Sulphides
Measured
Indicated
Measured + Indicated
Inferred
Sub-Total
Los Volcanes Total
Measured
Indicated
Measured + Indicated
Inferred
Total
Michilla (see note (k))
Oxides
Measured
Indicated
Measured + Indicated
Inferred
Total
Michilla Total
Measured
Indicated
Measured + Indicated
Inferred
Total
TONNAGE
(MILLIONS OF TONNES)
2016
2015
2016
COPPER
(%)
2015
MOLYBDENUM
(%)
GOLD
(G/TONNE)
ATTRIBUTABLE TONNAGE
(MILLIONS OF TONNES)
2016
2015
2016
2015
2016
2015
412.4
437.3
472.8
463.0
885.1
900.3
410.5
354.7
1,295.7
1,255.1
412.4
437.3
472.8
463.0
885.1
900.3
410.5
354.7
1,295.7
1,255.1
0.34
0.30
0.32
0.27
0.30
0.34
0.30
0.32
0.27
0.30
–
–
–
–
–
–
–
–
–
0.34
0.30
0.32
0.27
0.31
0.34
0.30
0.32
0.27
0.31
–
–
–
30.4
30.4
30.4
30.4
0.31
0.31
0.31
0.31
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,873.4
1,873.4
1,873.4
1,873.4
0.50
0.50
0.50
0.50
0.011
0.011
0.011
0.011
–
–
–
–
–
–
–
–
–
–
–
–
1,903.8
1,903.8
1,903.8
1,903.8
0.50
0.50
0.50
0.50
–
–
–
–
–
–
–
–
–
–
22.0
23.2
45.2
15.1
60.3
22.0
23.2
45.2
15.1
60.3
–
–
–
–
–
–
–
–
–
–
1.72
1.51
1.61
1.72
1.64
1.72
1.51
1.61
1.72
1.64
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
288.6
331.0
619.6
287.4
907.0
288.6
331.0
619.6
287.4
907.0
–
–
15.5
15.5
–
–
–
306.1
324.1
630.2
248.3
878.6
306.1
324.1
630.2
248.3
878.6
–
–
15.5
15.5
–
–
–
955.4
955.4
955.4
955.4
–
–
–
–
–
–
970.9
970.9
970.9
970.9
–
–
–
–
–
–
–
–
–
–
22.0
23.2
45.2
15.1
60.3
22.0
23.2
45.2
15.1
60.3
ANTOFAGASTA.CO.UK
195
OTHER INFORMATION: ORE RESERVES AND MINERAL RESOURCES ESTIMATES CONTINUED
AT 31 DECEMBER 2016
MINERAL RESOURCES ESTIMATES (INCLUDING ORE RESERVES) CONTINUED
TONNAGE
(MILLIONS OF TONNES)
2016
2015
2016
COPPER
(%)
2015
NICKEL
(%)
2015
TPM
(G/TONNE AU+PT+PD)
ATTRIBUTABLE TONNAGE
(MILLIONS OF TONNES)
2016
2015
2016
2015
2016
Measured + Indicated
1,025.0
1,025.0
GROUP SUBSIDIARIES
Twin Metals (see note (l))
Maturi
Measured
Indicated
Inferred
Sub-Total
Maturi South West
Measured
Indicated
Measured + Indicated
Inferred
Sub-Total
Birch Lake
Measured
Indicated
Measured + Indicated
Inferred
Sub-Total
Spruce Road
Measured
Indicated
Measured + Indicated
Inferred
Sub-Total
Twin Metals Total
Measured
Indicated
Measured + Indicated
Inferred
Total
Group subsidiaries
Measured + Indicated
Inferred
279.5
745.5
279.5
745.5
481.4
481.4
1,506.4
1,506.4
–
93.1
93.1
29.3
–
93.1
93.1
29.3
122.4
122.4
–
90.4
90.4
–
90.4
90.4
217.0
217.0
307.4
307.4
–
–
–
–
–
–
0.63
0.58
0.59
0.49
0.56
–
0.48
0.48
0.43
0.47
–
0.52
0.52
0.46
0.48
–
–
–
435.5
435.5
435.5
435.5
0.43
0.43
279.5
279.5
929.1
929.1
1,208.6
1,208.6
1,163.1
1,163.1
2,371.7
2,371.7
0.63
0.56
0.58
0.46
0.52
9,956.0 10,084.6
8,457.5
8,308.9
0.47
0.42
0.63
0.58
0.59
0.49
0.56
–
0.48
0.48
0.43
0.47
–
0.52
0.52
0.46
0.48
–
–
–
0.43
0.43
0.63
0.56
0.58
0.46
0.52
0.48
0.43
0.20
0.20
0.19
0.19
0.16
0.18
–
0.17
0.17
0.15
0.17
–
0.16
0.16
0.15
0.15
–
–
–
0.19
0.19
0.16
0.18
–
0.17
0.17
0.15
0.17
–
0.16
0.16
0.15
0.15
–
–
–
0.16
0.16
0.16
0.16
0.20
0.20
0.19
0.19
0.16
0.17
0.19
0.19
0.16
0.17
–
–
0.57
0.59
0.58
0.52
0.56
–
0.31
0.31
0.26
0.30
–
0.87
0.87
0.64
0.70
–
–
–
–
–
0.57
0.59
0.58
0.52
215.3
712.5
927.7
433.6
215.3
712.5
927.7
433.6
0.56
1,361.3
1,361.3
–
0.31
0.31
0.26
0.30
–
