ANNUAL REPORT AND
FINANCIAL STATEMENTS 2017
Antofagasta is a Chilean copper mining group with significant
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.
STRATEGIC REPORT
OVERVIEW
2017 highlights
At a glance
Letter from the Chairman
Q&A with the Chief
Executive Officer
The copper market
Strategy
Key Performance Indicators
Risk management framework
Principal risks
OPERATING PERFORMANCE
Business model
Operating Review
1
2
4
6
8
12
14
16
19
24
26
28
31
33
Key inputs and cost base
Key relationships
Exploration activities
Business units
34
(mining and transport)
Growth projects and opportunities 44
48
Financial Review
COMMITTED TO CREATING
SUSTAINABLE VALUE
Sustainability highlights
Safety and health
Employees
Communities
Environment
Sustainability governance
54
55
56
58
60
62
65
GOVERNANCE
Governance at a glance
Leadership
Chairman’s introduction
Senior Independent Director’s
introduction
Group governance overview
Directors’ biographies
Board balance and skills
Roles in the Boardroom
Executive Committee
members’ biographies
Effectiveness
Board activities
Board and Committee
information flows
Accountability
Introduction to the Committees
Nomination and Governance
Committee report
Board effectiveness reviews
Professional development
Audit and Risk Committee report
Sustainability and Stakeholder
Management Committee report
Stakeholder engagement
Projects Committee report
Remuneration
Remuneration and Talent
Management Committee report
Committee Chairman’s
introduction
Remuneration at a glance
2017 Directors’
Remuneration Report
2017 Executive
Remuneration Report
Summary of 2017 Directors’
Remuneration Policy
Relations with shareholders
Directors’ Report
Statement of Directors’
Responsibilities
68
70
72
74
76
78
79
80
82
83
84
86
88
89
90
96
98
100
102
103
105
106
109
118
121
123
125
FINANCIAL STATEMENTS
FINANCIAL PERFORMANCE
126
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
128
133
134
134
135
136
137
186
193
194
196
206
211
In this Annual Report, the terms “Company”, “Group”,
“we”, “us”, “our” and “ourselves” are used to refer
to Antofagasta plc and, unless the context requires
otherwise, its subsidiaries. These terms may be used
as collective expressions where general reference is
made to the companies in the Group and/or where no
useful purpose is served by identifying any particular
company or companies.
OVERVIEW: 2017 HIGHLIGHTS
A YEAR OF STRONG
PERFORMANCE
FATALITIES AND LOST TIME
INJURY FREQUENCY RATE
There were zero fatalities in the year and
the Lost Time Injury Frequency Rate of the
Group reduced to 1.4 accidents with lost time
per million hours worked.
COPPER
PRODUCTION1
Copper production of 704,300 tonnes a 0.7%
decrease on 2016 on lower grades at Los
Pelambres offset by Encuentro Oxides and
full year of production at Antucoya.
NET CASH
COSTS2
Net cash costs for the year were 4.2% higher
than in 2016 due to higher input prices,
stronger local currency and lower grades.
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9
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1
0
2
.
7
.
1
5
2
5
.
1
4
.
1
2
1
0
13
14
15
Fatalities
16
17
LTIFR
2
.
1
2
7
.
8
4
0
7
.
4
9
0
7
.
3
4
0
7
.
3
0
3
6
0
5
.
1
3
4
.
1
6
3
.
1
5
2
.
1
0
2
.
1
13
14
15
16
17
13
14
15
16
17
0
Fatalities
1.4
LTIFR
704.3k tonnes
$1.25/lb
+ See page 56 for more information
+ See pages 34 to 43 for more information
+ See page 34 for more information
EBITDA*2
EBITDA of $2,587* million, 59%
higher than in 2016 due to higher
realised prices.
EARNINGS PER SHARE*
Earnings per share from continuing
operations increased to 76.1 cents per share
due to higher realised prices.
6
2
6
2
,
3
0
1
,
2
7
8
5
2
,
6
2
6
,
1
0
1
9
1
.
6
7
.
9
6
6
.
6
6
4
MINERAL RESOURCES3
Mineral resources decreased by 0.4%.
Although new mineral resources added
during the year offset tonnes mined, changed
economic parameters reduced mineral
resources overall.
.
7
8
1
.
7
8
1
.
7
8
1
.
9
7
1
.
2
6
1
13
14
15
16
17
$2,587m
* Restated for discontinued operations
.
)
5
0
(
15
1
.
2
1
16
17
13
14
76.1 cents
* Restated for discontinued operations
13
14
15
16
17
18.7bn tonnes
+ See page 48 for more information
+ See page 48 for more information
+ See page 203 for more information
1. 100% of production at Los Pelambres, Centinela and Antucoya, and 50% of Zaldívar’s production.
2. Non IFRS measure, refer to the alternative performance measures in Note 37 to the financial statements.
3. Mineral resources (including ore reserves) held by the Group’s subsidiaries on a 100% basis and
at Zaldívar on a 50% basis.
Remuneration perfomance criteria.
See pages 113 for more information
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AT A GLANCE
OUR BUSINESS TODAY
ANTUCOYA
− 70% owned
− 22-year mine life
− produces copper cathodes
CU
REVENUE
EBITDA1
11%
8%
CENTINELA
− 70% owned
− 50-year mine life
− produces copper concentrates
containing gold and silver,
and copper cathodes
CUCU
AUAU
AG
CU
35%
33%
ZALDÍVAR
− 50% owned (and operated)
− 13-year mine life
− produces copper cathodes
CU
5%
CU
AG
AU
MB
51%
55%
4%
4%
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 by combined
rail and road in 2017 was
6,268,000 tonnes.
GROUP
$4,749 m
$2,587 m
1. Non-IFRS measure. Refer to the alternative performance measures in Note 37 to the financial statements.
KEY
CATHODES
CONCENTRATE
ROAD
RAIL
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Antofagasta plc Annual Report 2017 Copper production (tonnes)
and net cash cost1 ($/lb)
2017
2018 FORECAST
GROWTH POTENTIAL
80,500
$1.68/lb
75-80,000
$1.75/lb
228,300
$1.36/lb
230-245,000
$1.50/lb
Centinela Expansion
Considering two alternatives:
− Building a second concentrator, or
− Expanding the existing concentrator
51,700
$1.62/lb
55-60,000
$1.70/lb
Mine life extension
− Assessing viability of primary
sulphide leaching
343,800
$1.02/lb
345-355,000
$1.10/lb
Los Pelambres Incremental
Expansion
− Phase 1 will increase
throughput capacity to 190ktpd.
The project is expected to be
approved during 2018
− Phase 2 will further increase
throughput capacity to 205ktpd
and extend the life of mine
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THE BUSINESS
Mining is the Group’s core business, representing
over 96% of Group revenue and EBITDA. The Group
operates four copper mines in Chile, two of which
produce significant volumes of by-products. The Group
also has a portfolio of growth opportunities located
mainly in Chile.
In addition to mining, the Group has a transport division
providing rail and road cargo services in northern Chile
predominantly to mining customers, which include
some of the Group’s own operations.
+ See page 34 for more information
STRATEGY
1 THE EXISTING CORE BUSINESS
The first pillar of the strategy is to optimise and
enhance the existing core business: Los Pelambres,
Centinela, Antucoya and Zaldívar.
2 ORGANIC AND SUSTAINABLE GROWTH
OF THE CORE BUSINESS
The second pillar of the strategy is to achieve
sustainable, organic growth by further developing the
areas around the Group’s existing asset base in Chile.
3 GROWTH BEYOND THE CORE BUSINESS
The third pillar of the strategy is to seek growth
beyond the Group’s existing operations, in Chile
or internationally, through the acquisition of
high-quality operating assets and/or high-potential
early-stage developments.
704,300
$1.25/lb
705-740,000
$1.35/lb
+ See pages 12 to 13 for more information
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LETTER FROM THE CHAIRMAN
WORKING TOGETHER
WITH PARTNERS
“I believe that Antofagasta’s long‑term
strategy of through‑cycle investment
has left the Group well placed to take
advantage of the improved outlook
for copper.”
Jean-Paul Luksic, Chairman
DEAR SHAREHOLDERS,
Our focus over the course of recent years has been on ensuring
the safety, sustainability, reliability and stability of our operations with
a view to positioning Antofagasta for the anticipated recovery of the
markets. To this end we have worked hard alongside our partners
to maximise the sustainability and productivity of our mines, instilling
a cost-conscious culture in our employees and maintaining our
production volumes despite declining ore grades. At our transport
division we are making exciting progress, revitalising our operations
and investing in new equipment and track improvements.
These actions, when combined with the continued recovery in the
copper price, have helped to lift the Group’s financial performance
for the year. We have seen a marked improvement in our EBITDA
margins since 2012 while copper production has almost been
maintained despite a significant drop in grades at our two
largest operations.
I believe that Antofagasta’s long-term strategy of through-cycle
investment has left the Group well placed to take advantage of the
improved outlook for copper. By taking a prudent approach to our
finances throughout the cycle we have been able to invest during the
downturn, adding additional copper-producing assets over the last
few years as well as a range of future growth options.
PARTNERS IN PROSPERITY
We have always believed that working in partnership – whether with
our equity partners in the mining operations, the communities that
we work in or the local and national government – is the best way
of working. It is good for business as well: working together to ensure
the safety, sustainability, reliability and stability of our operations
enables everybody to prosper.
We have worked for many years closely with Marubeni at Centinela
and Antucoya, and alongside JX Nippon and a consortium led
by Mitsubishi at Los Pelambres. More recently, our acquisition
of a stake in Zaldívar brought us into a renewed partnership with
Barrick Gold. By working with multiple partners across our assets
we have pooled risk, diversified our portfolios and financial exposure,
and benefited from shared expertise. I would like to thank our
partners personally for their support over the years and, as we look
to the future, our shared vision of what we can achieve together
going forward.
Although we have not always got everything right, we have always
sought to be a good neighbour to the communities we work with.
Working with local communities for us means that we have an open
and honest dialogue with one another, ensuring transparency and
a recourse for settling disputes. We formalised this partnership
approach to community relations in 2015 in a programme agreed
with the communities, Somos Choapa, which provides the community
at Los Pelambres with clearer oversight of our operations, and
decision-making power over how community funds are spent.
This programme is now being rolled out at our other operations
and I expect that all will benefit from this.
Mining continues to fulfil a central role in the growth of Chile’s
economy, providing jobs and infrastructure as well as regional and
national tax revenues. The industry has benefited from the economic,
social, political and regulatory stability of Chile and in partnership with
local and national government we are working to ensure that Chile
develops its remaining copper resources – some 30% of global
reserves – for future generations and the long-term benefit of the
country. As we have seen over the years, if the mining industry
performs well, Chile performs well.
As testament to our approach to partnership, we enjoy good
relations with our employees and contractors. This is borne out by
the great strides we have made in working with the labour unions
– at Centinela and Zaldívar in 2017 – to reach agreement on
compensation and working conditions for the next three years.
Providing a fair deal for all sides meant we did so without strike
action, a record we have maintained since we first began mining
in 1980. I value the good relations we have with our employees,
achieved through a regular dialogue outside periods of formal
negotiation, despite the current environment in which conflict
in negotiations has become more common.
SAFETY
Our priority is the safety of our employees, contractors and the
communities in which Antofagasta works. I am very pleased to say
that in 2017 the Group achieved its target of zero fatalities and I am
very proud of the efforts and achievements of everyone involved.
However, while this performance is testament to the hard work and
vigilance of our employees, there is no room for complacency and we
continue to make every effort to raise our safety standards across all
our operations.
4
Antofagasta plc Annual Report 2017 A NEW APPROACH TO SUSTAINABILITY
In April 2017 the Board approved an updated sustainability policy.
The policy has five areas of focus designed to place sustainability
at the heart of everything we do and help safeguard our position
as partner of first choice. The first area is the safety and health
of our people. The second is to maintain and develop our model
of sustainable value creation. The third is to contribute to the social
development of the communities that we operate in. The fourth is to
prevent, control and mitigate our impact on the environment and the
fifth is to maintain and reinforce our strong corporate governance
and to ensure transparency in everything we do.
CULTURE, DIVERSITY AND INCLUSION
In 2017 we reviewed and reconfirmed the Board’s commitment to
the Group’s corporate values. The Group’s culture is embodied in
these values and is demonstrated through the actions and leadership
of the Board and senior management.
I believe that diverse and inclusive companies are better able to
attract the best talent and to achieve stronger and more reliable
overall performance. To this end the Board’s Remuneration and
Talent Management Committee is overseeing our work to formalise
our commitment to diversity and its inclusion at all levels of the Group.
A broader diversity and inclusion programme is being rolled out
during 2018.
RISK MANAGEMENT
Antofagasta’s growth into one of the world’s most important copper
producers has been driven by its entrepreneurial spirit – a spirit that
I am proud to say remains at the core of our identity. Balancing this
has been our focus on risk management, an area we continued to
strengthen during the year. As of this year at least one member
of the Audit and Risk Committee serves on each of the other Board
Committees to enable better analysis of the Group’s risks as
presented by management. The Committee meets annually,
specifically to evaluating key risks and mitigation activities.
Over recent years the workload of the Board Committees has
increased significantly as they work with management to address
important issues that cannot be covered in sufficient detail in Board
meetings. I would like to thank all of the Committee members for their
efforts, time and dedication.
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OUTLOOK
One of the most exciting trends to emerge in 2017 has been the
increased interest in new technologies, which use significantly more
copper than established technologies. This is particularly the case in
clean energy and electric vehicles, and a recent highlight for me has
been our sponsorship of the FIA Formula E Championship in
2017–2018. While undoubtedly a fantastic spectacle, the Formula E
race in Santiago really underlined the rapid changes that are taking
place across the world about how we respond to climate change
– and the central role that copper is set to play.
It is important not to overstate the near-term impacts these changes
are likely to have on copper demand. While the emergence of this new
source of consumption is likely to provide a welcome boost to the
medium to long-term fundamentals of our business, our traditional
markets in China, Europe and North America will remain the most
important drivers for copper in the shorter term.
We believe that in the near term the copper market is looking
balanced, with the longer-term outlook broadly positive. This gives
me confidence that the three pillars that we have built our strategy
around are the right ones. First, we continue to focus on optimising
our existing operations and capital expenditure programme to ensure
our investments generate good returns. Second, we look for
sustainable, organic growth in the areas around our operations.
And finally, we look for special opportunities in the Americas for
growth beyond our core business in Chile.
Much of what we have achieved over the past year has been made
possible by the hard work of our employees and management. I would
like to thank them all for everything they have done for the Group
during 2017 and I look forward to working with them to take
advantage of the many opportunities we have in the year ahead.
Jean-Paul Luksic
Chairman
OUR CORE VALUES
RESPECT
SAFETY
AND HEALTH
INNOVATION
EXCELLENCE
SUSTAINABILITY
FORWARD
THINKING
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Q&A WITH THE CHIEF EXECUTIVE OFFICER
TAKING CHARGE
OF OUR FUTURE
“My focus over the year has been on
producing profitable tonnes by reducing
costs, improving productivity and
efficiency and applying innovative
solutions to the challenges we face. ”
Iván Arriagada, CEO
Also at Centinela we completed the construction of the Molybdenum
Plant in June, conducted pre-commissioning tests throughout the
second half of 2017 and expect to achieve first production during
the first half of 2018. The plant will produce an average of 2,400
tonnes of molybdenum per year and help reduce our unit cash
costs at Centinela.
So, two real operating milestones for Antofagasta – both of which
demonstrate our commitment to investing through the cycle and
which provide the Group with an excellent platform for the next stage
of organic growth.
Turning to production, as highlighted above we achieved 704,300
tonnes during 2017, in line with our guidance for the year and slightly
less than last year. This was consistent with the expected declines in
grade at Los Pelambres and Centinela, which were not fully offset
by Encuentro Oxides and the first year of full production at Antucoya.
The stronger production performance at these mines helped
counterbalance a drop of 3.3% in copper production at Los
Pelambres. This was primarily due to lower ore grade and underlines
both the importance of projects such as Encuentro Oxides being
brought onstream and also the need to maintain our drive for further
productivity improvements.
Beyond our core copper business, gold production was 212,400
ounces, 21.6% lower than in 2016, which reflects lower grade
at Los Pelambres and the shift to higher copper content ores
at Centinela. However, our molybdenum production was boosted
by 47.9% year on year by higher grade qualities.
At our transport division, EBITDA contribution to the Group improved
by 12% compared to 2016, to $98.1 million.
Q. HOW ABOUT THE GROUP’S FINANCIAL RESULTS?
Our financial performance over the course of the year has been a real
positive for me. As I said, at the heart of our strategy is the consistent
and sustainable production of profitable tonnes. So, while we have
been working hard to make sure that our operations are well
positioned for growth, we have not lost our focus on tight cost
control. During the year we conducted reviews of our Cost and
Competitiveness Programme (CCP) and new operating model,
embedding them into our everyday business practices.
The lower costs we have achieved combined with improved prices
in 2017 flowed through into stronger cash flows and much improved
margins. Our cash flow from operations was up 71.2% in 2017 to $2.5
billion and our EBITDA margins returned to over 50% – a real step
change in profitability.
Q. WHAT DO YOU VIEW AS THE HIGHLIGHTS OF THE YEAR
– FOR BOTH ANTOFAGASTA AND THE WIDER INDUSTRY?
Our most important achievement was that we had no fatalities at our
operations – not least because this is not something that has simply
happened overnight. When I started as CEO I found an organisation
which had just had a few serious accidents, some of which had
resulted in fatalities. Since then we have worked in a very deliberate
way to bring safety to the forefront of everything we do and have
succeeded in creating the strong safety culture that we have today.
While this is an encouraging result, we cannot be complacent because
mining will always be a business that faces very real risks that can
only be managed through a resilient safety culture. I am determined
to continue to raise safety standards and awareness across the Group
– from the Executive Committee, which regularly visits our mining
operations as part of our safety leadership programme, to our
employees and contractors in the mines and the people in the
communities that we work alongside.
My focus over the year has been on producing profitable tonnes by
reducing costs, improving productivity and efficiency and applying
innovative solutions to the challenges we face. One of the outcomes
of these efforts is that we as a Group are getting much better at
consistent and reliable delivery – something that is borne out by
our meeting production and cost guidance for the year, producing
704,300 tonnes of copper at a net cash cost of $1.25/lb. This
performance has translated into an EBITDA margin of 54.5%,
the highest margin since 2012, when the copper price was nearly
30% higher.
Q. CAN YOU TALK US THROUGH ANTOFAGASTA’S OPERATING
PERFORMANCE?