0.87
0.87
0.64
0.70
–
–
–
–
–
–
65.2
65.2
20.5
85.7
–
63.3
63.3
151.9
215.2
–
–
–
–
65.2
65.2
20.5
85.7
–
63.3
63.3
151.9
215.2
–
–
–
304.8
304.8
304.8
304.8
0.57
0.59
0.58
0.34
0.46
0.57
0.59
215.3
840.9
215.3
840.9
0.58
1,056.2
1,056.2
0.34
910.8
910.8
0.46
1,967.0
1,967.0
7,412.7
7,515.8
5,569.4
5,501.8
12,982.2
13,017.8
Group Subsidiaries total
18,413.5 18,393.5
0.45
0.45
196
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
GROUP JOINT VENTURES
Zaldívar (see note (m))
Oxides
Measured
Indicated
TONNAGE
(MILLIONS OF TONNES)
2016
2015
2016
COPPER
(%)
2015
MOLYBDENUM
(%)
GOLD
(G/TONNE)
ATTRIBUTABLE TONNAGE
(MILLIONS OF TONNES)
2016
2015
2016
2015
2016
2015
444.2
465.1
177.4
111.1
Measured + Indicated
621.6
576.3
Inferred
Total
Zaldívar Total
Measured
Indicated
Measured + Indicated
Inferred
Group Joint Ventures total
8.1
6.0
629.7
582.3
444.2
465.1
177.4
111.1
621.6
576.3
8.1
6.0
629.7
582.3
0.50
0.45
0.49
0.53
0.49
0.50
0.45
0.49
0.53
0.49
0.53
0.50
0.52
0.61
0.53
0.53
0.50
0.52
0.61
0.53
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
222.1
232.6
88.7
310.8
4.1
314.9
55.6
288.1
3.0
291.1
222.1
232.6
88.7
310.8
4.1
314.9
55.6
288.1
3.0
291.1
TOTAL GROUP
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
Measured + Indicated
Inferred
Total
10,577.6 10,660.9
8,465.6
8,314.9
0.47
0.42
0.48
0.43
19,043.2 18,975.7
0.45
0.46
7,723.5
7,803.9
5,573.5
5,504.8
13,297.0
13,308.7
ANTOFAGASTA.CO.UK
197
OTHER INFORMATION: ORE RESERVES AND MINERAL RESOURCES ESTIMATES CONTINUED
AT 31 DECEMBER 2016
NOTES TO ORE RESERVES AND MINERAL RESOURCES ESTIMATES
The ore reserves mentioned in this report were determined considering specific cut-off grades for each mine and using a long-term copper price of $3.10/lb
(unchanged from 2015), $9.00/lb molybdenum ($10.00/lb in 2015) and $1,250/oz gold ($1,300 in 2015), unless otherwise noted. These same values have been
used for copper equivalent (CuEq) estimates, where appropriate.
In order to ensure that the stated resources represent mineralisation that has “reasonable prospects for eventual economic extraction” (JORC code) the
resources are enclosed within pit shells that were optimised based on measured, indicated and inferred resources and considering a copper price of $3.60/lb
(unchanged from 2015). Mineralisation estimated outside these pit shells is not included in the resource figures.
A) LOS PELAMBRES
Los Pelambres is 60% owned by the Group. The cut-off grade applied to the determination of ore reserves is 0.42% copper and for mineral resources is 0.35%
copper. For 2016 the mineral resource model has been updated with 28 drill holes for a total of 6,264 metres. The decrease of 52 million tonnes in ore
reserves is due principally to depletion in the period and reflects the remaining capacity of the existing tailing dams, limiting the amount of mineral resource that
can be converted into ore reserves. Mineral resources in the measured plus indicated categories decreased by 58 million tonnes, also due principally to
depletion in the period. Resources in the inferred category increased by 38 million tonnes as a result of incorporation of new information from the drilling
campaign to the resource model.
B) CENTINELA (CONCENTRATES & CATHODES)
Centinela is 70% owned by the Group and consists of Centinela Concentrates (Esperanza + Esperanza Sur, mostly sulphide porphyry deposits) and Centinela
Cathodes (Tesoro Central, an oxide deposit + the oxide portion of the Mirador deposit) operations. The cut-off grade applied to the determination of ore reserves
for Centinela Concentrates is 0.20% equivalent copper, with 0.15% copper used as a cut-off grade for mineral resources. The cut-off grade used for the
Centinela Cathodes deposits is as follows: Tesoro Central deposit is 0.41% copper for ore reserves and 0.30% for mineral resources; the Mirador Oxides
deposit is 0.30% copper for ore reserves and 0.15% for mineral resources. The cut-off grade applied to oxides contained in the Esperanza deposit (processed
separately as Run-of-Mine leach, or ROM) is 0.20% copper for ore reserves and 0.15% copper for mineral resources. Centinela ore reserves decreased by a
net 36 million tonnes after depletion of 31 million tonnes, while mineral resources increased by a net 60 million tonnes. The increase is mainly in Esperanza and
Esperanza Sur deposits due to updates to the economic parameters in the period. The Centinela Cathodes ore reserves are made up of 80.7 million tonnes at
0.60% copper of heap leach ore and 109.2 million tonnes at 0.28% copper of ROM ore.
C) ENCUENTRO
Encuentro is 100% owned by the Group. The cut-off grade applied to the determination of mineral resources for both oxides and sulphides is 0.15% copper. The
oxide portion of the porphyry copper deposit is part of the Encuentro Oxides project currently in construction and will feed into the Centinela Cathodes
operation. Ore Reserves are related to the Encuentro Oxide project, use a cut-off grade of 0.20% copper and have remained virtually unchanged from 2015.
The decrease of 54 million tonnes in mineral resources is mainly due to changes in economic assumptions impacting the sulphide portion of the deposit.
D) MIRADOR
Mirador is 100% owned by the Group. A portion of Mirador Oxides is subject to an agreement between the Group and Centinela, whereby Centinela purchased
the rights to mine the oxide ore reserves within an identified area. The ore reserves and mineral resources for Mirador Oxides subject to the agreement with
Centinela are included in the Centinela Cathodes section. The resources not subject to the agreement are reported in this section. The cut-off grade applied to
the determination of mineral resources for oxides is 0.15% copper and for sulphides is 0.20% copper. For 2016 the resource model has been updated with 122
drill holes for a total of 20,002 metres. The increase of 32 million tonnes in resources is due principally to a decrease in projected processing costs.
E) LLANO
The Llano deposit is covered by AMSA and Centinela mining tenements shared in different proportions, with the Group owning 71.1% of the resource.
The cut-off grade applied to the determination of mineral resources is 0.15% copper. For 2016 the resource model has not been updated.
F) PALEOCANAL
The Paleocanal deposit is covered by AMSA and Centinela mining tenements shared in different proportions, with the Group owning 90.2% of the resource.
The cut-off grade applied to the determination of mineral resources is 0.15% copper. For 2016 the resource model has not been updated.
G) POLO SUR
Polo Sur is 100% owned by the Group. The cut-off grade applied to the determination of mineral resources for both oxides and sulphides is 0.20% copper.
For 2016 the resource model has been refined without additional drill holes.
H) PENACHO BLANCO
Penacho Blanco is 51% owned by the Group. The cut-off grade applied to the determination of mineral resources for both oxides and sulphides is 0.20%
copper. For 2016 the resource model has been refined without additional drill holes.
I) ANTUCOYA
Antucoya is 70% owned by the Group. The ore reserve cut-off grade is calculated using an economic formula with a minimum of 0.16% copper, while the
cut-off grade for mineral resources is 0.15% copper. Despite depletion in the period of 24 million tonnes, ore reserves have increased by 10 million tonnes
mainly due to changes in economic assumptions and an updated pit design. Mineral Resources have increased by 40 million tonnes due to changes in economic
assumptions and changes to the geo-metallurgical model.
J) LOS VOLCANES
Los Volcanes is 51% owned by the Group. The cut-off grade applied to the determination of ore reserves and mineral resources is 0.20% copper. For 2016 the
mineral resource model has not been updated.
K) MICHILLA
During 2016 Michilla was sold to Haldeman Mining Company S.A.
198
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
L) TWIN METALS MINNESOTA LLC
Twin Metals Minnesota LLC ("Twin Metals") is owned 100% by the Group.
Twin Metals has a 70% interest in the Birch Lake Joint Venture ("BLJV") which holds the Birch Lake, Spruce Road and Maturi Southwest deposits, as well as a
portion of the main Maturi deposit. With these interests taken into consideration, Twin Metals owns 82.9% of the resource. The resource estimate remains
unchanged from 2015.
The cut-off grade applied to the determination of mineral resources is 0.3% copper, which when combined with credits from nickel, platinum, palladium and
gold, is deemed appropriate for an underground operation. In the resource table ‘TPM’ (Total Precious Metals) refers to the sum of platinum, palladium and gold
values in grammes per tonne. The TPM value of 0.57 g/tonne for the Maturi resource estimate is made up of 0.15 g/tonne platinum, 0.34 g/tonne palladium and
0.08 g/tonne gold. The TPM value of 0.30 g/tonne for the Maturi Southwest resource estimate is made up of 0.08 g/tonne platinum, 0.17 g/tonne palladium and
0.05 g/tonne gold. The TPM value of 0.70 g/tonne for the Birch Lake resource estimate is made up of 0.19 g/tonne platinum, 0.41 g/tonne palladium and 0.10
g/tonne gold. The Spruce Road resource estimate does not include TPM values as they were not assayed.