Let me start with a couple of operating milestones that we reached
during the year, which underpin Antofagasta’s prospects for a
balanced growth outlook into 2018.
In the third quarter of 2017 we brought on stream the Encuentro
Oxides plant at Centinela. Once running at capacity Encuentro Oxides
will produce on average 43,000 tonnes of copper cathode per year,
making use of the spare capacity at the SX-EW facilities at Centinela
and helping offset natural declines in production due to falling grades.
We expect to see the full growth benefits flow through into the
Group’s results in 2018.
6
Antofagasta plc Annual Report 2017 It is this better financial performance that has allowed the Board
to recommend a final dividend for the year of 40.6 cents per share,
bringing the total dividend for the year to 50.9 cents per share
or $501.8 million. This is an increase of 176.6% on last year and
represents a total pay out ratio of 67% of net earnings, ahead of
the Company’s policy of paying out a minimum of 35% of underlying
net earnings.
Q. DESPITE YOUR COST CONTROLS THE COMPANY
IS INCREASING ITS CAPITAL INVESTMENT. WHY?
Capital expenditure for 2018 is expected to be about $1.0 billion, which
is some $100 million higher than in 2017. This reflects the coincidence
of each of the three categories of expenditure we have, development,
sustaining and mine development, increasing at the same time.
Development expenditure is mainly on the Los Pelambres Incremental
Expansion project. Now that the EIA has been approved, it will be
presented to the Board for approval once certain additional permits
have been received.
On sustaining capital expenditure, we have been keeping a tight
control on this and expect it to average about $400-450 per tonne
of production through a multi-year period, typically over five years.
In 2016 and 2017 it was well below this level and although it is
increasing in 2018 to $385 million this is still within the target range
over the cycle.
Finally, our mine development expenditure is mainly at Centinela and
increases slightly this year as mining moves into a new phase with
a larger amount of waste rock to be moved.
This investment will provide growth in future years and ensure
our operations will continue to operate reliably and that productivity
is improved.
Q. WHAT PROGRESS HAS BEEN MADE ON THE GROUP’S
GROWTH PROJECTS?
The EIA for Phase 1 of the Los Pelambres Incremental Expansion
project was approved in February 2018. We have also recently
updated the capital estimate with current pricing projections,
advanced detailed engineering and a project execution plan to a
revised estimate of $1.3 billion.
This figure includes the concentrator plant expansion and pre-
stripping at $780 million and the desalination plant and water pipeline
at $520 million. The desalination plant will serve as a back-up water
supply for the entire operation – existing plus both phases of
expansion – in conditions of severe drought.
The project is expected to be submitted for approval to the Board
during the second half of 2018 once ancillary permits to the approved
EIA are in place and additional geotechnical studies at the desalination
plant have been completed.
The project will increase Los Pelambres’ production by 55,000
tonnes of copper a year from 2021. Phase 2 will require further
permitting and will add another 35,000 tonnes of production and
extend the mine life by 15 years.
We also have the opportunity to expand production at Centinela and
we are considering two alternatives. One is to build a new second
concentrator at an estimated cost of $2.7 billion and producing
some 180,000 tonnes of copper equivalent per year. The other is
to expand the existing concentrator. We have conducted preliminary
work on a second option that has lower capital expenditure and
lower construction and project execution risks than the Second
Concentrator project. We will be doing more work on both options
during 2018 with the intention of being in a position to select our
preferred alternative by the end of the year. If the alternative to
expand the existing concentrator is selected then a full feasibility study
will need to be done before the Board decides on whether to approve
it for construction. The feasibility study will take about 18 months.
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Q. LABOUR AND COMMUNITY RELATIONS HAVE BEEN AN ISSUE
FOR THE CHILEAN COPPER INDUSTRY IN RECENT YEARS. HOW
DO YOU APPROACH IT?
Well, it can be a challenging issue for everybody concerned and is
something I and my team spend a lot of time on. I am pleased that
over the last few years we have been able to reset the relationships
we have with our labour force and communities. During 2017 we
successfully concluded pay agreements for the next three years with
the unions at Centinela and Zaldívar. We’ve also made progress in
strengthening our community relations – formalising our partnership
with the Choapa Valley community through Somos Choapa.
It is my view we work best when we work in partnership, and the first
step to success is mutual understanding. So, when I sit down with our
employees, our contractors and with the communities that we work in
I always want to begin by understanding their viewpoint. We may not
always agree but over the years we have demonstrated that reaching
agreement – through constructive conversation – helps secure jobs
and prosperity for all of our stakeholders.
Over the last few years we have made excellent progress at Los
Pelambres, resolving the legal challenges that have hung over the
operation for some time. Going forward, Los Pelambres can enjoy
the lack of distraction caused by these cases and the more rewarding
interaction with the communities in the areas in which it has an
impact. We are rolling out this community engagement model to our
other operations, and we expect to improve the interaction we have
there as well.
Q. LOOKING AHEAD INTO 2018 AND BEYOND WHAT DO YOU
SEE FOR ANTOFAGASTA AND THE MARKET?
2017 was a good year for copper, with a strong rally in the price
driven by a pick-up in demand – mostly in Asia but also, as the
Chairman mentions in his letter, from potential new sources in the
shape of electric vehicles and clean energy. It is my belief that the
price will stabilise at current levels over the next couple of years,
partly sustained by demand but also due to a tightening supply
position going into 2019.
This is when you will see the benefit of our investment during the
downturn in the copper price over the last few years, when we
continued with the construction of Antucoya and the expansion of
Centinela, and took the opportunity of acquiring 50% of Zaldívar.
We were able to do this because of the strength of our balance
sheet and our conviction that in the medium to long term the copper
price would recover. Now these additional tonnes of copper
production will contribute strongly to the Group’s results and these
assets will act as the basis for further growth in the future.
I believe that we are in a good position to benefit from this improving
environment. We are forecasting production for 2018 of 705-740,000
tonnes of copper as Encuentro Oxides ramps up. We have taken
$525 million of costs out of the business since 2014, including
$166 million in 2017, and a further $100 million have been identified
for 2018. Combined with a prudent approach to our balance sheet,
tight cost control and improved prices have boosted our operating
margins and provided us with the flexibility to take full advantage
of future organic growth opportunities, while safeguarding returns
for our shareholders.
We have made great progress over the last few years in improving
the resilience and efficiency of our operations and this is reflected
in our adherence to guidance. This would not have been possible
without the support and hard work of our stakeholders – our
employees, contractors, shareholders, communities and state and
national governments. I would like to thank all of them.
I am excited about what we can achieve together over the next
few years.
Iván Arriagada
Chief Executive Officer
7
antofagasta.co.uk
THE COPPER MARKET
THE IMPORTANCE
OF COPPER
Expanding infrastructure and changes in technology, innovation and demographics have
brought global demand for copper to the highest level it has ever been and it is expected
to continue to grow steadily.
COPPER’S ROLE IN THE MODERN WORLD
Copper has for centuries played a central role in humankind’s
development, from the earliest civilisations to the modern world. Its
versatile properties – high thermal and electrical conductivity, ductility,
malleability and corrosion resistance – have made it a key industrial
metal. Today, copper plays an important role in power generation and
transmission, electric motors and consumer goods such as electronic
devices, air conditioning units and refrigerators.
The global trend towards urbanisation has seen a rapid increase
in demand for the metal over the last decade, as new houses are
constructed, networks for electricity distribution are built and
telecommunications infrastructure is put in place. At the same time
rising wealth in the developing world is driving demand for vehicles,
electronic devices and other consumer goods.
As the world looks to new clean energy technologies to provide a
greener and more sustainable future, copper remains centre stage.
From solar photovoltaic energy systems and wind turbines to electric
vehicles and battery storage, the properties of copper have proven
once again to be integral and ensure that it will continue to play a vital
role in green energy systems for years to come.
Finally, copper is easy to recycle, with copper produced from scrap
requiring 85–90% less energy than copper produced from ore.
This ease of recycling in turn improves the reycling credentials
of products and applications that use copper.
8
Antofagasta plc Annual Report 2017 MEETING THE WORLD’S DEMANDS
Copper is integral in the growth of clean, renewable energy systems and electric vehicles and also benefits from rising urbanisation
and growing wealth across the globe.
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
CLEAN AND RENEWABLE ENERGY
One of the United Nations Millennium Development
Goals is to ensure environmental sustainability.
The generation of power from renewable sources
is a contributor to the achievement of this goal,
and global demand for clean and renewable energy
is growing fast.
COPPER’S CONTRIBUTION
− Electricity generated from solar or wind,
together with the electricity distribution
systems required, are more copper
intensive than using conventional
technologies.
ELECTRIC VEHICLES
Not many years ago electric vehicles were
regarded as a novelty rather than a mainstream
mode of transport. Now innovation is making them
a reality with far more efficient engines and
batteries and costs being driven down all the time.
Today car manufacturers are making significant
progress on e-mobility. Furthermore, some
countries have announced they will forbid the
selling of new cars with conventional engines
within the next few decades.
Studies commissioned by the International Copper
Association (ICA) estimate that by 2027 some 27
million electric vehicles will be produced each year
– up from an estimated three million in 2017.
This is good news for the environment as well
as for copper, one of the key metals required for
this emerging trend. This is also one of the reasons
the Group is sponsoring the Formula E race
in Santiago, which raises awareness of the
capabilities of electric vehicles.
URBANISATION
Rising urbanisation and growing wealth across
the globe is driving up copper consumption in key
markets, especially in China, where almost half
of the world’s copper is consumed. The migration
of people from the countryside to cities increases
the need for more and better infrastructure, from
houses to electrical networks infrastructure and
public transportation.
COPPER’S CONTRIBUTION
− Copper is used in the batteries, windings
and copper rotors found in electric
motors, wiring and busbars, as well
as in EV charging infrastructure.
− An electric vehicle requires on average
80-85 kg of copper, compared with
20-25 kg in a vehicle powered by
an internal combustion engine (ICE).
− By 2027 annual copper demand from
the electric vehicles industry is estimated
to be approximately 1.7 million tonnes,
compared to 185,000 tonnes in 2017.
COPPER’S CONTRIBUTION
− It is difficult to quantify the consumption
of copper arising from urbanisation
alone, but globally some 31% of copper
is consumed in construction, 24% in
electrical networks and 11% in transport.
There is a correlation between GDP per
capita and the demand for metals, such
as copper, that are necessary to build
infrastructure and are used in consumer
products. Therefore as developing
countries and middle-class populations
grow, more copper will be consumed.
− The Group believes copper is a key
contributor to sustainable development.
9
antofagasta.co.ukSTRATEGIC REPORT
THE COPPER MARKET CONTINUED
RESPONDING TO A
CHANGING WORLD
As the world develops and transforms, the demand for copper increases. The Group
is responding by supplying the copper needed for a more sustainable world.
GLOBAL COPPER SUPPLY AND DEMAND (‘000 TONNES)
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
1996
2001
2006
2011
2016
2021
2026
Primary demand
Base case production capability
Probable projects
Possible projects
Source: Wood Mackenzie Q4 2017
Copper Outlook – December 2017
COPPER DEMAND BY SECTOR
10%
31%
Construction
Electrical network
Consumer and general
Transport
Industrial machinery
11%
24%
24%
Source: Wood Mackenzie Q4 2017
Copper Outlook – December 2017
10
Antofagasta plc Annual Report 2017 MARKET ENVIRONMENT
Copper supply came under pressure during the first half of the year as strikes and other issues at some of the world’s largest mines led
to significant disruptions. In the second half of the year demand was supported by unexpected strength in key markets, particularly in China.
REFINED COPPER
2017 MARKET PERFORMANCE
The LME copper price at the beginning of 2017 was $2.51/lb and
rose to end the year at $3.27/lb, averaging $2.80/lb over the
whole year, an increase of 27% compared with 2016. Copper
supply came under pressure during the first half of the year
as strikes and other issues at some of the world’s largest mines
led to significant disruptions. Additionally, in the second half of the
year demand was supported by unexpected strength in key
markets, particularly in China.
Global mine production accounts for some 87% of total refined
supply and is estimated to have fallen by 1.5% during 2017, with
labour and other disruptions offsetting new production coming
mainly from Peru. Secondary supply from scrap increased as
rising prices led to scrap dealers increasing their activity levels
following subdued activity in 2015 and 2016. However, scrap
consumption is now coming under pressure in China as the
country enacts environmentally-friendly legislation restricting the
import of “dirty” lower-grade scrap.
On the demand side, the most important market is China,
which accounted for approximately 46% of global copper
consumption in 2017, significantly more than Europe and North
America combined, which consumed 18% and 7% respectively.
An estimated 15-25% of Chinese consumption is re-exported
as manufactured products.
The Group’s average realised price in 2017 was 7% above the
average LME price, reflecting a net positive provisional pricing
adjustment at the end of the year of $309 million.
MARKET OUTLOOK
The consensus is that the market will be balanced or show a
small surplus in 2018, although it is expected to be much tighter in
the second half of the year. From 2019 many industry participants
expect the market to be in balance or even deficit as mine supply
continues to be affected by the long-term trend of grade decline
and lack of new investment. Considering the lead time between
the decision to proceed with the construction of a reasonable-
sized mining operation and it coming into production, the few
projects that have been approved or are awaiting the final stages
of permitting are only expected to come on stream in the
next decade.
On the demand side, growth will continue to be driven by
Chinese consumption, but the rise in demand from electric
vehicles and renewables will be significant if they develop at
the rates many analysts are expecting. In addition, there are
an unusually large number of labour negotiations taking place in
Chile and Peru during 2018. With the backdrop of stronger copper
prices, employee expectations are raised and this may result
in some supply disruptions.
COPPER CONCENTRATE
Some 70% of the Group’s copper production is in the form of
copper concentrates, so the dynamics of the concentrate market
are important and affect the level of treatment and refining
charges (“TC/RCs”) paid by the Group. These account for some
15% of the Group’s cash costs.
2017 MARKET PERFORMANCE
An increasing proportion of new copper production in the world
is in concentrates, which has been absorbed by the new smelter
capacity built in China. There was therefore surplus smelter
capacity in 2017 and spot TC/RCs traded below the benchmark
price set for annual contracts.
MARKET OUTLOOK
Further increases in smelter capacity are expected in 2018,
while growth in concentrate production will be limited, leading to
declining TC/RCs. The annual terms for 2018 have been agreed
at levels close to $80 per dry tonne of concentrate and 8c/lb
of refined copper, well below the levels agreed for 2017.
GOLD
The gold price during 2017 increased by more than 13%, peaking
in September at $1,348/oz. Macroeconomic events such as
geopolitical tensions in south-east Asia and rising interest rates
in the US and Europe all impacted on the price of gold, which
is considered a safe-haven investment.
Gold averaged $1,258/oz in 2017 compared with $1,248/oz in
2016 and closed the year at $1,303/oz. At the beginning of 2018
the consensus price forecast for the year was slightly under
$1,300/oz.
MOLYBDENUM
Molybdenum prices continued to perform strongly in 2017
on increased demand from the steel industry. The price averaged
$8.1/lb for the year compared with $6.5/lb in 2016, and the
consensus price for 2018 at the beginning of the year was
about $8.5/lb.
11
antofagasta.co.ukSTRATEGIC REPORT STRATEGY
STRATEGY
OUR VISION
To be an international mining company based
in Chile, focused on copper and related by‑
products, recognised for operating efficiency,
for value creation and as a preferred partner
in the global mining industry.
T
H
E C
ORE BU S I N ESS
GROWTH OF T H E C
O
E
R
GROWTH BEYOND T H E C O
E
R
1 THE EXISTING CORE BUSINESS
The first pillar of the strategy is to optimise and enhance the existing core business:
Los Pelambres, Centinela, Antucoya and Zaldívar.
CURRENT STRATEGIC FOCUS:
− Further embed the Safety Model
across all operations to continue
to achieve zero fatalities each year.
2017 IN REVIEW
As a result of the consolidation
of the Safety Model, the Group had
zero fatalities.
− Continue the Cost and
Competitiveness Programme
(CCP) to sustain the Group’s
competitive position.
− Seek long-term productivity
improvements through the
development and application
of innovative solutions.
− Embed the New Operating Model to
realise its full potential and benefits.
− Promote a culture which focuses
on diversity and inclusion.
− Continue to cultivate a proactive
and inclusive approach to local
communities and other stakeholders
in order to strengthen sustainable
development.
Copper production of 704,300 tonnes,
representing a 0.7% decrease
compared to 2016.
Group net cash costs of 1.25/lb, lower
than the initial guidance for the year.
CCP achieved $166 million of mine cost
savings, in line with target.
Corporate values reinforced and new
Diversity and Inclusion Policy approved
by Board.
Labour agreements reached at Centinela
and Zaldívar.
OBJECTIVES FOR 2018
Maintain zero fatalities by continuing
to embed the Safety Model.
Special focus on health standards.
Copper production of 705-740,000
tonnes.
Group cash costs before by-product
credits of $1.65/lb, higher than 2017
due mainly to lower grades at Centinela.
Sustain cost discipline achieved through
the CCP, with special focus on energy
efficiency and process productivity
delivered by the New Operating Model
initiatives.
Ensure New Operating Model delivers
the expected benefits to operations
and releases spare capacity.
Implement the Diversity and
Inclusion Policy.
Maintain healthy relationships with
communities and local stakeholders.
12
Antofagasta plc Annual Report 2017 2 ORGANIC AND SUSTAINABLE GROWTH OF THE CORE BUSINESS
The second pillar of the strategy is to achieve sustainable, organic growth by further
developing the areas around the Group’s existing asset base in Chile.
CURRENT STRATEGIC FOCUS:
− Obtain permits to begin construction
of Los Pelambres Incremental
Expansion Phase I.
− Select preferred Centinela expansion
alternative.
OBJECTIVES FOR 2018
Encuentro Oxides to reach design
capacity in the first half of the year.
Molybdenum plant to start production
in the first half of the year.
Los Pelambres EIA approval (achieved
February 2018).
Update capital estimate, complete
additional geotechnical studies and
obtain Board approval to proceed with
Incremental Expansion.
Decision on whether to expand existing
Centinela concentrator or build Second
Concentrator.
Advance innovation programme to
assess value-capturing technologies.
2017 IN REVIEW
Encuentro Oxides completed and
ramping up to full production.
Molybdenum plant commissioned.
Environmental Impact Assessment
(EIA) of Los Pelambres Incremental
Expansion Phase I awaiting final
approval by the environmental
authorities. Detailed engineering
of the project commenced.
Reviewed options to reduce capital
cost of Centinela Second Concentrator
project and maximise synergies with
existing operation.