The Solicitor of the Department of the Interior (DOI) issued a legal opinion concluding that the Bureau of Land Management (BLM) has discretion to deny Twin
Metals’ application for renewal of federal mineral leases MNES-1352 and MNES-1353. The United States Forest Service (USFS) declined to consent to renewal
of the leases on 14 December 2016, and BLM rejected Twin Metals’ application to renew the leases the next day. These leases represent only a portion of Twin
Metals’ total mineral resources shown above.
On 12 September 2016, Twin Metals (TMM) filed a complaint in the U.S. District Court in Minnesota against the DOI. TMM brought claims seeking to secure its
rights to the two federal mineral leases. Following the USFS withholding of consent and BLM’s denial of renewal, TMM filed an amended complaint on
3 January 2017, adding the USDA and the USFS as defendants. The amended complaint seeks similar relief and also requests that the court overturn the
government’s denial of the leases. The government has not yet responded to the amended complaint. As stated in the lawsuit filed in September 2016, TMM
believes denial of the leases is inconsistent with federal law, the terms of leases themselves and the federal government's established precedent in supporting
and renewing the leases over five decades. While TMM is assessing the impact of the agencies' lease renewal decision, Twin Metals is committed to progressing
the project and will continue to pursue legal avenues to protect its contractual mineral rights.
M) ZALDÍVAR
Zaldívar is 50% owned by the Group. Ore Reserves have been estimated considering a copper price of $3.10/lb ($3.00/lb in 2015), while the Mineral Resources
estimated considering a copper price of $3.60/lb ($3.50/lb in 2015). Cut-off grades are calculated using an economic formula which is equivalent to
approximately 0.20% copper. For 2016 the mineral resource model has not been updated. Mineral Resources have increased by 47 million tonnes due to
changes in economic assumptions and changes to the geo-metallurgical model. Ore Reserves increased by 5.5 million tonnes mostly due to a change in criteria
related to ore-in-process. In-situ plus stockpiled ore is estimated to be 405.3 million tonnes at 0.54% copper (330.6 million tonnes of heap leach ore plus 74.7
million tonnes of dump leach ore), while ore-in-process is estimated to be 54.8 million tonnes at 0.28% copper (17.4 million tonnes of heap leach ore plus 37.4
million tonnes of dump leach ore). The heap leach process has a leach cycle of approximately one year and the dump leach process has a leach cycle of
approximately two years. Ore Reserves in the Proved category decreased by 89 million tonnes, while Probable Ore Reserves increased by a corresponding 94
million tonnes. This is mostly due to a change in criteria for the conversion of Resources to Reserves in a portion of the deposit with a lower density of
geo-metallurgical information, whereby Measured Resources are converted to Probable Reserves. Additionally, Dump Leach ore-in-process as categorised both
as Indicated Resource and Probable Reserve.
N) OTHER MINERAL INVENTORY
In addition to the Mineral Resources noted above, the Group has interests in other deposits located in the Antofagasta Region of Chile, some of them containing
gold and/or molybdenum. At the moment they are in exploration or in the process of resource estimation. The potential quantity and grade of each of the
deposits is conceptual in nature, there has been insufficient exploration to define these deposits as mineral resources, and it is uncertain if further exploration
will result in the determination of a mineral resource. These include:
(I) IN THE MICHILLA DISTRICT
The Rencoret deposit, owned 100% by the Group.
MINERAL DEPOSIT
TONNES RANGE (MILLION TONNES)
GRADE RANGE (% CU)
Rencoret
Total
15
15
25
25
1.22
1.22
1.00
1.00
NUMBER
DRILL HOLES
31
31
TOTAL
METRES
8,300
8,300
OWNERSHIP
INTEREST (%)
100.0
(II) IN THE EL ABRA DISTRICT
Brujilina is a mineral deposit within a few kilometres of the El Abra ore body, located near Calama in the Antofagasta Region of Chile. The Mineral Inventory of
Brujulina deposit, owned 51% by the Group, is estimated to be in the range of 50 to 80 million tonnes with grades in the range of 0.65% to 0.53% copper.
MINERAL DEPOSIT
TONNES RANGE (MILLION TONNES)
GRADE RANGE (% CU)
Brujulina
Total
50
50
80
80
0.65
0.65
0.53
0.53
NUMBER
DRILL HOLES
159
159
TOTAL
METRES
15,300
15,300
OWNERSHIP
INTEREST (%)
51.0
O) ANTOMIN 2 AND ANTOMIN INVESTORS
The Group has an approximately 51% interest in two indirect subsidiaries, Antomin 2 Limited (“Antomin 2”) and Antomin Investors Limited (“Antomin
Investors”), which own a number of copper exploration properties in Chile’s Antofagasta Region and Coquimbo Region. These include, among others, Penacho
Blanco, Los Volcanes (ex-Conchi) and Brujulina (see Note N(ii) above). The remaining approximately 49% of Antomin 2 and Antomin Investors is owned by
Mineralinvest Establishment (“Mineralinvest”), which is owned by a Liechtenstein foundation, in which members of the Luksic family are interested.
Further details are set out in Note 35(c) to the financial statements.
ANTOFAGASTA.CO.UK
199
GLOSSARY AND DEFINITIONS
BUSINESS, FINANCIAL AND ACCOUNTING
All Injury Frequency Rate.
Continental water
AIFR
Alto Maipo
AMSA
Annual Report
Antucoya
ATI
Australian dollars
Banco de Chile
Barrick Gold
BEIS
Capex
Cash costs
CCU
CDP
Centinela
Centinela Mining District
CGU
Chilean peso
Comex
Companies Act 2006
Alto Maipo SpA, a 40%-owned associate
of the Group incorporated in Chile, which
owns the Alto Maipo hydroelectric project
in the upper section of the Maipo River
in Chile.
Antofagasta Minerals S.A., a wholly-
owned subsidiary of the Group
incorporated in Chile, which acts as the
corporate centre for the mining division.
The Annual Report and Financial
Statements of Antofagasta plc.
Minera Antucoya S.A., a 70%-owned
subsidiary of the Group incorporated
in Chile.
Antofagasta Terminal Internacional S.A.,
a 30%-owned associate of the Group
incorporated in Chile that operates the
port in the city of Antofagasta.
Australian currency.
A commercial bank that is a subsidiary
of Quiñenco.
Barrick Gold Corporation, incorporated
in Canada. Joint venture partner of the
Group in each of Zaldívar and Tethyan.
Department for Business, Energy and
Industrial Strategy.
Capital expenditure.
A measure of the cost of operating
production expressed in terms of US
dollars per pound of payable copper
produced. Cash costs are stated net of
by-product credits and include tolling
charges for concentrates for Los
Pelambres and Centinela. Cash costs
exclude depreciation, financial income
and expenses, hedging gains and
losses, exchange gains and losses, and
corporation tax.
Compañía de Cervecerías Unidas S.A.,
a brewing company and associate
of Quiñenco.
Carbon Disclosure Project.
Minera Centinela S.A., a 70%-owned
subsidiary of the Group incorporated
in Chile that holds the Centinela
Concentrates (formerly Esperanza)
and Centinela Cathodes (formerly El
Tesoro) operations.
Copper district located in the Antofagasta
Region of Chile, where Centinela is
located.
Cash-Generating Unit.
Chilean currency.
A commodity exchange that trades
metals such as gold, silver, copper
and aluminium.
Principal legislation for United Kingdom
company law.
Company
Antofagasta plc.
Corporate
Governance Code
Directors
Duluth
EBITDA
EIA
El Arrayán
Encuentro
Energía Andina
EPS
Esperanza Sur
EU
FCA
FCAB
FTSE All-Share Index
GAAP
GHG
Government
Group
Hedge accounting
IAS
IASB
ICMM
IFRIC
IFRS
Water that comes from the interior of land
masses including rain, snow, streams,
rivers, lakes and groundwater.
The UK Corporate Governance Code
is a set of principles of good corporate
governance, most of which have their
own more detailed provisions published
by the Financial Reporting Council, most
recently updated in September 2014.
The Directors of the Company.
Duluth Metals Limited, a wholly-owned
subsidiary of Antofagasta plc acquired
on 28 January 2015 through which the
Group holds the Twin Metals Project.
Earnings Before Interest, Tax,
Depreciation and Amortisation.
Environmental Impact Assessment.
Parque Eólico el Arrayán SpA, a
30%-owned associate of the Group that
operates a wind-power plant providing up
to 40MW of electricity to Los Pelambres.
Copper oxide and sulphide prospect in the
Centinela Mining District.
Energía Andina S.A., a 50%-owned joint
venture entity of the Group incorporated
in Chile.
Earnings per share.
Copper deposit in the Centinela
Mining District.
European Union.
Financial Conduct Authority. UK
regulatory body.
Ferrocarril de Antofagasta a Bolivia,
the corporate name of the Group’s
transport division.
A market-capitalisation weighted index
representing the performance of all
eligible companies listed on the London
Stock Exchange’s main market.
Generally Accepted Accounting Practice
or Generally Accepted Accounting
Principles, a collection of commonly-
followed accounting rules and standards
for financial reporting.
Greenhouse Gas.
The Government of the Republic of Chile.
Antofagasta plc and its subsidiary
companies and joint ventures.