Completed scoping study on the
expansion of the existing concentrator
at Centinela as an alternative to the
Second Concentrator.
Completed Los Pelambres Incremental
Expansion Phase II environmental
baseline study and advanced
feasibility study.
3 GROWTH BEYOND THE CORE BUSINESS
The third pillar of the strategy is to seek growth beyond the Group’s existing
operations, in Chile or internationally, through the acquisition of high‑quality operating
assets and/or high‑potential early‑stage developments.
CURRENT STRATEGIC FOCUS:
− Advance the Twin Metals project.
− Develop the long-term growth
pipeline beyond the Group’s
existing operations.
− Continue the exploration programme
focused on the Americas in order
to identify long-term growth options.
− Monitor the current market to assess
potential accretive acquisitions
or joint ventures.
2017 IN REVIEW
Focused exploration programme, mainly
on targets in Americas.
OBJECTIVES FOR 2018
Continue monitoring the market for
potential acquisition opportunities.
Commenced preparation of Twin Metals’
Mine Plan of Operations.
Advance exploration programmes
in Americas.
Twin Metals’ right to renew two federal
mineral leases was reaffirmed by the
US Department of the Interior.
Complete revised Twin Metals project
pre-feasibility study.
13
antofagasta.co.ukSTRATEGIC REPORT KEY PERFORMANCE INDICATORS
MEASURING OUR
PERFORMANCE
The Group uses Key Performance Indicators (KPIs) to assess performance
in terms of meeting its strategic and operating objectives.
Performance is measured against the following financial, operating and
sustainability objectives:
FINANCIAL KPIs
EBITDA*
EARNINGS PER SHARE*
NET CASH/(DEBT)1
WHY IT IS IMPORTANT
This is a measure of the Group’s
underlying profitability.
PERFORMANCE IN 2017
EBITDA rose in 2017, mainly as a result
of higher realised prices.
WHY IT IS IMPORTANT
This is a measure of the profit attributable
to shareholders.
WHY IT IS IMPORTANT
This is a measure of the financial position of
the Group.
PERFORMANCE IN 2017
EPS rose due to higher realised prices.
PERFORMANCE IN 2017
Net debt fell by $616 million in 2017
to $457 million.
,
6
2
6
32
0
1
,
2
7
8
5
2
,
6
2
6
,
1
0
1
9
13
14
15
16
17
$2,587m
1
.
6
7
1
1
3
,
1
.
9
6
6
.
6
6
4
.
)
5
0
(
15
1
.
2
1
16
17
13
14
76.1 cents
)
2
)(
4
2
0
,
1
(
)
2
7
0
,
1
(
)
7
5
4
(
13
14
15
16
17
$(457)m
*Restated for discontinued operations
*Restated for discontinued operations
+ See page 48 for more information
+ See page 52 for more information
+ See page 53 for more information
Remuneration perfomance criteria.
See page 113 for more information
Footnotes:
1. Non-IFRS measures refers to the alternative performance measures in Note 37 to the financial statements.
2. 100% of production at Los Pelambres, Centinela and Antucoya, and 50% of Zaldívar’s production.
3. Mineral resources (including ore reserves) relating to the Group’s subsidiaries on a 100% basis and Zaldívar on a 50% basis.
4. The Lost Time Injury Frequency Rate is the number of accidents with lost time during the year per million hours worked.
5. Relates to the mining division only.
14
Antofagasta plc Annual Report 2017 OPERATING KPIs
COPPER
PRODUCTION2
NET CASH
COSTS1
MINERAL
RESOURCES3
WHY IT IS IMPORTANT
Copper is the Group’s main product and its
production is a key operating parameter.
WHY IT IS IMPORTANT
This is a key indicator of operating efficiency
and profitability.
PERFORMANCE IN 2017
Copper production of 704,300 tonnes,
a 0.7% decrease on 2016 on lower grades
at Los Pelambres offset by Encuentro Oxides
and full year of production at Antucoya.
PERFORMANCE IN 2017
Net cash costs increased 4.2% compared to
2016, reflecting higher input prices, stronger
local currency and lower grades.
2
.
1
2
7
.
8
4
0
7
.
4
9
0
7
.
3
4
0
7
.
3
0
3
6
0
5
.
1
3
4
.
1
6
3
.
1
5
2
.
1
0
2
.
1
WHY IT IS IMPORTANT
Expansion of the Group’s mineral
resources base supports its strong organic
growth pipeline.
PERFORMANCE IN 2017
Mineral resources decreased by 0.4%.
Although new mineral resources added
during the year offset tonnes mined, changed
economic parameters reduced mineral
resources overall.
.
7
8
1
.
7
8
1
.
7
8
1
.
9
7
1
.
2
6
1
13
14
15
16
17
13
14
15
16
17
13
14
15
16
17
704.3k tonnes
+ See page 34 for more information
$1.25/lb
+ See page 34 for more information
18.7bn tonnes
+ See page 203 for more information
SUSTAINABILITY KPIs
FATALITIES AND LOST TIME
INJURY FREQUENCY RATE4
WATER
CONSUMPTION5
WHY THEY ARE IMPORTANT
Safety is a key priority for the Group with
fatalities and the LTIFR being two of the
principal measures of performance.
PERFORMANCE IN 2017
Zero fatalities and the Lost Time Injury
Frequency Rate of the Group reduced
to 1.4 accidents with lost time per million
hours worked.
WHY IT IS IMPORTANT
Water is a precious resource and the Group
is focused on using the most sustainable
sources and maximising its efficient use.
PERFORMANCE IN 2017
Consumption of water increased during
2017, mainly after the commissioning of the
Encuentro Oxides project and the adoption
of ICMM’s new water reporting guidelines.
CO2 EMISSIONS5
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.
PERFORMANCE IN 2017
Carbon emission intensity increased from
2016 primarily due to Antucoya operating
at full production for the whole year, the
commissioning of Encuentro Oxides and
the slight decrease in total production.
7
8
3
.
7
6
3
.
9
0
3
.
8
9
2
.
4
2
3
.
.
9
71
.
1
0
2
.
5
.
1
4
.
1
5
2
1
13
14
15
Fatalities
2
16
0
17
LTIFR
0
Fatalities
1.4
LTIFR
.
5
6
6 3
9
2
.
.
2
9
2
.
5
6
2
.
4
4
2
.
2
0
2
.
8
6
2
.
7
4
2
.
6
0
2
.
6
0
2
13
14
15
16
17
Continental water
Sea water
65.7mm3
13
14
15
16
17
3.87 per tonne
of Cu produced
+ See page 56 for more information
+ See page 62 for more information
+ See page 64 for more information
15
antofagasta.co.ukSTRATEGIC REPORT RISK MANAGEMENT FRAMEWORK
RISK AND COMPLIANCE
MANAGEMENT
FRAMEWORK
Effective risk and compliance management is essential to the Group’s operations and
strategy. The accurate and timely identification, assessment and management of risks
are key to achieving the Group’s operating and financial 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
Responsible 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
INTERNAL CONTROL
− Conducting preventative analysis of roles
and profiles to strengthen transaction
risk management.
− 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 90 to 95
and in the Sustainability Report on page 65.
Further detailed disclosures in respect of
financial risks relevant to the Group are set
out in Note 24 to the financial statements
AREAS OF FOCUS AND DEVELOPMENT DURING 2017
RISK
The focus was on the continued
consolidation of risk, compliance and
internal control management processes,
which included the following:
− Independent review of the Group’s risk
appetite and tolerance to risk.
− Working to achieve a higher maturity
level in risk management based on an
independent review and embedding
a risk management culture in the
organisation as a key element in the
decision-making process.
− Expanding risk analysis to routine
corporate actions of the Company,
including comprehensive risk
assessment of all matters presented
to the Board for approval.
− Implementing effectiveness audits and
self-assessments for risk owners, and
verifying the design and effectiveness of
key controls through onsite independent
peer reviews.
− Setting up a key risk indicators
dashboard to provide early warning
of increasing risks.
COMPLIANCE
− Expanding compliance training to
all employees on the Code of Ethics,
anti-corruption, antitrust, the Modern
Slavery Act, etc, through e-learning.
− Including the Modern Slavery Act as part
of the Compliance Model. Reviewing all
of the Group’s suppliers to ensure that
modern slavery is not occurring in their
businesses or supply chains.
− Updating due diligence assessments
of suppliers and business partners
to include modern slavery-related
verifications.
− Obtaining the certification of the Group’s
Crime Prevention Model for the third
consecutive year.
− Recognised as one of the top three
companies in Chile in managing an
ethical and compliant internal culture
and receiving the “Commitment with
Integrity” award in Chile. The recognition
encompasses the prevention and
detection of unethical treatment,
promoting best business practices and
consolidating an organisational culture
based on the relevance of people’s
dignity and a sense of common welfare.
16
Antofagasta plc Annual Report 2017 The Group’s risk and compliance management framework comprises:
GOVERNANCE
Communicating the Group’s vision,
strategy and objectives throughout
the organisation, and putting in place
appropriate governance structures,
policies and procedures to embed
the key aims and objectives.
RISK MANAGEMENT
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.
COMPLIANCE
Ensuring that the Group
adheres to internal policies,
procedures and controls, as well as
all relevant laws and regulations.
GOVERNANCE
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. During the year
an externally-facilitated review of the
Group’s risk appetite was started and will
be completed in 2018.
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.
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 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. Risk management reports are
sent to the Board quarterly.
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.
+ Further information on the Board and its
Committees is given in the Governance
section on pages 84 to 104
RISK MANAGEMENT
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 Group
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 owners within each operation
have direct responsibility for the risk
management processes in their operations
and for the continuous updating 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.
As the Group has no operations or material
exposure to the UK, Brexit is not expected
to have any appreciable impact on the
Group. This position is kept under review
as Brexit negotiations advance.
17
antofagasta.co.ukSTRATEGIC REPORT
RISK MANAGEMENT FRAMEWORK CONTINUED
COMPLIANCE
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.
The Compliance Model comprises
five pillars:
1 CODE OF ETHICS
The Code of Ethics sets out the Group’s
values and provides guidelines on the
behaviour required of all employees
and contractors.
− Conflict of Interest Guidelines
− Gifts and Hospitality Guidelines
− Modern Slavery Act
− Monitoring the effectiveness
of the programme
− Annual Statement
+ Please see our Modern Slavery
Statement on page 65
2 CRIME PREVENTION MODEL
The Crime Prevention 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)
− Investigating all reports made
− Methodology for complaints investigation
by whistleblowers
and reporting
− Assessing conflict of interest and due
diligence on all business partners
− Monitoring – analysis of complaints
and improvements to internal control
− Updating and reviewing all employees’
conflict of interest statements
− Strengthening the compliance
programme and systems
− Overseeing third-party reviews of the
Crime Prevention Model
− 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
+ See page 23 for more information
on corruption prevention and mitigation
activities
4 COMPLIANCE RISKS AND
CONTROL ASSESSMENT
The objective of the Compliance Risks and
Control Assessment is to identify, develop
and improve internal controls to prevent
and mitigate 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 Compliance 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
+ See page 65 for more information
3 WHISTLEBLOWING
Employees and external stakeholders can
report concerns about irregular conduct
or ethical issues through the Company’s
intranet, by email, or letter, or by using
a dedicated hotline. All complaints are
investigated and the findings are reported
to the Ethics Committee and action is taken
if required. The security and confidentiality
of employees is ensured for the duration
of the process, safeguarding individuals
and thereby achieving greater transparency.
5 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.
− Communications (news, intranet,
− Reporting channels (web, telephone,
posters)
hotline, email)
− Training programme – induction of new
employees and e-learning
VIABILITY STATEMENT
To address the requirements of provision C.2.2 of the 2014 UK
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
principal risks which could impact the prospects of the Group over
this period, and consider the most relevant 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
Based on the factors considered above, the Directors also considered
it appropriate to prepare the financial statements on the going
concern basis.
18
Antofagasta plc Annual Report 2017 PRINCIPAL RISKS
The Board has carried out a robust assessment of its principal risks, which are set out
below, together with the related mitigation techniques.
FINANCIAL RISKS
2
3
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 poor decisions.
MITIGATION
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 44 to 47
1
2
3
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.
MITIGATION
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 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 24 to the financial statements
1
FOREIGN CURRENCY
The Group’s sales are mainly denominated in US
dollars although 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
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 24 to the financial statements
19
antofagasta.co.ukSTRATEGIC REPORT
PRINCIPAL RISKS CONTINUED
OPERATING RISKS
1
STRATEGIC INPUTS
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.
1
2
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.
2
3
PROJECT MANAGEMENT
Failure to effectively manage the Group’s
development projects could result in delays
in the start of production and cost overruns.
20
MITIGATION
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 renewable energy such as wind and solar power
as well as conventional sources such as coal and gas-fired generators.
+ Details on the strategic inputs of the Group are included within the Operating Review on pages
28 to 32 and details on projects reviews are included within the Project Committee report
on pages 100 to 101
MITIGATION
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, and allow 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, although 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 34 to 43
MITIGATION
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 with
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 on the progress of the Group’s projects are included within the Operating Review on
pages 44 to 47 , and details on project reviews are included within the Projects Committee report
on pages 100 to 101
Antofagasta plc Annual Report 2017
1
2
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.
MITIGATION
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 engage 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 significant political, legal or regulatory issues that may impact the Group’s
operations are included within the Operating Review on pages 34 to 43
1
2
3
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.
MITIGATION
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 page 33
1
2
3
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.
MITIGATION
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 196 to 205
21
antofagasta.co.ukSTRATEGIC REPORT
PRINCIPAL RISKS CONTINUED
SUSTAINABILITY RISKS
1
SAFETY AND HEALTH
Safety and health incidents could result
in harm to the Group’s employees,
contractors or local communities.
Ensuring their safety and wellbeing is first
and foremost an ethical obligation for the
Group, as stated in the Group core values.
A poor safety record or serious accidents
could have a long-term impact on the
Group’s morale, reputation and production.
1
2
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.
MITIGATION
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 for 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 Safety and Health 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 potentially high-risk activities.
+ Details of the Group’s safety and health activities are included on pages 56 to 57
MITIGATION
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.
+ Further information about the Group’s activities in respect of community relations is set out
on pages 60 to 61
2
3
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.
MITIGATION
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. For example, 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, most recently, introducing
thickened tailings technology at Centinela to achieve higher rates of reuse and recovery.
+ Further information in respect of the Group’s environmental activities is set out on pages 62 to 64
22
Antofagasta plc Annual Report 2017
1
2
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.
1
2
3
CORRUPTION ACTIVITIES
The Group’s operations or projects
around the world could be affected by
risks related to corruption or bribery,
including operating disruptions or delays
resulting from a refusal to make
“facilitation payments”. Such risks depend
on the economic or political stability of the
country in which the Group is operating.
1
2
3
MITIGATION
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 including increasing the number of women in the workplace, 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 suitable reward and remuneration structures and providing 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 on pages 31 to 32
MITIGATION
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.
+ Further information about the Group’s activities in respect of corruption activities is set out on pages 56 to 65
INFORMATION SECURITY
Breaches in, or failures of, the Group’s
information security management could
adversely impact its business activities.
MITIGATION
The Group’s information security management model is designed with defensive structural controls
to prevent and mitigate the effects of computer risks. It employs a set of rules and procedures, including
a Disaster Recovery Plan, to restore critical IT functions.
23
antofagasta.co.ukSTRATEGIC REPORT
OPERATING
PERFORMANCE
The Group seeks to set realistic, but stretching operating
targets each year and then achieve them year after year.
OPERATING PERFORMANCE
Business model
Operating Review
Key inputs and cost base
Key relationships
Exploration activities
Business units
Growth projects and
opportunities
Financial Review
26
28
31
33
34
44
48
BUSINESS MODEL
THE MINING LIFECYCLE
INPUTS
RESOURCES AND
RELATIONSHIPS
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 and the
sustainability of mining
operations, so ensuring the
long-term supply of key
inputs is a vital part
of the business.
Chile
International
EXPLORATION
To ensure the sustainability of its mining business in the long term,
the Group must focus on expanding its mineral resource base.
The Group undertakes exploration activities in Chile and abroad,
with particular focus on the Americas. Exploration programmes outside
Chile are generally carried out in partnership with other companies
in order to benefit from their local knowledge and experience.
3-5 years
+ See page 33 for more information
Los Pelambres
Incremental
Expansion
Centinela
Expansion
Twin Metals
EVALUATION
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 established mineral deposits.The Group
integrates sustainability criteria into the design process and project
evaluation phase, developing innovative solutions for challenges such
as water availability, long-term energy supply and community relations.
5 years
+ See page 44 for more information
Encuentro
Oxides
Centinela
Molybdenum
Plant
CONSTRUCTION
Once a project has been approved by the Board, construction begins.
This stage requires significant input of capital and resources, and
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 before the construction phase,
the Group seeks a development partner, generating an immediate cash
return, diversifying risk and providing broader access to funding, while
maintaining operating control of the project.
3-5 years
+ See pages 44 to 47 for more information
Los Pelambres
Centinela
Antucoya
Zaldívar
EXTRACTION
The Group’s four operations in Chile are Los Pelambres, Centinela,
Antucoya and Zaldívar.
The world-class Los Pelambres and Centinela mining districts have
long-life copper mining operations with large mineral resources
and produce significant volumes of gold, silver and molybdenum
as by-products. All of the Group’s mines are open pit operations.
Safety and health are key elements of operating efficiency and remain
a top priority for the Board and management team.
20+ years
+ See pages 36 to 41 for more information
+ See page 28
for more information
CORE VALUES
26
Sustainability
Safety and health
Antofagasta plc Annual Report 2017 CREATING VALUE TROUGH THE MINING LIFECYCLE
Mining is a long-term business and timescales can often run into decades. The period from initial exploration to the start of production can
exceed ten years and, depending on the nature of the project and the market conditions, it may take more than five years of operation to recoup
the initial investment.
Where 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 revenue.
MINE CLOSURE
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 its surroundings 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 provide for a sustainable closure.
+ See page 63 for more information
MARKETING
The marketing team builds long-term relationships with the smelters and fabricators
who purchase the Group’s products, with approximately 70% of output going to
Asian markets.
As well as copper, Los Pelambres and Centinela produce significant volumes of gold,
molybdenum and silver as by-products. Gold and silver are sold for industrial and
electronic applications and in jewellery-making. Molybdenum is used to produce
steel alloys.
Most copper and molybdenum sales are made under annual contracts or
longer-term framework agreements. Sales volumes are agreed each year,
which guarantees offtake.
+ See page 31 for more information
OUTPUTS
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, and
increasingly in renewable
and green technologies.