Accounting treatment for derivative
financial instruments permitted under IAS
39 “Financial Instruments: Recognition
and Measurement“, which recognises
the offsetting effects on profit or loss of
changes in the fair values of a hedging
instrument and the hedged item.
International Accounting Standards.
International Accounting Standards Board.
International Council on Metals and
Mining.
International Financial Reporting
Interpretations Committee.
International Financial
Reporting Standards.
200
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
Quiñenco
Ramsar Convention
RCA
Realised prices
Run-of-river
SAP
SERNAGEOMIN
SHFE
SONAMI
Sterling
SVS
Tesoro Central and
Tesoro Noreste
Tethyan
TSR
Twin Metals
Minnesota Project
UK
UKLA
US
US dollar
Zaldívar
Quiñenco S.A., a Chilean financial and
industrial group and controlled by a
foundation in which the Luksic family
are interested and listed on the Santiago
Stock Exchange.
International treaty for the conservation
and sustainable utilisation of wetlands.
Resolucion de Calificación Ambiental,
Environmental Approval Resolution.
Effective sale price achieved comparing
revenues (grossed up for tolling charges
for concentrate) with sales volumes.
A type of hydroelectric plant using the
flow of a river as it occurs and having
little or no reservoir capacity.
Systems, Applications and Products.
An ERP (“Enterprise Resource
Planning”)system and data
management programme.
Servicio Nacional de Geología y Minería,
a government agency that provides
geological and technical advice and
regulates the mining industry in Chile.
Shanghai Futures Exchange.
Sociedad Nacional de Minería. Institution
that represents the mining activity in
Chile, for large, medium and small scale,
metallic and non-metallic companies.
Pounds sterling, UK currency.
Superintendencia de Valores y Seguros
de Chile, the Chilean securities regulator.
Copper oxide open pits forming part of the
Centinela operation.
Tethyan Copper Company Limited, a
50-50 joint venture with Barrick Gold
incorporated in Australia.
Total Shareholder Return, being the
movement in the Company’s share price
plus reinvested dividends.
A copper, nickel and platinum group
metals underground-mining project
located in Minnesota, US.
United Kingdom.
United Kingdom Listing Authority, part of
the FCA.
United States.
United States currency.
Compañía Minera Zaldívar SpA, a 50-50
joint venture with Barrick Gold, which
operates the Zaldívar copper mine
in Chile.
Inversiones Hornitos
IVA
Key Management Personnel
KPI
LBMA
LIBOR
LME
Los Pelambres
LSE
LTIFR
LTIP
Madeco
MARC
Marubeni
Michilla
PEP
Platts
PPA
Provisional pricing
Inversiones Hornitos S.A., a 40%-owned
associate of the Group incorporated in
Chile, which owns the 150MW Hornitos
thermoelectric power plant in Mejillones
in Chile’s Antofagasta Region.
Impuesto al Valor Agregado, or Chilean
Value Added Tax (Chilean VAT).
Persons with authority and responsibility
for planning, directing and controlling the
activities of the Group.
Key performance indicator.
London Bullion Market Association.
London Inter Bank Offered Rate.
London Metal Exchange.
Minera Los Pelambres S.A., a
60%-owned subsidiary of the Group
incorporated in Chile.
London Stock Exchange.
Lost Time Injury Frequency Rate.
Long Term Incentive Plan in which the
Group’s CEO, Executive Committee
members and the other senior managers
participate.
Madeco S.A., a subsidiary of Quiñenco.
Maintenance and Repair Contract. A
maintenance contract under which the
service provider commits a certain level
of availability of the equipment within
the scope.
Marubeni Corporation, the Group’s
30% minority partner in Centinela
and Antucoya.
Minera Michilla S.A., a 99.9%-owned
subsidiary of the Group incorporated in
Chile which was closed at the end of
2015 and sold in November 2016.
Politically Exposed Person, an individual
who holds or has held a prominent public
position in a national or international
organisation within the last year.
A provider of energy and metals
information and source of benchmark
price assessments.
Power Purchase Agreement.
A sales term in several copper
and molybdenum concentrate sale
agreements and cathodes sale
agreements that provides for provisional
pricing of sales at the time of shipment,
with final pricing being based on the
monthly average LME copper price or
monthly average molybdenum price for
specific future periods, normally ranging
from 30 to 180 days after delivery to the
customer. For the purposes of IAS 39, the
provisional sale is considered to contain
an embedded derivative (ie the forward
contract for which the provisional sale is
subsequently adjusted) that is separated
from the host contract (ie the sale of
metals contained in the concentrate or
cathode at the provisional invoice price
less tolling charges deducted).
ANTOFAGASTA.CO.UK
201
GLOSSARY AND DEFINITIONS CONTINUED
MINING INDUSTRY
Brownfield project
By-products (credits in
copper concentrates)
Concentrate
Contained copper
Copper cathode
Cut-off grade
Flotation
Grade A copper cathode
Greenfield project
Heap-leaching or leaching
JORC
ktpd
Life-of-Mine (“LOM”)
Mineral resources
MW
Net cash cost
Open pit
Ore
A development or exploration project in
the vicinity of an existing operation.
Ore grade
Products obtained as a result of copper
processing. Los Pelambres and Centinela
Concentrates receive credit for the
gold and silver content in the copper
concentrate sold. Los Pelambres also
produces molybdenum concentrate.
The product of a physical concentration
process, such as flotation or gravity
concentration, which involves separating
ore minerals from unwanted waste
rock. Concentrates require subsequent
processing (such as smelting or leaching)
to break down or dissolve the ore
minerals and obtain the desired elements,
usually metals.
The proportion or quantity of copper
contained in a given quantity of ore
or concentrate.
Refined copper produced by
electrolytic refining of impure copper
by electrowinning.
The lowest grade of mineralised material
considered economic to process and used
in the calculation of ore reserves and
mineral resources.
A process of separation by which
chemicals in solution are added to
materials, some of which are attracted to
bubbles and float, while others sink. This
results in the production of concentrate.
Highest-quality copper cathode (LME
registered and certified in the case of
Centinela Cathodes).
The development or exploration of a new
project at a previously undeveloped site.
A process for the recovery of copper
from ore, generally oxides. The crushed
material is laid on a slightly sloping,
impermeable pad and leached by
uniformly trickling (gravity fed) chemical
solution through the beds to ponds. The
metal is then recovered from the solution
through the SX-EW process.
The Australasian Joint Ore
Reserves Committee.
Thousand tonnes per day.
The remaining life of a mine expressed
in years, calculated by reference to
scheduled production rates (ie comparing
the rate at which ore is expected to
be extracted from the mine to current
defined reserves).
Material of intrinsic economic interest
occurring in such form and quantity
that there are reasonable prospects for
eventual economic extraction. Mineral
resources are stated inclusive of ore
reserves, as defined by JORC.
Megawatts (one million watts).
Ore reserves
Oxide and sulphide ores
Payable copper
Porphyry
Run-of-Mine (“ROM”)
Stockpile
SX-EW
Tailings dam
TC/RCs
Tolling charges
Gross cash costs less by-product credits.
Mine working or excavation that is open to
the surface.
Tonne
tpd
Rock from which metal(s) or mineral(s)
can be economically and legally extracted.
Underground mine
The relative quantity, or percentage, of
metal content in an ore body or quantity
of processed ore.
Part of Mineral Resources for which
appropriate assessments have been
carried out to demonstrate that at a
given date extraction could be reasonably
justified. These include consideration
of and modification by realistically
assumed mining, metallurgical, economic,
marketing, legal, environmental, social and
governmental factors.
Different kinds of ore containing copper.
Oxide ore occurs on the weathered
surface of ore-rich lodes and normally
results in the production of cathode
copper through a heap-leaching process.
Sulphide ore comes from an unweathered
parent ores process and normally
results in the production of concentrate
through a flotation process which then
requires smelting and refining to produce
cathode copper.
The proportion or quantity of contained
copper for which payment is received
after metallurgical deduction.
A large body of rock which contains
disseminated chalcopyrite and other
sulphide minerals. Such a deposit is
mined in bulk on a large scale, generally
in open pits, for copper and its by-
product molybdenum.
A process for the recovery of copper from
ore, typically used for low-grade ores.
The mined, uncrushed ore is leached with
a chemical solution. The metal is then
recovered from the solution through the
SX-EW process.
Material extracted and piled for future use.
Solvent extraction and electrowinning.
A process for extracting metal from an
ore and producing pure metal. First the
metal is leached into solution, the resulting
solution is then purified in the solvent-
extraction process before being treated in
an electrochemical process (electrowinning)
to recover cathode copper.
Construction used to deposit the rock
waste which remains as a result of
the concentrating process after the
recoverable minerals have been extracted
in concentrate form.
Treatment and refining charges, being
terms used to set the smelting and
refining charge or margin for processing
copper concentrate and normally set
either on an annual or spot basis.
Charges or margins for converting
concentrate into finished metal. These
include TC/RCs, price participation
and price sharing for copper
concentrate and roasting charges for
molybdenum concentrate.
Metric tonne.
Tonnes per day, normally with reference
to the quantity of ore processed over
a given period of time expressed as a
daily average.
Natural or man-made excavation under
the surface of the ground.