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.
PROCESSING
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 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, sometimes combined with leachable sulphide ore, is crushed, piled
into heaps and then leached with sulphuric acid, producing a copper 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.
+ See pages 36 to 41 for more information
+ See pages 48 to 53
for more information
CORE VALUES
Respect
Innovation
Excellence
Forward thinking
27
antofagasta.co.ukSTRATEGIC REPORT OPERATING REVIEW
KEY INPUTS
AND COST BASE
The Group’s mining operations depend on many inputs, ranging from energy
and water to labour and fuel, the most important of which are reviewed below.
Concentrate producers such as Los Pelambres and Centinela require
other particular inputs such as reagents and grinding media. Cathode
producers such as Centinela, Antucoya and Zaldívar, which use the
SX-EW process, require sulphuric acid. The availability, cost and
reliability 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. The Group’s operations and the industry as a whole have a
declining grade profile over time, which places upward pressure on
unit costs. During the year the initiatives below have been
implemented by the Group’s Procurement Department to reduce the
unit cost of each operation and allow each to remain profitable as ore
grades decline.
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 5.3GW, supplied
by coal-fired power stations and renewable sources such as wind
and solar. The SIC’s installed capacity is 17.4GW, 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.
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 76–93% depending on circumstances
at each operation.
The Group pioneered the use of untreated sea water in the 1990s
and currently uses it at Centinela and Antucoya. In 2017, sea water
accounted for 45% of total Group water use, a decrease from the
previous year.
LABOUR
Secure labour supply is key to the Group’s success. Labour
agreements with unions are in place at all of the Group’s mining
operations, generally lasting for a period of three years. In 2017,
the Group successfully entered into new labour agreements with
the unions at Centinela and Zaldívar.
The Group continues to foster good working relationships with its
employees and unions and to date there has been no industrial action.
At Centinela, the Group was able to conclude labour agreements
several months in advance of the formal negotiation period,
streamlining benefits across the three main unions at the mine.
In 2014, the Chilean 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 and bringing stability to
power prices throughout the year.
Contractors account for approximately 70% of the workforce across
the Group’s operations, and are responsible for labour negotiations
with their own employees. The Group maintains strong relations
with all contractors to ensure operating continuity and requires all
contractors to adhere to the same standards expected of its own
employees, particularly in the areas of safety and health.
Approximately 19% of the Group’s cash costs are energy related.
To manage price fluctuations, the Group has 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. The Group operations’ power requirements, which previously
had some exposure to spot prices, are now all under PPAs.
All of 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 Group has invited several suppliers to bid for
the long-term power contracts for Zaldívar, and hopes to conclude
the process in 2018.The Group’s other PPAs continue until 2026–28.
WATER
Water is a precious commodity in the regions where the Group’s
mines operate, so the efficient use and recycling of water
is extremely important.
28
Antofagasta plc Annual Report 2017 INPUTS
SERVICE CONTRACTS AND KEY SUPPLIES
The Group’s Central Procurement Department negotiates corporate-
level agreements for key purchases such as mining equipment, tyres
and reagents. It also achieves synergies and economies of scale in
other high-spend areas, while co-ordinating activities at each of the
mining operations. A core of experts defines product and service
categories, and procurement policies and procedures are
standardised across the Group.
The Group continually reviews its procurement processes and
existing agreements, identifying additional cost-saving opportunities
during the coming years as part of its Cost and
Competitiveness Programme.
In total, the Group has over 3,000 suppliers 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
formulae reflect the market variations of key cost elements, such
as steel, petrol and the Consumer Price Index (CPI). Contracts are
normally negotiated between the operation and the supplier, but
tenders and negotiations are generally 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,
such as full-price competition, price auctions, sourcing from China
and working with strategic suppliers to reduce the costs to each party
and achieve a sustainable, longer-term, lower-cost base.
OIL PRICE
Fuel represents approximately 7% of total cash costs and is used in
trucks transporting ore and waste at the mine sites. 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.
The oil price tends to affect 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 15% during 2017, putting pressure on the Group’s
operating cost base.
SULPHURIC ACID
The sulphuric acid market was tight during 2017 due to supply
disruptions in many regions of the world. This increased the regional
deficit and caused prices to rise during 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. The tight market in 2017 is reflected
in higher acid prices in 2018.
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, as over half of Chile’s foreign
exchange earnings are generated from copper sales, an increase
in the copper price tends to weaken the Chilean peso and vice versa
and so a natural hedge exists for the Group. During 2017, the Chilean
peso strengthened by 4.1% from Ch$677/$1 in 2016 to Ch$649/$1.
During the first two months of 2018 it strengthened further,
averaging Ch$601/$1.
29
antofagasta.co.ukSTRATEGIC REPORT OPERATING REVIEW CONTINUED
KEY INPUTS AND COST BASE CONTINUED
COST AND COMPETITIVENESS PROGRAMME
The Group introduced its Cost and Competitiveness Programme
(CCP) in 2014, with the aim of reducing its cost base and
improving the Group’s competitiveness within the industry.
Since then, it has achieved savings in mine site costs of $525
million, approximately $166 million of which were made during
2017. These savings are equivalent to 11 cents per pound
for the year.
Examples of
savings initiatives
− Renegotiation of truck
maintenance contracts
− Negotiation with explosive
service providers
− Optimisation of fuel
transport services
Sustainable practice
− Contract administration
model
− Improving grinding media
− Maintenance strategy
consumption
− Minimising waste in blasting
to reduce explosives
consumption
− New Operating Model
− New Operating Model
implementation
(strengthening of key
processes)
− Optimising the organisational
structure
− Modifying peak consumption
− Energy optimisation
patterns to reduce
power costs
The Group target for 2018 is for a further $100 million of operating
cost savings, to be achieved mainly through asset and labour
productivity improvements.
The programme focuses on four areas:
1 Services productivity: Improving the productivity and quality
of contracts while reducing costs
2 Operation and maintenance management: Improving
the performance of critical processes and finalising the
implementation of standard maintenance management practices
3 Corporate and organisational effectiveness: Reducing costs
and restructuring the Group’s organisational framework
4 Energy efficiency: Optimising energy efficiency and lowering
energy contract prices
30
Antofagasta plc Annual Report 2017
INPUTS
KEY RELATIONSHIPS
The Group’s business model is underpinned by relationships with stakeholders at local,
regional, national and international levels. Successful management of these relationships
contributes to the long‑term success of the Group.
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 therefore 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 ensuring customer diversification. The Group
also maintains relationships with trading companies that participate
in shorter-term sales agreements, or in the spot market.
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.
STRUCTURE OF SALES CONTRACTS
Typically, the Group’s sales contracts set out the annual volumes
to besupplied 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 in line with market developments and the parties’
assesments of the copper concentrate market at the time of the
negotiation of the terms.
In the case of copper cathodes 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.
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 four 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 to produce
copper metal for sale. Molybdenum sales generally remain open for
two or three months from shipment.
SUPPLIERS
Suppliers play a critical role in the Group’s ability to operate safely
and efficiently, providing a large range of products and services from
grinding media to catering at the mine sites.
The Group works with over 3,000 suppliers, focusing on the top
suppliers in each category to ensure the most cost-effective and
efficient solutions across all operations. A centralised corporate
procurement team defines and consolidates common procurement
practices and procedures, with separate targets and procurement
practices for strategic goods and transactional purchases.
The teams have increased their expertise in each cost-relevant
product category, reducing the number of suppliers in order to extract
greater benefits from selected suppliers over a long period of time.
One example is the consolidation and integration of all logistics for the
mining operations within two centres in Chile under a single logistics
operator. This allows greater control of goods in the supply chain as
the Group moves towards a “just in time delivery” model. The Group
has also begun managing return trips of goods leaving the operations,
in order to significantly reduce the number of trucks needed and
improve cost and environmental efficiency.
Since 2016 the Group has been operating a Group-wide contract
administration model that measures performance, costs and
productivity on a monthly basis. Currently, the 80 largest service
contracts are managed using this model. In 2017 they accounted for
over 70% of the cost of service at the operations and over 6,000
contractor employees. The intention is to reinforce this management
framework further during 2018.
31
antofagasta.co.ukSTRATEGIC REPORT
OPERATING REVIEW CONTINUED
KEY RELATIONSHIPS CONTINUED
The Group encourages suppliers to raise any issues or concerns they
may have about their relationship with the Company, their contracts
or the workforce. A separate complaints procedure ensures that all
contracts are awarded in a fair and transparent manner.
All suppliers are audited before a contract is awarded and periodically
thereafter to ensure compliance with applicable labour and other
legislation, as well as the Group’s strict safety and health and other
policies. The Group also monitors suppliers’ financial health and
requires bank guarantees when deemed necessary.
+ See page 18 for more information
EMPLOYEES
The Group employs approximately 6,200 people, working alongside
approximately on average 15,000 contractors at its corporate offices,
operations and projects (including 100% at Zaldívar). Mining
operations are inherently risky and ensuring the safety and health
of every employee is not only an absolute priority, but an ethical
obligation central to the Group’s strategic objectives.
The Group has created a variety of initiatives over the past few years
to secure and develop talent, and to increase diversity within the
organisation. In particular, efforts are being made to increase the
number of women working in the Group and to attract young
professionals into the mining industry.
Relationships with 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 2017, the Group renewed labour agreements with
employees and supervisors at Centinela and Zaldívar. In the Chilean
mining industry labour agreements are negotiated with each union for
a maximum of three years and the Group’s next negotiations are
scheduled for 2020.
+ See page 58 for more information
CONTRACTORS
The number of contractors working for Antofagasta varies according
to business needs and the level of construction activity.
At the end of 2017 there were approximately 13,700 contractors
working at the Group’s operations and projects (including 100%
at Zaldívar). This was some 6% lower than the same time in 2016,
principally due to the completion of the Encuentro Oxides project.
Contractors are essential 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 is assessed regularly using internal and external audits.
Contractors have access to the same mine camp facilities as the
Group’s own employees and the Group requires that all contractor
employees must be paid at least 50% above the minimum wage
required by Chilean law.
+ See page 58 for more information
32
LOCAL COMMUNITIES
It is crucial to have strong relationships with local communities in
the areas where the Group operates, because 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 identify potential conflicts and maintains the
Group’s social licence to operate. During 2014 the Group pioneered
a new community engagement model called “Somos Choapa” (We Are
Choapa), after the region in which Los Pelambres and its communities
are located. In 2015, Los Pelambres 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 Mauro tailings dam, by
engaging in 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.
+ See page 60 for more information
GOVERNMENT RELATIONS
Political developments and changes to legislation or regulations
in Chile, the UK, or other countries where the Group has operations,
development projects or exploration activities, can affect the
Group’s business.
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.
OTHER LOCAL STAKEHOLDERS
Good relationships with other stakeholders situated near the Group’s
operations and projects, such as 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.
Antofagasta plc Annual Report 2017 EXPLORATION
EXPLORATION ACTIVITIES
The Group seeks to expand its copper production in Chile and abroad by developing
new projects and other potential opportunities. Brownfield 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 actively
evaluates opportunities that come to market. Long-term growth
options within the portfolio are under constant evaluation. 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.
During the year early-stage target-testing drilling was conducted
at various projects in the Antofagasta Region in the north of Chile and
target-confirmation drilling was completed at the Encierro project
in the Atacama Region. An environmental impact study was approved
for the Cachorro project, south of Antucoya, and significant drilling
programmes are planned at both Encierro and Cachorro during 2018.
EXPLORATION ACTIVITIES
Exploration, in Chile and internationally, remains a key contributor to
the sustainable and long-term growth of the Group´s copper business.
The Group has an active programme of early and intermediate stage
exploration projects managed by its exploration teams in Santiago,
Lima and Toronto. Exploration is conducted using in-house teams
and through partnerships with selected third parties, with the aim
of building a portfolio of long-term opportunities in Chile and
the Americas.
Following initial positive results at the Group’s ongoing projects,
exploration and evaluation expenditure increased from $44.3 million
in 2016 to $68.8 million in 2017.
CHILE
All exploration in Chile is carried out by the Group´s Santiago-based
exploration team, with activity focused along the main copper belts of
northern and central Chile as well as in prospective new belts. A key
activity is the rationalisation of the Group’s exploration assets and land
holdings, with the acquisition of new exploration licences in the areas
of focus and the relinquishment of lower priority ground.
In addition, resource delineation drilling was carried out at the Sierra
project south of Antucoya and new resource models were completed
for both Brujulina, near El Abra, and the hypogene copper-gold
mineralisation project at Zaldívar.
INTERNATIONAL
The Group’s international exploration business model includes
partnering with technically strong and locally-experienced operators.
This ensures that funding is spent effectively and directly on projects,
minimising expenditure on local administration.
During 2017, significant progress was made in consolidating the
Group´s international exploration activities to focus attention solely
on the Americas. An exploration office has been re-established in
Peru and additional resources have been assigned to North America
in order to support increased levels of activity in Canada, the US and
selected areas of Mexico, where the Group has a portfolio of
early-stage projects.
During 2017 several projects in British Columbia in Canada were drill
tested and the Group exited from non-core projects in Zambia,
Australia and the south-west Pacific region.
+ See page 196 to 205 for more information regarding reserves and resources
33
antofagasta.co.ukSTRATEGIC REPORT
OPERATING REVIEW CONTINUED
BUSINESS
UNITS
PERU
BOLIVIA
ESPERANZA
PORT
MEJILLONES
ANTOFAGASTA
ANTUCOYA
CENTINELA
Antofagasta
Region
ZALDÍVAR
Antofagasta
Region
Coquimbo
Region
ARGENTINA
SANTIAGO
PACIFIC OCEAN
CHILE
LA SERENA
Coquimbo
Region
PUNTA
CHUNGO
PORT
ILLAPEL
LOS VILOS
LOS PELAMBRES
34
Antofagasta plc Annual Report 2017 EXPLORATION
EVALUATION
CONSTRUCTION
EXTRACTION
PROCESSING
MARKETING
All of the Group’s operations are located in the
Antofagasta Region of northern Chile except for its
flagship operation, Los Pelambres, which is in the
Coquimbo Region of central Chile.
704,300
Tonnes of copper produced in 2017
212,400
Ounces of gold produced in 2017
10,500
Tonnes of molybdenum produced in 2017
$1.25/lb
Net cash costs in 2017
Los Pelambres
Centinela
Antucoya
Zaldívar
Capital city
Cities and town centres
Ports
LOS PELAMBRES
p36
CENTINELA
p38
ANTUCOYA
p40
ZALDÍVAR
p41
TRANSPORT DIVISION
p42
GROWTH PROJECTS
AND OPPORTUNITIES
p44
35
antofagasta.co.ukSTRATEGIC REPORT OPERATING REVIEW CONTINUED
MINING DIVISION
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.
2017 PRODUCTION
2017 FINANCIALS
Copper (tonnes)
343,800 (3.3%)
Molybdenum (tonnes)
10,500 +47.9%
Gold (ounces)
55,400 (4.2%)
EBITDA
$1,428m +55.0%
Net cash costs
$1.02/lb (3.8%)
2018 FORECAST
Copper (tonnes)
345–355,000
Molybdenum (tonnes)
10–11,000
Gold (ounces)
60–70,000
COPPER PRODUCTION (‘000 TONNES)
Antofagasta
Region
Antofagasta
Region
Antofagasta
Region
Coquimbo
Region
LOS
PELAMBRES
60%
owned
2000
Start of
operations
21 years
Remaining
mine life
343.8
355.4
363.2
343,800 tonnes
produced in 2017
17
16
15
36
Antofagasta plc Annual Report 2017 EVALUATION
CONSTRUCTION
EXTRACTION
PROCESSING
MARKETING
2017 PERFORMANCE
OUTLOOK
Operating performance
EBITDA at Los Pelambres was $1,428 million in 2017, compared
with $921 million in 2016, reflecting increased realised metal prices.
Production
Copper production was 343,800 tonnes in 2017, which was 3.3%
lower than in 2016. This decrease was primarily due to lower grades,
which dropped from 0.73% to 0.68%.
Molybdenum production for the year was 10,500 tonnes, 47.9%
higher than in 2016, due to higher grades, recoveries and throughput.
Gold production was 4.2% lower in 2017 at 55,400 ounces, compared
with 57,800 ounces in 2016.
Cash costs
Cash costs before by-product credits at $1.44/lb were 5.9%
higher than in 2016, as grades decreased, partially compensated by
higher throughput. Net cash costs in 2017 were $1.02/lb compared
with $1.06/lb in 2016, due to significantly higher credits from
molybdenum sales.
Total capital expenditure in 2017 was $236 million, which included
$89 million on mine development. Capital expenditure is forecast
at approximately $365 million in 2018, reflecting the expected start
of construction of the Incremental Expansion project and higher
sustaining capital expenditure compared to 2017.
Production
The forecast production for 2018 is 345–355,000 tonnes of payable
copper (slightly higher than in 2017), 10–11,000 tonnes of molybdenum
and 60–70,000 ounces of gold.
Cash costs
Cash costs before by-product credits for 2018 are forecast to
increase to approximately $1.50/lb and net cash costs to increase
to approximately $1.10/lb.
Legal update
In November 2017, the San Juan Province accepted a plan presented
by Los Pelambres to remove the Cerro Amarillo waste rock dump,
and work commenced in December. The execution of the plan is
subject to certain conditions and the approved time for the removal
of 5.5 years can be extended by one year in certain circumstances.
The Company made a provision of $50 million during 2017 for the
removal of the waste rock. The removal plan does not represent any
acknowledgement of responsibility by Los Pelambres nor prejudice
any of its rights, since at the time the Company started construction
of the waste rock dump it did so in accordance with valid permits
issued by the responsible Chilean government agencies.
37
antofagasta.co.ukSTRATEGIC REPORT CENTINELA
Antofagasta
Region
70%
owned
Coquimbo
Region
2001
Start of
operations
50 years
Remaining
mine life
Antofagasta
Region
Antofagasta
Region
OPERATING REVIEW CONTINUED
MINING DIVISION 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 and electrowinning process SX‑EW.
2018 FORECAST
Copper (tonnes)
230–245,000
Gold (ounces)
130–140,000
Molybdenum (tonnes)
1,500
228.3
236.2
221.1
228,300 tonnes
produced in 2017
2017 PRODUCTION
Copper (tonnes)
228,300 (3.3%)
Gold (ounces)
157,000 (26.3%)
2017 FINANCIALS
EBITDA
$859m +52.8%
Net cash costs
$1.36/lb +14.3%
COPPER PRODUCTION (‘000 TONNES)
17
16
15
38
Antofagasta plc Annual Report 2017 EVALUATION
CONSTRUCTION
EXTRACTION
PROCESSING
MARKETING
2017 PERFORMANCE
Operating performance
EBITDA at Centinela was $859 million, compared with $562 million
in 2016, despite lower production and higher operating costs, as the
realised copper price increased by 28% and the realised gold price
rose by 2.1%.
Production
Copper production for the full year 2017 was 228,300 tonnes,
3.3% lower than in 2016 primarily as a result of lower recoveries
and lower grades at Centinela Concentrates. This was partly offset
by higher grades in the oxides line and the start of production
at Encuentro Oxides.
Copper in concentrate production for the full year was 163,900
tonnes, 9.1% lower than 2016, mainly reflecting slightly lower grades
and the consequential drop in recoveries.
Gold production was 157,000 ounces, 26.3% lower than in 2016.
This was mainly due to lower grades and recoveries.
Copper cathode production for the year was 64,500 tonnes, 15.6%
higher than the previous year, as grades increased and Encuentro
Oxides came into production in the last quarter of the year.
Cash costs
Cash costs before by-product credits for the year were $1.81/lb,
3.4% higher than in 2016, mainly as a result of lower copper
production, higher input prices and the payment of a one-off signing
bonus following the successful conclusion of labour negotiations with
three unions at the operation. The essential terms of each of the
labour agreements were standardised, allowing for the completion
of the operational integration of Esperanza and El Tesoro, which
began in 2014 when they were merged as Centinela. This completion
of the integration will bring further improvements in operating
practices at Centinela and will enable improvements in productivity.
Net cash costs for 2017 were $1.36/lb compared with $1.19/lb
in 2016. This increase is due to the increase in cash costs before
by-product credits and lower gold production.
Capital expenditure was $578 million, including $192 million on
Encuentro Oxides and the molybdenum plant and $264 million
on mine development. Total project expenditure on the Encuentro
Oxides project was $605 million, some $30 million under budget.
Total capital expenditure in 2018 is expected to be $516 million,
included approximately $280 million on mine development.
OUTLOOK
Production
Production for 2018 is forecast at 230–245,000 tonnes of
payable copper, 130–140,000 ounces of gold and 1,500 tonnes of
molybdenum, following the commissioning of the molybdenum plant
early in 2018. While the grade at Centinela Concentrates will be lower
than in 2017, Encuentro Oxides will reach full capacity during the
year, contributing approximately 50,000 tonnes of payable copper.
Cash costs
Cash costs before by-products for 2018 are forecast at approximately
$1.90/lb and net cash costs at approximately $1.50/lb.
39
antofagasta.co.ukSTRATEGIC REPORT Antofagasta
Region
Antofagasta
Region
OPERATING REVIEW CONTINUED
MINING DIVISION CONTINUED
ANTUCOYA
Antofagasta
Region
70%
owned
2016
Start of
operations
22 years
Remaining
mine life
Coquimbo
Region
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
ore to produce copper cathodes.
2017 PRODUCTION
2017 FINANCIALS
Copper (tonnes)
80,500 +21.6%
EBITDA
$207m +219.4%
Cash costs
$1.68/lb (8.2%)
COPPER PRODUCTION (‘000 TONNES)
17
16
15
12.2
2018 FORECAST
Copper (tonnes)
75–80,000
80.5
66.2
80,500 tonnes
produced in 2017
2017 PERFORMANCE
Operating performance
EBITDA at Antucoya was $207 million compared
with $65 million in 2016, reflecting Antucoya’s first
year of operation at full capacity.
Cash costs
Cash costs for the year were $1.68/lb, 8.2% lower
than in 2016, mainly because of higher production.
Capital expenditure was $44 million, including
$17 million on mine development.
Production
Production was 80,500 tonnes of copper, 21.6%
higher than in 2016, following the completion
of the ramp-up in late 2016.
OUTLOOK
Production in 2018 is forecast to be approximately
75–80,000 tonnes and cash costs are expected
to increase to $1.75/lb.
Total capital expenditure is expected to be
approximately $57 million, which includes
$22 million of mine development costs.
40
Antofagasta plc Annual Report 2017 EVALUATION
CONSTRUCTION
EXTRACTION
PROCESSING
MARKETING
Antofagasta
Region
ZALDÍVAR
Zaldívar is an open‑pit, heap‑leach copper mine operating at an average
elevation of 3,000 meters above sea level, 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 asset from Barrick
Gold Corporation in 2015 and is the operator of the mine.
Coquimbo
Region
2017 PRODUCTION1
2017 FINANCIALS
Copper (tonnes)
51,700 0.0%
EBITDA
$134m +57.7%
Cash costs
$1.62/lb +5.2%
2018 FORECAST
Copper (tonnes)1
55–60,000
1. Attributable share of production.
COPPER PRODUCTION (‘000 TONNES)
17
16
15
4.4
2017 PERFORMANCE
Operating performance
Attributable EBITDA was $134 million compared
with $85 million in 2016.
During 2017 the Company successfully concluded
labour negotiations with the workers’ union.
Production
Total attributable production in 2017 was 51,700
tonnes of copper cathodes, unchanged from 2016
as, although the grade increased, recoveries were
lower due to the significantly higher proportion of
sulphide ores being processed compared to 2016.
51.7
51.7
51,700 tonnes
produced in 2017
Cash costs
Cash costs for 2017 were $1.62/lb, 5.2% higher
than previous year mainly because of impact
of the one-off signing bonuses following the
conclusion of the labour negotiations and higher
input prices. Attributable capital expenditure for
2017 was $51 million, which includes approximately
$25 million with respect to mine development.
These amounts are not included in the Group
capital expenditure figures.
OUTLOOK
Attributable copper production in 2018 is forecast
to be approximately 55–60,000 tonnes at a cash
cost of $1.70/lb.
Attributable capital expenditure in 2018 is expected
to be approximately $60 million, of which $10
million will be spent on mine development.
Antofagasta
Region
ZALDÍVAR
50%
owned
1995
Start of
Antofagasta
operations
Region
13 years
Remaining
mine life
41
antofagasta.co.ukSTRATEGIC REPORT OPERATING REVIEW CONTINUED
TRANSPORT DIVISION
TRANSPORT DIVISION
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.
100%
owned
1882
Start of
operations
2017 TONNAGE TRANSPORTED (‘000 TONNES)
6.3m tonnes
1,222
17
16
15
1,186
1,180
Road
Rail
2017 FINANCIALS
EBITDA
$98.1m
17
16
15
5,045
5,310
4,933
98.1
87.7
78.8
2017 PERFORMANCE
During the year, the transport division further optimised its business
under the FCAB Management Model based on the three key areas of
sustainability, productivity and cost management. Tonnage
transported continued in line with the previous year and the railway
renewed an acid and cathode transport contract with one of its
largest customers. Additionally, the FCAB was awarded a new
concentrates transport contract, confirming the competitiveness of its
cost structure. Furthermore, in early 2018 an additional acid, cathode
and concentrates contract was awarded to FCAB. Seven new
locomotives purchased during the year are scheduled to begin
operating the first half of 2018, and another five locomotives have
been ordered, optimising the fleet and increasing asset productivity.
42
Operating performance
The division’s EBITDA was $98.1 million in 2017, compared to
$87.7 million in 2016, reflecting appropriate cost management
and higher sales from the water business.
Transport tonnage
During 2017 the division transported 6.3 million tonnes, compared
to 6.5 million tonnes in 2016, 3.5% lower mainly due to labour
disruptions at one of the division’s clients, partially offset by higher
road transport volumes and productivity improvements achieved
during the year.
Costs
Cost management was focused on optimising the division’s
business processes to ensure the lasting competitiveness of its
services through better utilisation of the fleet, organisational changes
and cost savings.
OUTLOOK
The division will continue to develop new business opportunities
and optimise the use of rolling stock and utilisation of the fleet.
Improvements are expected in maintenance, using knowledge gained
from the mining division and best practices from the railway industry,
and benefiting from the new locomotives and higher fleet availability.
This is the beginning of a renewal programme of FCAB’s locomotives
fleet. The implementation of the Costs and Competitiveness
Programme will further help to keep costs under control.
One of the main areas of focus in 2018 will be the development of
projects to service the two new transport contracts. Once these are
in place in 2019, FCAB’s transport tonnage will increase by about 10%.
Antofagasta plc Annual Report 2017 EVALUATION
CONSTRUCTION
EXTRACTION
PROCESSING
MARKETING
CUSTOMERS MAP
Tocopilla
María Elena
Calama
Sierra Gorda
ANTOFAGASTA
REGION
Mejillones
Antofagasta
Taltal
Road route
Rail route
FCAB customers
SUSTAINABILITY
The division’s sustainability activities are now integrated with
those of the mining division in the region, leading to improved
efficiency and the exchange of best practices and experience.
No fatalities or accidents with serious consequences to people
were reported in 2017. The focus during the year was on
critical controls to avoid fatalities. The division is now in the
process of rolling out the relevant verification tools for these
controls across the organisation.
The Lost Time Injury Frequency Rate (LTIFR) in 2017 was
7.3 compared to 4.9 in 2016. Incident reporting, including near
misses, conditions and actions, increased by 89% over the
same period, reflecting the effectiveness of the mining
division’s reporting approach adopted in 2016.
In 2018, the focus will be on consolidating the application
of critical controls, executing safety leadership practices and
improving employees’ safety behaviour, while simultaneously
deepening the interaction with local communities and
strengthening the division’s image in the region.
43
antofagasta.co.ukSTRATEGIC REPORT OPERATING REVIEW CONTINUED
GROWTH PROJECTS
AND OPPORTUNITIES
The Group is focused on controlling capital costs and optimising production from existing
operations. It achieves this through careful project management and constant monitoring
of the efficiency of its mines, plants and transport infrastructure.
GROWTH PROJECTS
Where possible, debottlenecking and incremental plant expansions
are used to increase throughput and improve overall efficiencies
as these projects often have lower capital expenditure requirements
and generate higher returns than greenfield projects.
The Group continues to review its options for maximising returns and
reducing the capital cost of projects and is enhancing the capabilities
of the project team to improve project execution strategy,
management and control.
At Centinela the expansion of the existing concentrator and using
its infrastructure (power lines, pipelines, port and other facilities)
is being considered as an alternative to building a new concentrator.
The Group is also evaluating the disposal of under-utilised assets
and unlocking value through the sale and lease-back of certain
infrastructure assets.
CENTINELA SECOND CONCENTRATOR
One alternative under consideration for the expansion of Centinela
is the construction of a second concentrator some 7 km from
Centinela’s current concentrator. It is expected to have an ore
throughput capacity of approximately 90,000 tonnes per day,
with annual production of approximately 180,000 tonnes of copper
equivalent, which includes gold and molybdenum as by-products.
Ore will be sourced initially from the Esperanza Sur deposit and,
once mining is completed at Encuentro Oxides, additionally from
Encuentro Sulphides.
The EIA for the project 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 for this $2.7 billion project is due for completion
by the end of 2018, when a decision will be made on whether
to proceed with either this project or the expansion of the existing
plant. If approval is given in 2018 first production is expected in 2022.
However, if the expansion of the existing concentrator is approved
it is likely that the second concentrator will proceed at a later date.
There is also scope to increase the plant capacity further
once the second concentrator is completed, which could bring
throughput capacity to approximately 150,000 tonnes per day and
increase the plant’s production to approximately 250,000 tonnes
of copper equivalent.
180,000 tonnes
copper equivalent production per year
44
Antofagasta plc Annual Report 2017 EVALUATION
ALTERNATIVE DEVELOPMENT OPTION
As an alternative to the construction of a second concentrator,
the Group is evaluating the expansion of the existing concentrator
and tailings storage facilities as a less capital-intensive alternative.
Technical viability, capital cost and financial returns will be assessed
before the completion of the feasibility study for the second
concentrator. The expansion of the existing concentrator would not
preclude the later construction of the second concentrator.
More work will be conducted on both expansion options during 2018
with the intention of the Company being able to select its preferred
alternative by the end of the year. If it is decided to proceed with the
expansion of the existing concentrator in prefrence to building a
second concentrator, a full feasibility study will be required before
it is taken to the Board for approval. This work would delay the date
for final project approval by approximately 18 months.
TWIN METALS MINNESOTA
Twin Metals Minnesota is a wholly-owned copper, nickel and platinum
group metals (PGM) underground mining project which holds the
Maturi, Maturi Southwest, Birch Lake and Spruce Road copper-nickel-
PGM deposits located in north-eastern Minnesota, US.
During 2017 the Group commenced preparation of the Mine Plan of
Operations, a pre-requisite for permitting applications. The Group also
undertook further evaluation and optimisation exercises on the
pre-feasibility study, completed in 2014, with the aim of completing
an updated pre-feasibility study by the end of 2018.
In December 2017 the US Department of the Interior reaffirmed Twin
Metals’ right to renew two federal mineral leases, a right denied in
December 2016 by the Bureau of Land Management (BLM) and the
US Forest Service (USFS). These mineral leases cover part of the
project’s mineral resources.
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
45
antofagasta.co.uk
OPERATING REVIEW CONTINUED
GROWTH PROJECTS AND OPPORTUNITIES CONTINUED
LOS PELAMBRES INCREMENTAL EXPANSION
This expansion project is being carried out in two phases in order
to simplify the permitting application process 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,
with only relatively simple updates required and an EIA for the new
desalination plant. During this phase, Los Pelambres will operate at
an average throughput of 190,000 tonnes of ore per day, with the
addition of a new grinding and flotation circuit to mitigate the impact
of the harder ore currently being mined, and a 400 litres per second
desalination plant and associated pipeline. Desalinated water will be
pumped from the coast to the Mauro tailings storage facility, where
it will connect with the recycling circuit returning water to the
Los Pelambres concentrator plant.
During 2017 the Group progressed the EIA for the project with the
authorities and provided various submissions associated with the
permitting process. The EIA was approved in February 2018.
The project’s capital estimate has been updated with current pricing
projections, advanced detailed engineering and a project execution
plan to a revised estimate of $1.3 billion. This figure includes the
concentrator plant expansion and pre-stripping at $780 million and
the desalination plant and water pipeline at $520 million. The
desalination plant will serve as a back-up water supply for the entire
operation – existing plus both phases of expansion – in conditions of
severe drought. The project is expected to be submitted for approval
to the Board during the second half of 2018 once ancillary permits
to the approved EIA are in place and additional geotechnical studies
at the desalination plant have been completed.
The project will increase Los Pelambres’ production by 55,000
tonnes of copper a year from 2021.
+55,000 tonnes
annual copper production
Phase 2
In this phase the Group will seek to increase throughput to 205,000
tonnes of ore per day and to extend the mine’s life by 15 years beyond
the currently approved 20 years. As part of this development the
Group will submit a new EIA to increase the capacity of the mine’s
Mauro tailings storage facility and mine waste dumps. Work on the
environmental baseline study for the new EIA started in 2017 and the
results will be reviewed in late 2018.
Capital expenditure for this phase was estimated in the pre-feasibility
study at approximately $500 million, the majority 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 and should be completed in 2018. However, the project will
only proceed following a decision on Phase 1 and will require the
submission of extensive permit applications, including the new EIA.
First production from this phase would be in 2022 at the earliest and
is expected to increase copper production by 35,000 tonnes per year.
+35,000 tonnes
annual copper production
46
Antofagasta plc Annual Report 2017 EVALUATION
PROJECT COMPLETED DURING THE YEAR
ENCUENTRO OXIDES
The Encuentro Oxides deposit is in 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, offsetting a
natural decline in production due to falling mined grades at Centinela’s
existing oxide pits.
The project was completed during 2017 and first production was
in September with full production expected in the first half of 2018.
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,
as Encuentro Oxides sits on top of the much larger Encuentro
Sulphide deposit. The Encuentro Oxides project therefore acts
as a funded pre-strip for the sulphide deposit, opening up the latter
for development as part of the Centinela expansion project.
During 2017, total expenditure incurred was $153 million, bringing
total expenditure on the project to $605 million, some $30 million
under budget.
+43,000 tonnes
average copper production per year
$605 million
construction capex, 5% under budget
PROJECT UNDER CONSTRUCTION
MOLYBDENUM PLANT
This project will allow Centinela to produce an average of 2,400
tonnes of molybdenum per year. Production is expected to start in
early 2018, and the addition of another by-product credit will lower
Centinela’s unit net cash costs.
At the end of December 2017, the project was 98% complete
(including design, engineering, procurement and construction).
During 2017, total expenditure incurred was $40 million.
47
antofagasta.co.ukSTRATEGIC REPORT
FINANCIAL REVIEW
SOLID FINANCIAL
PERFORMANCE
“Earnings per share from continuing
operations increased by 119%1,
reflecting the strong growth in
revenue during the year.”
Alfredo Atucha, CFO
Year ended
31/12/2017
Total
$m
4,749.4
2,586.6
(2,318.9)
(589.4)
1,841.1
59.7
1,900.8
(70.0)
1,830.8
(633.6)
1,197.2
0.5
1,197.7
US cents
76.1
0.1
76.2
Before
exceptional items
$m
Exceptional items2
$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
US cents
34.7
3.9
38.6
–
–
(241.0)
(215.6)
(456.6)
(134.7)
(591.3)
–
(591.3)
204.9
(386.4)
–
(386.4)
US cents
(22.6)
–
(22.6)
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
US cents
12.1
3.9
16.0
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 operations3
Profit for the year
Basic earnings per share
From continuing operations
From discontinued operations3
Total continuing and discontinued operations
1. Excluding exceptional items in 2016.
2. Further details given in Note 4 to the financial statements.
3. At 31 December 2017 the Group had commenced a process to dispose of Centinela Transmission, the electricity transmission line supplying Centinela and other external
parties. As a result of this, its net results are shown as a discontinued operation in the income statement. In the 2016 comparatives the net results of the Group’s former
Michilla operation were shown as a discontinued operation.
A detailed segmental analysis of the components of the income statement is contained in Note 5 to the financial statements.
48
Antofagasta plc Annual Report 2017
The following table reconciles the change in EBITDA between 2016 and 2017:
OUTPUT
EBITDA in 2016
Revenue
Increase in copper volumes sold
Increase in realised copper price
Decrease in treatment and refining charges
Increase in revenue from copper sales
Decrease in gold revenue
Decrease in silver revenue
Increase in molybdenum revenue
Increase in revenue from by-products
Increase in transport division revenue
Increase in Group revenue
Operating costs
Increase in mine operating costs
Increase in closure provisions
Increase in exploration and evaluation costs
Increase in corporate costs
Decrease in other mining division costs
Increase in operating costs for mining division
Increase in transport division operating costs
Increase in attributable EBITDA relating to associates and joint ventures
Total EBITDA in 2017
REVENUE
Revenue for the Group in 2017 was $4,749.4 million, 31.1% higher
than in 2016. The increase of $1,127.7 million mainly reflected
an increase in the realised copper price and copper sales volumes,
as well as higher molybdenum revenue offset by lower gold and
silver revenue.