202
ANTOFAGASTA ANNUAL REPORT 2016
STRATEGY
PERFORMANCE
GOVERNANCE
FINANCIAL STATEMENTS
CURRENCY ABBREVIATIONS
$
$’000
$m
£
£’000
£m
p
C$
C$m
Ch$
Ch$’000
Ch$m
A$
A$’000
A$m
US dollars
Thousand US dollars
Million US dollars
Pounds sterling
Thousand pounds sterling
Million pounds sterling
Pence sterling
Canadian dollars
Million Canadian dollars
Chilean pesos
Thousand Chilean pesos
Million Chilean pesos
Australian dollars
Thousand Australian dollars
Million Australian dollars
DEFINITIONS AND CONVERSION OF
WEIGHTS AND MEASURES
lb
oz
’000 m3
’000 tonnes
1 kilogramme
1 tonne
1 kilometre
1 troy ounce
Pound
A troy ounce
Thousand cubic metres
Thousand metric tonnes
2.2046 pounds
2,204.6 pounds or 1,000 kilogrammes
0.6214 miles
31.1 grammes
CHEMICAL SYMBOLS
Cu
Mo
Au
Ag
Copper
Molybdenum
Gold
Silver
ANTOFAGASTA.CO.UK
203
REGISTRARS
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZY
United Kingdom
Tel: +44 37 0702 0159
www.computershare.com
WEBSITE
Antofagasta plc’s annual and half-yearly financial reports, press releases
and other presentations are available on the Group’s website at
www.antofagasta.co.uk.
REGISTERED OFFICE
Cleveland House
33 King Street
London SW1Y 6RJ
United Kingdom
Tel: +44 20 7808 0988
SANTIAGO OFFICE
Antofagasta Minerals SA
Av. Apoquindo 4001 – Piso 18
Las Condes, Santiago, Chile
Tel: +562 2798 7000
REGISTERED NUMBER
1627889
Additional information can be found in the Shareholder Information section
of the Notice of Annual General Meeting and on the Group’s website.
SHAREHOLDER INFORMATION
DIVIDENDS
Details of dividends proposed in relation to the year are given in the
Directors’ Report on page 117, and in Note 13 to the Financial Statements.
If approved at the Annual General Meeting, the final dividend of 15.3
cents will be paid on 26 May 2017 to ordinary shareholders that are on
the register at the close of business on 28 April 2017. Shareholders can
elect (on or before 2 May 2017) to receive this final dividend in US dollars,
Sterling or Euro, and the exchange rate, which will be applied to final
dividends to be paid in Sterling or Euro, will be set as soon as reasonably
practicable after that date which is currently anticipated to be on 5 May 2017.
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 37 0702 0159.
Dividends are paid gross without deduction of United Kingdom income tax.
Antofagasta plc is a resident in the United Kingdom for tax purposes.
ANNUAL GENERAL MEETING
The Annual General Meeting will be held at Church House Conference
Centre, Dean’s Yard, Westminster, London SW1P 3NZ at 10.00 am
on Wednesday 24 May 2017. The formal notice of the Annual General
Meeting and resolutions to be proposed are set out in the Notice of Annual
General Meeting.
LONDON STOCK EXCHANGE LISTING
AND SHARE PRICE
The Company’s shares are listed on the London Stock Exchange.
SHARE CAPITAL
Details of the Company’s ordinary share capital are given in Note 30 to the
Financial Statements.
SHAREHOLDER CALENDAR 2017
26 April 2017
Q1 2017 Production Report
27 April 2017
28 April 2017
2 May 2017
5 May 2017
24 May 2017
26 May 2017
26 July 2017
2016 Final Dividend – Ex Dividend date
2016 Final Dividend – Record date
2016 Final Dividend – Final date for receipt
of Currency Elections
2016 Final Dividend – Pound Sterling/Euro
Rate set
Annual General Meeting
2016 Final Dividend – Payment date
Q2 2017 Production Report
22 August 2017
HY 2017 Results Announcement
7 September 2017
2017 Interim Dividend – Ex Dividend date
8 September 2017
2017 Interim Dividend – Record date
11 September 2017
14 September 2017
6 October 2017
25 October 2017
24 January 2018
2017 Interim Dividend – Final date for
receipt of Currency Elections
2017 Interim Dividend – Pound Sterling/
Euro Rate set
2017 Interim Dividend – Payment date
Q3 2017 Production Report
Q4 2017 Production Report
Dates are provisional and subject to change.
204
ANTOFAGASTA ANNUAL REPORT 2016
DIRECTORS AND ADVISERS
DIRECTORS
Jean-Paul Luksic
Manuel Lino Silva De Sousa-Oliveira
(Ollie Oliveira)
Gonzalo Menéndez
Ramón Jara
Juan Claro
William Hayes
Tim Baker
Andrónico Luksic C
Vivianne Blanlot
Jorge Bande
Francisca Castro
Chairman
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
COMPANY SECRETARY
Julian Anderson
AUDITOR
PricewaterhouseCoopers LLP
SOLICITORS
Clifford Chance LLP
FINANCIAL ADVISERS
N M Rothschild & Sons
STOCKBROKERS
J.P. Morgan Cazenove
Citigroup Global Markets Limited
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For up-to-date investor
information including our past
financial results, visit:
Our Group website:
www.antofagasta.co.uk
Investors:
www.antofagasta.co.uk/investors
Antofagasta plc
Cleveland House
33 King Street
London
SW1Y 6RJ
United Kingdom