Revenue from the mining division
Revenue from copper sales
Revenue from copper concentrate and copper cathode sales
increased by $1,111.7 million, or 32.3%, to $4,578.3 million, compared
with $3,461.5 million in 2016. The increase reflected the impact
of higher realised prices and increased sales volumes.
(i) Realised copper price
The higher average realised copper price resulted in a $966.4 million
increase in revenue. The average realised price increased by 28.5%
to $3.00/lb in 2017 (2016 – $2.33/lb), largely reflecting the 26.7%
increase in the LME average market price to $2.80/lb (2016 – $2.21/lb).
In addition, there was a significant positive provisional pricing
adjustment of $309.5 million, mainly reflecting the increase in the
year-end copper price to approximately $3.25/lb at 31 December
2017, compared with around $2.50/lb at 31 December 2015.
In 2017 revenue also includes a loss of $17.1 million (2016 – loss of
$2.2 million) relating to commodity derivatives which matured during
the year. Further details of hedging activity in the period are given
in Note 24(d) to the financial statements.
Realised copper prices are determined by comparing revenue
(gross of treatment and refining charges for concentrate sales) with
sales volumes in the period. Realised copper prices differ from market
prices mainly because, in line with industry practice, concentrate
and cathode sales agreements generally provide for provisional
pricing at the time of shipment with final pricing based on the average
market price for future periods (normally around one month after
delivery to the customer in the case of cathode sales and normally
four months after delivery to the customer in the case of concentrate
sales). Realised copper prices also reflect the impact of realised gains
$m
1,626.1
122.0
966.4
23.3
1,111.7
(61.1)
(8.3)
74.5
5.1
10.9
1,127.7
(175.0)
(30.5)
(24.5)
(15.2)
35.2
(210.0)
(8.9)
51.7
2,586.6
or losses on commodity derivative instruments hedge-accounted-
for in accordance with IAS 39 “Financial Instruments: Recognition
and Measurements”.
+ Further details of provisional pricing adjustments are given in Note 6
to the financial statements
(ii) Copper volumes
Copper sales volumes reflected within revenue increased from
634,100 tonnes in 2016 to 657,700 tonnes in 2017 increasing revenue
by $122.0 million. This increase was mainly due to Antucoya which
achieved commercial production on 1 April 2016, and which therefore
recorded a full 12 months’ of sales volumes within revenue in 2017
(80,800 tonnes), compared to only nine months’ sales volumes
in 2016 (54,900 tonnes).
(iii) Treatment and refining charges
Treatment and refining charges for copper concentrate decreased
by $23.3 million to $277.7 million in 2017 from $301.0 million in 2016,
mainly due a decrease in the average TCs/RCs. Treatment and
refining charges are deducted from concentrate sales when reporting
revenue and hence the decrease in these charges has had a positive
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 $5.1 million or 1.0%
to $505 million in 2017, compared with $499.9 million in 2016.
This overall slight increase reflects higher molybdenum revenue
largely offset by lower gold sales.
Revenue from molybdenum sales (net of roasting charges) was
$168.5 million (2016 – $94.0 million), an increase of $74.5 million.
The increase was due to higher sales volumes of 9,600 tonnes
(2016 – 7,200 tonnes) and an increased realised price of $8.7/lb
(2016 – $6.8/lb).
49
STRATEGIC REPORTantofagasta.co.uk
FINANCIAL REVIEW CONTINUED
Revenue from gold sales (net of TCs/RCs) was $278.6 million (2016
– $339.7 million), a decrease of $61.1 million which mainly reflected
a decrease in volumes, partly offset by a higher realised price. Gold
sales volumes decreased by 19.6% from 271,400 ounces in 2016 to
218,200 ounces in 2017, mainly due to lower grades and recoveries
at Centinela. The realised gold price was $1,280.4/oz in 2017
compared with $1,256.1/oz in 2016, with the increase reflecting
slightly higher market prices.
Exploration and evaluation costs increased by $24.5 million to
$68.8 million (2016 – $44.3 million). This reflected a general increase
in activity, including with early-stage generative exploration activity
in Chile and drilling work at Los Pelambres. Costs relating to the mine
closure provisions increased by $30.5 million compared with 2016
and corporate costs increased by $15.2 million. These increases were
partly offset by a $35.2 million decrease in other expenses, largely
relating to decreased community expenditure at Los Pelambres.
Revenue from silver sales decreased by $8.3 million to $58.2 million
(2016 – $66.2 million). The decrease was due to lower sales volumes
of 3.5 million ounces (2016 – 3.7 million ounces) as well as a
decrease in the realised silver price to $16.8/oz (2016 – $17.5/oz).
Revenue from the transport division
Revenue from the transport division (FCAB) increased by
$10.9 million or 6.8% to $171.1 million, mainly due to increased
average rail tariffs and higher road tonnages.
Operating costs (excluding depreciation, loss on disposals and
impairments)
Operating costs (excluding depreciation, loss on disposals and
impairments) are considered to provide a useful and comparable
indication of the current operational performance of the Group’s
businesses, excluding the depreciation of the historic cost of property,
plant and equipment.
The Group´s total operating costs (excluding depreciation, loss
on disposals and impairments) amounted to $2,318.9 million (2016
– $2,100.0 million), an increase of $218.9 million, mainly due to
increased costs at the mining division.
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 increased by $210.0 million
to $2,223.1 million in 2017, an increase of 10.4%. Of this increase,
$175.0 million is attributable to higher mine site operating costs.
This increase in minesite costs reflected the higher production
volumes in the year, the one-off signing bonus payable following the
successful completion of labour negotiations at Centinela, the stronger
Chilean peso and higher key input prices, partly offset by cost savings
from the Group’s Cost and Competitiveness Programme. As a result,
weighted average unit cash costs excluding by-product credits
(which are reported as part of revenue) and refining charges
for concentrates (which are deducted from revenue) increased
from $1.33/lb in 2016 to $1.41/lb in 2017.
The Cost and Competitiveness Programme has been designed to
achieve permanent savings through the application of a structured
process. During the year, $166 million of savings were achieved,
bringing total savings since the start of the programme to
$525 million. These permanent savings have been achieved through
organisational simplification, improved productivity of services
and operations, tightened maintenance management and greater
energy efficiency.
EBITDA
increased to
$2,586.6 million
59%
EBITDA increase
Operating costs (excluding depreciation and loss on
disposals) at the transport division
Operating costs (excluding depreciation and loss on disposals) at the
transport division increased by $8.9 million to $95.8 million, mainly
reflecting higher diesel prices due to the stronger Chilean peso and
an increase in services provided by third parties.
EBITDA
EBITDA (earnings before interest, tax, depreciation and amortisation)
increased by $960.5 million or 59.1% to $2,586.6 million
(2016 –$1,626.1 million). EBITDA includes the Group’s proportional
share of EBITDA from associates and joint ventures.
EBITDA from the Group’s mining increased by 61.8% from
$1,538.4 million in 2016 to $2,488.5 million in this year. As explained
above, this was mainly due to the significant increase in revenue,
partly offset by the higher unit cash costs and increased exploration
and evaluation expenditure and mine closure provision costs.
EBITDA at the transport division increased by $10.4 million to
$98.1 million in 2017, reflecting the increased revenue offset
by higher operating costs explained above.
Depreciation, amortisation and disposals
The depreciation and amortisation charge was largely in line with
the prior year at $581.1 million (2016 – $578.4 million). In addition,
there were losses on disposals of assets of $8.3 million (2016 – loss
of $19.7 million).
Prior year exceptional impairment provisions
In 2016, 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.
+ Further details are given in Note 4 to the financial statements
Operating profit from subsidiaries
As a result of the above factors, operating profit from subsidiaries
increased in 2017 by 294.2% to $1,841.1 million (2016 – $467.0
million). Of the prior year exceptional impairment provisions outlined
above $456.6 million were recorded within operating expenses,
and therefore excluding the exceptional items from the prior year
figures, the year-on-year increase in operating profit was
$917.5 million or 99.3%.
Share of results from associates and joint ventures
The Group’s share of results from associates and joint ventures was
a gain of $59.7 million in 2017, compared with a loss of $111.3 million
in 2016. The prior year loss was largely a reflection of the exceptional
impairment provisions. Of the total prior year 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 provisions from the prior year results,
the year-on-year increase in the share of results from associates
and joint ventures was $36.3 million or 55.1%. The improvement
compared with the prior year mainly reflected a higher contribution
from Zaldívar due to an increase in the profit after tax (on a 50%
attributable basis) to $58.5 million (2016 – $29.5 million).
50
Antofagasta plc Annual Report 2017 Net finance expense
Net finance expense in 2017 was $70.0 million, compared with
$71.1 million in 2016.
Investment income
Interest expense
Other finance items
Net finance expense
Year ended
31/12/17
$m
23.8
(91.5)
(2.3)
(70.0)
Year ended
31/12/16
$m
26.9
(86.1)
(11.9)
(71.1)
Interest income decreased slightly from $26.9 million in 2016 to $23.8
million in 2017. Interest expense increased from $86.1 million in 2016
to $91.5 million in 2017. This was mainly due to a full year of interest
charges being expensed at Antucoya this year, compared with only
nine months in 2016 following the achievement of commercial
production on 1 April 2016.This factor was partly offset by the higher
capitalisation of interest cost during this year.
OUTPUT
The other finance items were an expense of $2.3 million (2016 –
expense of $11.9 million). This reflected an expense of $11.6 million for
the unwinding of the discounting of provisions (2016 – $10.0 million)
and an expense of $7.8 million relating to the time value element of
changes in the fair value of derivative options (2016 – gain of $1.0
million), largely offset by a $17.1 million foreign exchange gain (2016
– expense of $2.9 million).
Profit before tax
As a result of the factors set out above, profit before tax increased
by 543.3% to $1,830.8 million (2016 – $284.6 million). Excluding
exceptional items in 2016, profit before tax increased by $954.8
million or 109.0%.
Income tax expense
The tax charge for 2017 was $633.6 million and the effective tax
rate was 34.6%. Excluding the impact of exceptional items in the prior
year, the 2016 tax charge was $313.5 million and the effective tax
rate was 35.8%.
Profit before tax
Tax at the Chilean corporate rate tax of 25.5%
(2016 – 24%)
Provision against carrying value of assets
(exceptional items)
Effect of increase in future first category tax rates
on deferred tax balances
Adjustment in respect of prior years
Items not deductible from first category tax
Deduction of mining royalty as an allowable
expense in determination of first category tax
Credit of tax losses absorbed from dividends
of the year
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
Reversal of previously unrecognised tax losses
Net other items
Tax expense and effective tax rate for the year
$m
1,830.8
Year ended
31/12/2017
%
$m
875.9
Year ended
31/12/2016
Before
exceptional Items
%
Year ended
31/12/2016
After
exceptional Items
%
$m
284.6
(466.9)
25.5
(210.2)
24.0
(68.3)
–
(0.6)
(35.4)
(26.7)
17.4
(4.3)
–
(78.3)
(64.8)
–
15.2
9.9
0.9
(633.6)
–
–
1.9
1.5
(1.0)
0.2
–
4.3
3.5
–
(0.8)
(0.5)
–
34.6
–
(24.6)
–
(23.7)
8.5
–
(5.4)
(60.1)
–
(3.8)
5.6
–
0.2
(313.5)
–
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)
24.0
(22.1)
8.6
–
8.3
(2.9)
–
1.8
21.1
–
1.3
(1.9)
–
(0.0)
38.2
The effective tax rate varied from the statutory rate principally due to the mining royalty tax (impact of $78.3 million/4.3%), the withholding
tax due on remittances of profits from Chile (impact of $64.8 million/3.5%), adjustments in respect of prior years, which relate to adjustments
made during the year in the deferred tax asset base (impact of $35.4 million/1.9%) and items not deductible for Chilean corporate tax purposes,
principally the funding of expenses outside of Chile (impact of $26.7 million/1.5%), partly offset by the deduction of the mining royalty tax which
is an allowable expense when determining the Chilean corporate tax charge (impact of $17.4 million/1.0%) and the impact of the recognition
of the Group’s share of profit from associates and joint ventures, which is included in the Group’s profit before tax net of their respective tax
charges (impact of $15.2 million/0.8%).
+ Further details are given in Note 10 to the financial statements
51
STRATEGIC REPORTantofagasta.co.uk
FINANCIAL REVIEW CONTINUED
Profit from discontinued operations
At 31 December 2017 the Group had commenced a process to
dispose of Centinela Transmission, the electricity transmission line
supplying Centinela and other external parties. As a result of this,
its net results (a gain of $0.5 million) are shown as a discontinued
operation in the income statement. In the 2016 comparatives the
net results of the Group’s former Michilla operation (a gain of
$38.3 million) were shown as a discontinued operation.
Non-controlling interests
Profit for 2017 attributable to non-controlling interests was
$447.0 million (2016 – $56.3 million). Excluding the prior year
exceptional items the profit attributable to non-controlling interests
in 2016 was $220.9 million.
Earnings per share
Including exceptional items
Earnings per share from continuing
operations
Earnings per share from discontinued
operations
Earnings per share from continuing
and discontinued operations
Excluding exceptional items
Earnings per share from continuing
operations
Earnings per share from discontinued
operations
Earnings per share from continuing
and discontinued operations
Year ended
31/12/17
$ cents
Year ended
31/12/16
$ cents
76.1
0.1
76.2
76.1
0.1
76.2
12.1
3.9
16.0
34.7
3.9
38.6
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 $750.7 million compared
with $158.0 million in 2016, and total earnings per share from
continuing and discontinued operations was 76.2 cents per share
(2016 – 16.0 cents per share).
Profit from continuing operations and excluding exceptional items
attributable to equity shareholders of the Company was $750.2 million
compared with a profit of $341.5 million in 2016, and earnings per
share from continuing operations excluding exceptional items was
76.1 cents per share (2016 – 34.7 cents per share).
Dividends
Dividends per share declared in relation to the period are as follows:
Ordinary
Interim
Final
Total dividends to ordinary shareholders
Year ended
31/12/17
$ cents
Year ended
31/12/16
$ cents
10.3
40.6
50.9
3.1
15.3
18.4
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 for 2017 of 40.6 cents per
ordinary share, which amounts to $400.3 million and will be paid
on 25 May 2018 to shareholders on the share register at the close
of business on 27 April 2018.
52
The Board declared an interim dividend for the first half of 2017
of 10.3 cents per ordinary share, which amounted to $101.5 million
and was paid on 6 October 2017 to shareholders on the share
register at the close of business on 8 September 2017.
This gives total dividends proposed in relation to 2017 (including
the interim dividend) of 50.9 cents per share or $501.8 million
in total, an increase of 176.6% (2016 – 18.4 cents per ordinary share
or $181.4 million in total).
The distributable reserves of Antofagasta plc approximate to the
balance of its retained earnings reserve and can be increased,
as required, by the receipt of dividends from its subsidiaries.
Capital expenditure
Capital expenditure increased by $103.9 million from $795.1 million
in 2016 to $899.0 million. The increase partly reflected increased
capitalised stripping costs at Centinela and Antucoya, and higher
capital expenditure at the transport division on locomotives and rolling
stock. 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
2017 the Group had entered into min/max contracts at Centinela
and Antucoya for a notional amount of 30,000 tonnes of copper
production at each operation, covering a period up to 31 December
2018, with an average minimum price of $2.50/lb and an average
maximum price of $3.60/lb.
The Group also periodically uses interest rate swaps to swap floating
rate interest for fixed rate interest. At 31 December 2017 the Group
had entered into interest rate swaps at Centinela for a maximum
notional amount of $35 million at a weighted average fixed rate of
3.372% maturing in August 2018. The Group had also entered into
interest rate swaps in relation to a financing loan at the FCAB for a
maximum notional amount of $60 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 subsidiaries and joint ventures
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
31/12/17
$m
Year ended
31/12/16
$m
2,495.0
(338.4)
(44.8)
1,457.3
(272.6)
(31.9)
(45.4)
–
3.1
(2.3)
(10.1)
20.0
10.0
(7.0)
(899.0)
(795.1)
(252.3)
(320.0)
81.8
4.3
682.0
(72.2)
5.5
615.3
(1,071.7)
(456.4)
(30.6)
(260.0)
10.2
0.4
90.6
(149.0)
10.2
(48.2)
(1,023.5)
(1,071.7)
Antofagasta plc Annual Report 2017
Cash flows from continuing and discontinued operations were
$2,495.0 million in 2017 compared with $1,457.3 million in 2016.
This reflected EBITDA from subsidiaries for the year of $2,430.5
million1 (2016 – $1,521.7 million) adjusted for the positive impact of a
net working capital decrease of $12.5 million (2016 – working capital
increase of $73.3 million) and a non-cash increase in provisions of
$52.0 million (2016 – increase of $8.9 million).
The net cash outflow in respect of tax in 2017 was $338.4 million
(2016 – $272.6 million). This amount differs from the current tax
charge in the consolidated income statement of $509.8 million
because the cash tax payments comprise payments on account for
the current year of $294.0 million based on the prior year’s profit
levels, the settlement of outstanding balances in respect of the
previous year’s tax charge of $113.7 million and withholding tax due
on remittances of profits from Chile of $62.1 million, partly offset
by the recovery of $131.4 million relating to prior years.
In 2017 the cash inflow from the disposal of subsidiaries and joint
ventures of $3.1 million related to the disposal of Energia Andina
(2016 – $10.0 million related to the disposal of Minera Michilla).
Contributions and loans to associates and joint ventures of
$45.4 million relate to the Group’s funding of Alto Maipo
($36.0 million accrued at December 2016 and paid in 2017), Tethyan
Copper Company ($9.3 million) and Energia Andina ($0.1 million).
Cash disbursements relating to capital expenditure in 2017 were
$899.0 million compared with $795.1 million in 2016. This included
expenditure of $578.3 million at Centinela (2016 – $534.7 million),
$237.8 million at Los Pelambres (2016 – $215.3 million) and
$43.6 million at Antucoya (2016 – $9.4 million).
At 31 December 2017 dividends paid to equity holders of the Company
were $252.3 million (2016 – $30.6 million), which related to the
payment of $101.5 million as the interim dividend declared in respect
of the current year (2016 – $30.6 million) and the final element of the
previous year’s dividend of $150.8 million.
Dividends paid by subsidiaries to non-controlling shareholders were
$320.0 million (2016 – $260.0 million).
Financial position
Cash, cash equivalents and liquid
investments
Total borrowings
Net debt at the end of the period
At 31/12/17
$m
At 31/12/16
$m
2,252.3
(2,708.7)
(456.4)
2,048.5
(3,120.2)
(1,071.7)
At 31 December 2017 the Group had combined cash, cash equivalents
and liquid investments of $2,252.3 million (31 December 2016
– $2,048.5 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 $2,002.0 million
(31 December 2016 – $1,830.2 million).
New borrowings in 2017 were $272.0 million (2016 – $938.8 million),
including new short-term borrowings at Los Pelambres of $242.0
million and Antucoya of $30.0 million. Repayments of borrowings
and finance leasing obligations in 2017 were $759.0 million, relating
mainly to repayments at Los Pelambres of $350.7 million, Centinela
$150.0 million, Antucoya $223.1 million, the corporate centre
$3.9 million and the transport division $31.3 million.
Total Group borrowings at 31 December 2017 were $2,708.7 million
(at 31 December 2016 – $3,120.2 million). Of this, $2,043.6 million
(at 31 December 2016 – $2,329.7 million) is proportionally attributable
to the Group after excluding the non-controlling interest shareholdings
in partly-owned operations.
1. Excluding the Group’s share of EBITDA from associates and joint ventures.
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 apply only as
at the date of this report. Important factors that could cause actual
results to differ from those in the forward-looking statements include:
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
53
STRATEGIC REPORTantofagasta.co.uk
COMMITTED TO CREATING
SUSTAINABLE VALUE
Mining is a long-term activity which has an even longer-term
impact and the Group seeks to ensure that its business
develops on a sustainable basis.
At Antofagasta, the safety and health of the workforce
always comes first. The Group is also continuously improving
its environmental performance, contributing to the social
development of the areas where it operates and maintaining
open and transparent communication with local stakeholders.
The sustainability of the Group’s business is structured around five pillars: People,
Financial Performance, Environmental Management, Social Development and
Transparency, as set out in the recently updated Sustainability Policy.
Antofagasta remains convinced its operations allow it to produce lasting positive changes
in the communities and regions where it operates. This drives its constant effort to mine
in a more efficient, sustainable and inclusive way.
The Group’s sustainability priorities are its values, its principal risks and its stakeholders’
key concerns and expectations, all of which are reviewed annually by senior management
as part of the sustainability reporting process.
IN THIS SECTION
Sustainability highlights
Safety and health
Employees
Communities
Environment
Sustainability governance
55
56
58
60
62
65
SUSTAINABILITY
SUSTAINABILITY
HIGHLIGHTS
DURING 2017, ANTOFAGASTA:
− Achieved its zero fatalities goal, while
continuing to improve safety and health
performance.
− Updated its Sustainability Policy.
− Set its first carbon emissions reduction target.
− Reached 45% of sea water usage.
− Began implementing a new Environmental
Management System to ensure full compliance
with its commitments and key risks controls.
− Approved a Diversity and Inclusion strategy.
− Obtained governmental recognition of two new
biodiversity areas protected by Los Pelambres
– Quebrada de Llau Llau and Palmas de
Monte Aranda.
− Had its Somos Choapa programme presented
at the Chile Architecture and Urbanism Biennial
Exhibition as a leading example of innovation
in sustainable engagement between mining
and communities.
− Was also given an award for the Somos
Choapa programme by the Columbia Center
on Sustainable Investment for the programme’s
contribution to the UN’s Sustainable
Development Goals.
− Adopted 20 ideas from over 100 proposed by
employees in the first year of InnovAminerals,
the Group’s innovation initiative.
1. Prepared in accordance with the GRI reporting standards and ICMM requirements.
REPORTING AND TRANSPARENCY
This section of the Annual Report summarises the Group’s
sustainability performance. More information is provided in the
annual Sustainability Report1, which is published separately,
and the CDP’s carbon and water questionnaires.
Antofagasta is a constituent of the FTSE4Good Index series,
the STOXX Global ESG Leaders Index and the ECPI Global
Developed ESG Best-in-Class Equity Index, and has been
a member of the ICMM since 2014. Its mining division
is a member of Chile Transparente, the national chapter
of Transparency International.
55
antofagasta.co.ukSTRATEGIC REPORT SUSTAINABILITY REPORT CONTINUED
SAFETY AND HEALTH
PEOPLE COME FIRST
People come first and their safety
and health is the Group’s top priority.
Antofagasta continuously strives to
improve its performance in all matters that
could impact its employees, contractors
and neighbours.
In 2017 Antofagasta achieved its goal of zero fatalities. The Group
remains fully committed to this goal while continuing to work to
reduce the number and severity of accidents, which also fell by 18%
in its mining division during 2017.
FOCUS ON FATAL RISKS
In line with international best practice the Group’s safety and
health model is based on fatal risk prevention and self-awareness.
This applies to the whole workforce, both employees and contractors.
In 2017 further progress was made in standardising and simplifying
fatal risk prevention and controls. Antofagasta focuses on 15 fatal
risks prevented through 72 critical controls. Employees and
contractors are encouraged to take responsibility for their own and
their colleagues’ safety through the continuous verification of the
implementation of ethical controls, leadership, training, awareness
initiatives, public recognition of safe conduct and the use of the best
available safety technology.
REPORTING AND AWARENESS
Visible leadership is paramount to Antofagasta’s Safety and Health
Model. The Executive Committee conducts regular onsite safety
and health reviews verifying that critical controls for fatal risks
are correctly applied. Top management reviews and challenges
the investigation of high-potential events and recognises employees
who display outstanding safe conduct.
Safety performance is reported weekly to the Executive Committee
and monthly to the Board, and the Sustainability and Stakeholder
Management Committee reviews any serious safety incidents.
Raising employees and contractors’ awareness of risks and getting
them fully committed to their own safety and that of their colleagues,
remains a cultural challenge. Their awareness is reinforced through
a variety of actions, including intensive onsite supervision, near-miss
reporting, training, the wide distribution of information about the
causes of severe accidents, extended safety meetings, public
recognition of committed workers and increasing collaboration
with the Safety and Health Committees of workers and managers.
Safety and health induction courses are mandatory for all new
employees and contractors before they are allowed onsite. Refresher
workshops on safety policies and procedures are also mandatory and
regular events are held to discuss lessons from near-miss incidents
and best safety practices.
Safety and health performance targets account for 5% of
Antofagasta’s annual performance bonuses.
CONTRACTORS
Antofagasta requires that all contractors apply its standards and
report contractor’s performance alongside its own.
Ensuring contractors fully comply with Antofagasta’s standards
remains a major challenge and through 2017 the Group continued to
help contractors embed its safety framework in their own practices and
procedures. It did this by using its Corporate Guidelines on Safety and
Health for Contractors, and providing orientation, training and technical
support, while closely monitoring compliance through onsite audits.
IN FOCUS: INNOVATION TO IMPROVE SAFETY
AND PRODUCTIVITY
Equipment maintenance often requires that the power is locked
out and isolated, a critical control. However, the locking circuit
breakers are often a long way from the equipment that is being
maintained, and switching the circuits on and off can account
for 25–40% of a maintenance shift. In 2016, 22% of the
Group’s high-potential safety incidents were related to
problems with isolating power supplies.
The good news is that a mobile power-locking device has
been developed that has improved maintenance workers’
safety and increased productivity. This idea originated from
a Los Pelambres employee and was turned into reality by
an international developer.
This is one of our InnovAminerals projects.
56
Antofagasta plc Annual Report 2017 OCCUPATIONAL HEALTH STANDARDS
The Group developed 10 Occupational Health Standards using
the same fatal risks approach, specific controls and regular onsite
auditing as for safety. Building on the experience of previous years,
progress was made in assuring legal compliance, completing a health
baseline, identifying higher exposure groups, raising awareness and
standardising the health focus across operations.
Six workers with occupational diseases were identified during the
year, three from Zaldívar and three from FCAB. Of these six cases,
four are related to work-related stress, one related to altitude
sickness and one concerns hearing loss.
PERFORMANCE IN 2017
In 2017 Antofagasta achieved its zero fatalities goal and is determined
to continue with this success. It has also continued to reduce the
severity and frequency of accidents. During the year near-miss
reporting increased by 162%. These results confirm the value of
near-miss reporting, which is one of the pillars of the Corporate
Safety Model focused on risk prevention and operational control.
Compliance with the Safety and Health Model is audited twice a
year at each site. Additionally, members of the Group’s Executive
Committee make monthly visits to the sites specifically to review
safety and health issues.
Lost Time Injury Frequency Rate (LTIFR)1
Chilean mining industry
Mining division
Transport division
Group
2017
N/A
1.0
7.3
1.4
All Injury Frequency Rate (AIFR)2
Chilean mining industry
Mining division
Transport division
Group
Number of fatalities
Chilean mining industry
Mining division
Transport division
Group
2017
N/A
7.4
22.0
8.3
2017
N/A
–
–
–
2016
1.8
1.2
4.9
1.5
2016
N/A
6.9
13.3
7.3
2016
18
1
1
2
2015
2.0
1.2
10.9
2.0
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
1. The Lost Time Injury Frequency Rate is the numbers of accidents with lost time
during the year per million hours worked.
2. The All Injury Frequency Rate is the total number of accidents during the year per
million hours worked.
SUSTAINABILITY
57
antofagasta.co.ukSTRATEGIC REPORT
SUSTAINABILITY REPORT CONTINUED
EMPLOYEES
ENGAGED EMPLOYEES ARE COMMITTED
TO BUSINESS GOALS
Antofagasta is committed to the wellbeing,
motivation and professional development
of its employees. It seeks to engage them
through its shared values and an attractive
offer that enhances the experience of being
part of the mining group. The Group
actively manages and develops the talents
of its employees and strives to maintain
excellent labour relations.
In 2017 the Group’s average total workforce was approximately
21,360 people, of which about 6,360 were employees and
15,000 contractors.
LABOUR RELATIONS
The Group recognises employees’ rights to union membership
and collective bargaining. It has ten unions: four at Centinela, three
at Los Pelambres, two at Zaldívar and one at Antucoya, together
representing 76% of the total number of employees. In 2017,
Antofagasta sponsored 30 labour leaders taking a diploma in
Labour Relations from the Universidad Católica de Chile.
In 2017 labour agreements were negotiated with the unions at Los
Pelambres, Centinela and Zaldívar. These binding agreements cover
salaries, shift patterns and employment benefits and are renegotiated
every three years, in accordance with Chilean legislation. Among
other provisions, Chilean law limits working hours and forbids both
child and forced labour.
The Group’s excellent labour relations are based on good working
conditions, mutual trust and regular dialogue, and have been
successful in reaching fair labour agreements and avoiding strikes.
58
CONTRACTOR STANDARDS
Antofagasta is committed to ensuring its contractor workers operate
under the same safety and health standards and management system
as its own employees. Its contractor companies must comply with
mandatory corporate standards regarding human rights, business
integrity, minimum salaries and working conditions, including health
and life insurance, which must be offered to all their employees.
Failure to comply can lead to sanction and even contract withdrawal.
The Group regularly audits its contractors to ensure full compliance
with these standards.
ENGAGEMENT
One challenge is to keep employees engaged with the organisation
and aligned with the Group’s business goals. The Human Resources
Model is designed to attract and retain talented and committed
employees by offering the opportunity to be part of a growing
company with strong corporate values. The Group offers a safe work
environment, good quality accommodation, fair pay and opportunities
for talent to develop, alongside a healthy work-life balance.
76%of employees are unionisedIn 2017 labour agreements were negotiated with the unions at Los Pelambres, Centinela and Zaldívar.Antofagasta plc Annual Report 2017 DEVELOPING TALENT
Antofagasta has introduced a management system designed to retain
employees with key talents by providing them with opportunities for
professional growth. Succession plans are in place for key positions
and employees in supervisory and managerial positions are offered
regular training to further develop their leadership skills. The Group’s
management strongly believes that internal mobility, training and
professional development opportunities foster engaged employees,
and 57% of new positions that became available in 2017 were filled
by internal candidates.
In 2017, Antofagasta invested $3.1 million in training, providing
an average of 4.8 hours of training per employee per year.
INCREASING GENDER DIVERSITY
A Diversity and Inclusion Strategy has recently been approved by
the Board to increase the Group’s capacity to attract and advance
the progress of women and to encourage the inclusion of people with
different international experience, training and capabilities. These new
perspectives and experiences will help the Group develop excellence
and increase both productivity and engagement.
In 2017 women represented 9% of the mining division’s workforce,
of whom 58% were supervisors or above and 10% held senior
management roles. There are two female Board directors and one
Vice President.
IN FOCUS: DIVERSITY AND INCLUSION STRATEGY
In December 2017, the Board approved a Diversity and
Inclusion Strategy with the goal of achieving greater inclusivity
by 2022 and being an employer of choice. This strategy is based
on three priorities: increasing gender recognition, expanding
opportunities for disabled people and attracting employees with
international experience.
The strategy encourages the development of a respectful working
environment that promotes collaboration, flexibility and equity
in a meritocracy without prejudice through the appropriate training
of managers and employees.
The first steps of the implementation plan include onsite
workshops at all four mining operations, establishing a baseline
and monitoring progress.
SUSTAINABILITY
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COMMUNITIES
ENGAGING LOCALLY TO CONTRIBUTE
NATIONALLY
Antofagasta contributes to the
sustainable development of the regions
and communities in which it operates,
creating a shared vision for development
by engaging in effective, participatory
and transparent stakeholder dialogue,
as well as recognising controversies
and opportunities.
The Group believes the wellbeing of its surrounding communities
is a direct enabler of its business success, and strives to prevent,
mitigate and compensate for any adverse impact that its activities
may have. Antofagasta is convinced its activities bring opportunities
for national and local development and is committed to building on
these opportunities.
LONG-TERM ENGAGEMENT AND INVESTMENT
From 2013 the Group made a thorough review of how it engaged
with the communities impacted by its activities, introducing a radically
new local engagement framework called Somos Choapa (We Are
Choapa)1. It is based on a methodology devised to sustain ongoing
dialogue between the Company, local authorities, neighbours and local
organisations to address its impact on the local area; and, on how the
Company can contribute to the sustainable development of the region.
Participation is a key ingredient of this framework and the first stage
of the programme is an open invitation to stakeholders to participate
in a series of regional meetings to discuss local challenges and their
vision for local development.
As Somos Choapa progresses at each municipality, local development
visions are translated into a portfolio of projects and programmes
to be financed through public–private alliances and implemented via
strategic partnerships.These initiatives are aligned with local priorities
and contribute to the UN’s Sustainable Development Goals.
EXTENDING THE PROGRAMME
The Somos Choapa framework includes funding for an integrated
technical team of professionals from the fields of social sciences,
architecture and strategic design. This team supports the engagement
process and the design of projects, ensuring all initiatives carry a
recognisable watermark of technical excellence, systemic vision
and adaptation to the local context. The experience was presented
at Chile Architecture and Urbanism Biennial Exhibition – entitled
Unpostponable Dialogues – as a leading example of innovation in
the sustainable collaboration between a company, its surrounding
communities and local authorities.
By 2017, engagement processes based on Somos Choapa were
being rolled out by Centinela with its Sierra Gorda community and
by Antucoya with the municipality of María Elena. The Group has
named this latter initiative “Dialogues for Development”.
MEASURING PROGRESS
During 2017 Somos Choapa continued working on the definition
of indicators to measure its progress, developed through a
participative process combining technical factors with governmental
requirements and input from beneficiaries. Some of these indicators
will be used to assess the impact of each community investment
project and its efficiency. Others will measure the overall contribution
of the Somos Choapa project portfolio in improving the wellbeing of
communities according to the UN’s Sustainable Development Goals
(SDG) parameters. The decision to use SDG indicators reflects
Antofagasta’s willingness to find common ground with public
authorities regarding long-term sustainable local development.
1. Choapa is the name of the province where Los Pelambres is located. It includes
the municipalities of Salamanca, Illapel, Los Vilos and Canela.
60
Antofagasta plc Annual Report 2017 CONFLICT TRANSFORMATION
In May 2016 over 80% of the residents of Pupío, Rincon and
Caimanes, the three communities near the Mauro tailings dam,
signed an agreement with Los Pelambres, the Caimanes Agreement,
ending a ten-year conflict and inaugurating a new era of co-operation.
This agreement included Los Pelambres’ contribution to a Community
Development Fund that will finance the most popular projects chosen
by over 300 residents. This involved a formal transparent selection
process following ten preparatory meetings to review the whole
project portfolio.
− Caimanes residents decided to build a fire station, buy an area for
a planned police station, purchase equipment for the local health
clinic, fund repairs to the local church and improve school facilities.
− The residents of Rincón chose to build a clubhouse and to repay
a community debt they had taken on to pay for a collective
agricultural project.
− In Pupío, the community chose to install solar panels on their
houses and to build water storage facilities.
MANAGING SOCIAL RISKS
WATER SCARCITY
Water scarcity remains a major community concern in Los
Pelambres’ area of influence. Besides adopting operating measures
to preserve water (see page 62) and actively participating in local
water management initiatives, the Company is leading the public–
private Salamanca Agreement to develop long-term solutions such
as building a public desalination facility and more irrigation dams.
Ensuring water availability and quality was one of the key issues
addressed in the Caimanes Agreement. In 2017 the Company began
sealing the contour channel built around the dam that prevents
naturally flowing run-off water from reaching the tailings dam below.
The Company is also covering other channels that carry this water to
the Pupío stream for use by the community and is building two pools
for animal drinking water. Lastly, Los Pelambres is collaborating with
the Rural Drinking Water Committee on a set of projects to improve
local drinking water facilities.
EMERGENCY PREPAREDNESS
The Group’s tailings dams and other facilities are designed to resist
extreme weather conditions and severe earthquakes. The Mauro
tailings dam continued to operate normally after an earthquake
in September 2015 that reached 8.5 on the Richter scale, and had
its epicentre only 50 km from the dam wall.
As legally required, all four of the Group’s mining operations have
emergency procedures in place, approved by the national mining
authority, and response plans co-ordinated with public agencies
and other authorities. These plans include preventive and corrective
operating measures at each of the sites. At Los Pelambres these
plans are supplemented with a special emergency communication
procedure designed jointly with the Caimanes community in order
to protect neighbours in any emergency situation. This initiative
included defining a new safety zone, improving early warning and
evacuation procedures, providing emergency transportation for
impaired residents to the safety zone, new road signals and a
sound alarm, and establishing additional procedures to monitor
the Mauro tailings dam.
SUSTAINABILITY
IN FOCUS: INNOVATION, REGIONAL DIALOGUE
AND PUBLIC POLICY
Antofagasta is a contributor to public–private efforts to
ensure Chile remains internationally competitive and becomes
a centre for highly sustainable mining practices. Maintaining
mining operations’ social licence to operate is key to achieving
this. One of the public–private institutions supported by the
Group, Valor Minero (Mining Value), is developing new
institutional processes to implement shared value agreements
and to manage potential conflicts from early-stage projects
to mine closures.
This initiative has advanced through a series of dialogues
at which political authorities, communities, indigenous people,
NGOs, mining companies, academics and other stakeholders
have exchanged views and contributed their insights.
The results will be presented as a Public Mining Policy
proposal to Chile’s President by mid-2018.
Valor Minero is also organising a pilot regional dialogue in the
Sierra Gorda community. The aim is to build a shared value
agreement for the area’s development and a roadmap for both
public and private contributions, taking a similar approach to
Antofagasta’s Somos Choapa. Participants include the regional
presidential representative, Sierra Gorda’s mayor, local
organisations and the four nearby mines, Centinela
(Antofagasta), Spence (BHP), Gabriela Mistral (Codelco)
and Sierra Gorda (KGHM).
10
preparatory meetings to
review project portfolio
Under the new framework,
community investment
priorities come from local
residents, who remain
involved until the projects
are completed, empowering
project beneficiaries and
increasing effectiveness
of the results.
61
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ENVIRONMENT
THE FUTURE OF SUSTAINABLE MINING
Antofagasta seeks to prevent, mitigate
and control the impact of its activities
on the environment. The Group remains
committed to achieving sustainable
and efficient use of natural resources
throughout the mining cycle, from
exploration to site closure and beyond.
The Group’s environmental stewardship priorities remain:
1. Ensuring compliance with all of its include RCA1 commitments
under its operating permits.
2. Ensuring all key environmental risk controls are in place.
3. Enabling its projects through the early identification and
assessment of environmental risks to reduce, mitigate and/or
compensate for their impact.
ENVIRONMENTAL MANAGEMENT
In Chile, mining projects are subject to strict environmental and
social impact assessment by the national environmental authority,
which includes formal consultation with the local communities.
If the project is approved, the impact prevention, mitigation and
compensation measures proposed as part of the application become
legally binding commitments set out as RCAs in the operating permit.
The Environmental Superintendency regularly reviews these
commitments and non-compliance can result in severe fines
and even revocation of the operating permits.
Antofagasta’s mining operations have a total of 54 RCAs listing some
6,500 environmental commitments. These commitments are now
centrally administered through Antofagasta’s updated Environmental
Management System, which is similar to the Safety System and
focuses on key risk prevention, specific controls, audits and the
reporting of near-miss incidents.
In 2017, Los Pelambres submitted the Environmental Impact
Assessment (EIA) for its Incremental Expansion Project, and this
was approved early in 2018.
1. Resoluciones de Calificación Ambiental (Environmental Qualification Resolutions).
62
ENVIRONMENTAL COMPLIANCE
In October 2016 the Environmental Superintendency raised charges
against Los Pelambres for delayed or incomplete compliance with
some of its RCA commitments. The Company reacted by conducting
an in-depth review of its internal processes to understand how these
compliance gaps had occurred and to accelerate implementation of
the new corporate Environmental Management System. The review
found that some smaller and older commitments had been missed by
the original control system; interpretations of other commitments had
evolved over the years, and audit standards had changed.
Towards the end of 2017 the Environmental Superintendency
accepted the compliance programme proposed for Los Pelambres
and suspended the charges raised in 2016.
The Group had no significant operating incidents with environmental
impact in 2017.
WATER MANAGEMENT
The Group pioneered the use of raw sea water in its mining
operations in the 1990s and currently 45% of its total water
consumption comes from the Pacific Ocean. The main loss of water
is through evaporation and no water is discharged into waterways.
The Group has achieved a high reuse rate, which varies from
76–93%. Residual water remains inside the tailings dams. In 2017
Antofagasta consumed 36.5 million m3 of continental water.
IN FOCUS: ENSURING ENVIRONMENTAL COMPLIANCE
Antofagasta’s updated Environmental Management System
is based on its successful corporate Safety System. Both focus
on preventing key risks, assigning each risk to regularly audited
specific controls and encouraging the reporting of near-miss
incidents. Executive-led onsite verification now considers
environmental matters as well as safety.
The new Environmental Management System’s implementation
began with a review of the four operations’ RCAs, applying
one common standard, and by the end of 2017 some 6,500
commitments within the RCAs had been fully reviewed. Their
descriptions and controls were then standardised for the first
time, and their respective compliance conditions were assessed
using the Environmental Superintendency’s audit criteria.
Antofagasta plc Annual Report 2017 SUSTAINABILITY
In early 2018 Antofagasta set its first carbon reduction target –
to reduce forecast CO2 emissions over the period 2018 to 2022
by 300,000 tonnes – which it will achieve by implementing projects
that have been selected after two years of studies.
The Group’s emission reduction will also benefit from the
interconnection of Chile’s two main power grids that should be
completed in 2018. Interconnection will increase the proportion of
renewable energy available in the north of the country and so, over
time reduce, the carbon intensity of Centinela, Antucoya and Zaldívar.
IN FOCUS: TOWARDS ZERO WASTE MINING
Mining the raw material the world needs to produce computers,
circuitry, wiring, batteries and structural components can result
in dangerous by-products. Advancing towards Zero-Waste
mining is a significant challenge and a tremendous opportunity
for innovation.
The Chilean Mining Consortium is a public-private alliance
between the country’s four leading copper operators and Corfo
(Chile’s innovation agency). It is committed to making Chile
a global innovation hub for sustainable and inclusive mining.
In 2017 the Consortium sponsored the XPRIZE Grand
Challenge inviting innovative solutions to the challenge of Zero
Waste Mining. The prize will be awarded to a “moonshot” idea
or technology aiming to extract critical metals, minerals
and rare earth elements without solvents, strip-mining or
stockpiles, ensuring water contamination ceases to be a threat.
See more at:
www.xprize.org/visioneers/teams/zero-waste-mining
Water quantity and quality are monitored by national authorities,
and jointly by local communities and the mining operations,
to improve transparency.
Los Pelambres uses continental water from the Choapa river, which
is a water-stressed zone. This is why the Company’s Incremental
Expansion project, approved in February by environmental authorities,
includes a desalination plant to supplement the mine’s demand in
case of a drought. Also, the Company is an active member of the
public–private alliance in charge of finding long-term solutions
to local water shortages.
MINING WASTE
Mining waste takes the form of waste rock, spent ore and tailings,
which are left over after the valuable portion of the ore has been
separated from the uneconomic portion. As Antucoya, Zaldívar and
Centinela Cathodes use leaching to produce copper, their waste goes
to fully-permitted spent ore dumps. Los Pelambres and Centinela
Concentrates use flotation and deposit their mining waste in licensed
tailings storage facilities.
Centinela was the first large-scale copper mine in the world to use
thickened tailings technology that is more water-efficient, makes
tailings more stable and offers better dust control. Its expansion
project will also use thickened tailings.
CLOSURE PLANNING
Antofagasta has no operations close to closure. The nearest is
Zaldívar, but the Group is working on plans to extend its life.
Chilean legislation requires mining operations to have comprehensive
closure plans approved by Sernageomin (the National Geology and
Mining Service). Approved plans are required before environmental
approval of new projects is granted and must be updated at least
every five years while the mine is operating. Closure plans focus on
preventing pollution and ensuring tailings dams’ physical and chemical
stability. They also consider the funding of closure activities and the
financial provisions for its implementation.
CLIMATE CHANGE
The effects of climate change can be observed in northern and
central Chile through higher than average temperatures and
reduced rainfall.
One of Antofagasta’s priorities is to reduce the intensity rate of GHG
emissions arising from the Group’s growth by investing in renewable
energy sources. Renewables now account for 21% of the Group’s
total energy consumption.
In 2016 the Group designed an integrated climate change strategy
based on:
− identifying risks and opportunities
− encouraging innovation for cleaner and more efficient energy
sourcing
− committing to measuring progress and transparent reporting
under CDP
− setting an obligation to mitigate GHG emissions.
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antofagasta.co.ukSTRATEGIC REPORT SUSTAINABILITY REPORT CONTINUED
ENVIRONMENT CONTINUED
C02 emissions in 2017 (tonnes of C02 equivalent)
Mining division
Scope 1
Direct emissions
Scope 2
Indirect emissions
Total emissions
CO2 emissions intensity
Los Pelambres
Centinela
Antucoya
Zaldívar
Corporate offices
Total for mining division
2017
195,362
334,019
177,051
147,985
212
854,628
2016
172,227
358,134
99,918
165,590
124
795,994
2017
500,040
969,598
243,060
357,932
1,306
2016
665,292
1,299,655
299,442
530,279
1,334
2,071,937 2,000,010 2,926,565 2,796,004
2017
665,402
1,303,617
420,111
505,917
1,518
2016
493,065
941,521
199,524
364,689
1,210
2017
2.02
5.71
5.22
4.89
–
3.87
2016
1.87
5.73
4.52
5.13
–
3.67
1. Total CO2 emissions per tonne of fine copper produced (Scopes 1 and 2).
SUSTAINABLE ENERGY
Energy represents around 19% of the mining division’s total cash
costs. Antofagasta is already very energy-efficient and has succeeded
in securing renewable energy for Los Pelambres from several wind
and solar sources. In 2017 renewables accounted for 54% of Los
Pelambres’ total energy requirement, and 21% of the Group’s.
In 2018 when Chile’s two main electricity power grids’ interconnection
is completed, renewable energy will become available to supply
mining operations in northern Chile where Centinela, Antucoya and
Zaldívar are located. A decrease of their emissions intensity is to
be expected when their PPAs expire, the first of which is in 2020.
BIODIVERSITY AND HERITAGE
The Group has no operations in protected areas. Its biodiversity
challenges are mainly at Los Pelambres as it is at the head of the
Choapa Valley, which is an area rich in biodiversity. Since it started
operating the Company has undertaken several biodiversity projects
including the restoration of a coastal wetland recognised under the
Ramsar Convention that had become an illegal waste dump, and the
protection of Santa Ines, a rare temperate relict rainforest. In 2017
Los Pelambres also obtained government recognition for two new
biodiversity areas already under its protection, the Llau Llau ravine
and Palmas de Monte Aranda, one of the last remaining Chilean palm
forests. Los Pelambres now protects over 25,000 hectares of high
conservation value land.
The Choapa Valley is also rich in archaeological remains of the ancient
cultures that inhabited this area, about which there is still much to be
discovered. Some of these remains had to be rescued and moved
when the Mauro tailings dam was built. These items are exhibited in
the Parque Rupestre Archaeological Centre, a large openair museum,
and the Campesina Cultural Centre, which is dedicated to preserving
the cultural heritage of the area.
64
Antofagasta set
its first carbon
emissions
reduction target
Two new nature
conservancy areas
were established
in Chile during
2017 and placed
under private
conservation by
Los Pelambres
Antofagasta has
no significant
gaseous
emissions other
than GHG
Antofagasta plc Annual Report 2017 SUSTAINABILITY
GOVERNANCE
Antofagasta believes in developing
effective, accountable and transparent
institutions. To this end, it has established
guidelines and internal regulations that set
out the Group’s commitment to conduct its
business responsibly.
Antofagasta wants to be known for having honest and transparent
business practices that respect human rights and the law.
In April 2017, Antofagasta’s Board approved a new Sustainability
Policy completely updating its previous one from 2008.
BOARD INVOLVEMENT
Antofagasta’s Board is supported by five committees including a
Sustainability and Stakeholder Management Committee that met eight
times in 2017. The Vice President of Corporate Affairs and Sustainability
oversees the Group’s safety, environmental, communications and public
affairs, and the mining operations and the transport division each have
safety and health, and environmental managers.
Sustainability targets, related to safety, organisational capabilities,
community relations and environmental compliance account for 25%
of the Group’s annual performance goals and impact the bonuses
of every employee.
Further information on the Board and its Sustainability and
Stakeholder Management Committee can be found on pages 96 to 97.
BUSINESS INTEGRITY
The Group’s Code of Ethics guidelines are mandatory for the
Directors, executives, employees and contractors. Its Crime
Prevention Handbook describes conflicts of interest and establishes
an anonymous whistleblowing procedure. In 2017, an internal
communications campaign encouraged employees to use this to
clarify doubts and report inappropriate behaviour. All employees must
complete a declaration to prevent potential conflicts of interest and
participate in compliance workshops. Contractor companies are also
trained in compliance standards and are expected to report
unethical behaviour.
Further information on the Group’s Code of Ethics and Crime
Prevention Handbook can be found on page 18.
PAYMENTS TO GOVERNMENTS
Antofagasta makes payments to governments relating to activities
involving the exploration, discovery, development and extraction
of minerals. In June 2017, the Group published its second report
detailing its mining division’s payments to governments for the
year ended 31 December 2016. These payments were primarily
taxes paid to the Chilean government, and mineral licence fees.
In 2016 these payments totalled $74.1 million, of which 99.7% were
paid in Chile. The full report is available on the Company’s website
at www.antofagasta.co.uk.
Chilean law allows political donations subject to certain requirements,
but Antofagasta made no donations in 2017. However, it often
contributes financing for projects benefiting local communities
in alliance with the local municipalities and the government. These
contributions are regulated by some specific laws and reviewed
by the Chilean Internal Revenue Service.
COMPLIANCE
Antofagasta’s risk management and compliance function is
responsible for the corporate compliance programme that is overseen
by the Board’s Audit and Risk Committee.
Group suppliers are required to provide specific information
including their safety, anti-corruption, antitrust, modern slaveryand
other procedures.
+ Further information can be found in the Risk Management section
on page 18
HUMAN RIGHTS
Antofagasta respects and supports human rights by:
− providing high safety and health standards, fair wages and good
labour relations
− preventing discrimination, harassment and bullying
− complying with the UK Modern Slavery Act
− providing good-quality accommodation, services and facilities and
opportunities for training and development
− preventing corruption and malpractice
− preventing or mitigating adverse environmental and social impacts
− respecting communities’ rights, culture and heritage
− engaging in dialogue throughout the mining lifecycle from
exploration to closure
− responding to grievances
− supporting community development.
In 2017 the Group adopted a Diversity and Inclusion Strategy
to provide female employees with more career opportunities and
to become a more inclusive employer while fostering diversity.
Only the Zaldívar operation needs to engage with an indigenous
community who live in Peine, 100 km away from the mine. Relations
with the community are good and are conducted in accordance with
the provisions of the ILO 169 Covenant, ICMM Guidelines and
Antofagasta’s Sustainability Policy.
Corporate due diligence of suppliers’ legal compliance includes key
human rights issues such as general working conditions, preventing
child labour and preventing discrimination, harassment and other
abuses. These are regularly audited by each company and also
by the corporate centre.
MODERN SLAVERY ACT
In compliance with the UK’s Modern Slavery Act 2015 the Group
has published a statement setting out the steps taken to ensure
that slavery and human trafficking are not occurring in its supply
chain or in any part of its business. This statement is available at
www.antofagasta.co.uk.
The Strategic Report has been approved by the Board
and signed on its behalf by:
Jean-Paul Luksic
Chairman
12 March 2017
Ollie Oliveira
Senior Independent
Director
65
antofagasta.co.ukSTRATEGIC REPORT COMMITTED TO
STRONG AND
EFFECTIVE GOVERNANCE
The Board of Antofagasta plc is responsible for the
long-term success of the Group.
The Board has established strong and effective governance
structures which clearly define roles and responsibilities
and promote constructive challenge.
GOVERNANCE
Governance at a glance
Leadership
Chairman’s introduction
Senior Independent Director’s
introduction
Group governance overview
Directors’ biographies
Board balance and skills
Roles in the Boardroom
Executive Committee
members’ biographies
Effectiveness
Board activities
Board and Committee
information flows
Accountability
Introduction to the Committees
Nomination and Governance
Committee report
68
70
72
74
76
78
79
80
82
83
84
86
Board effectiveness reviews
Professional development
Audit and Risk Committee report
Sustainability and Stakeholder
Management Committee report
Stakeholder engagement
Projects Committee report
Remuneration
Remuneration and Talent
Management Committee report
Committee Chairman’s
introduction
Remuneration at a glance
2017 Directors’
Remuneration Report
2017 Executive
Remuneration Report
Summary of 2017 Directors’
Remuneration Policy
Relations with shareholders
Directors’ Report
Statement of Directors’
Responsibilities
88
89
90
96
98
100
102
103
105
106
109
118
121
123
125
GOVERNANCE
GOVERNANCE
AT A GLANCE
Although the Group has maintained a London listing since 1888,
it is primarily a Chilean copper mining group with its corporate
headquarters, senior management team and all of its operating assets
located there.
Accordingly, it is critical that the Group’s corporate governance
structure enables it to operate successfully in Chile. That said, it is also
important to the Group to ensure that this structure follows international
best practice, and the Group is proud that it complies fully with the UK
Corporate Governance Code. In certain respects, however, the Group’s
approach differs from that typically seen in UK headquartered
companies; where this is the case, it is explained in this report.
As at the date of this report the Board has 11 Directors, comprising
a Non-Executive Chairman and ten other Non-Executive Directors,
five of whom are independent.
The Group’s CEO, Iván Arriagada, 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.
Despite this, interaction between the Board and executive
management is as you would expect between Non-Executive
Directors and management in a typical UK-listed company. The CEO
and CFO are invited to attend all Board meetings, the CEO is also
invited to attend all Board 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, and independent oversight of,
the Group’s executive management.
Although the UK’s executive remuneration reporting regulations only
apply to executive directors, the CEO’s remuneration is voluntarily
disclosed in accordance with the regulations as if he were a member
of the Board. Further details are set out in the 2017 Executive
Remuneration Report on pages 109 to 117.
The Company has had a controlling shareholder since 1980. 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
in the Directors’ Report on page 124.
Members of the Luksic family are on the Board and on the Executive
Committee. Jean-Paul Luksic is Non-Executive Chairman of the
Company, his brother Andrónico Luksic C is a Non- Executive Director
and his nephew Andrónico Luksic L is Vice President of Development.
There is a relationship agreement between the Company and its
controlling shareholder, and the Group has in place processes and
procedures to ensure that any potential conflicts of interest and
related party transactions are transparently managed as explained
on page 73.
The Board is also structured to ensure that there is limited scope for an
individual or small group of individuals to dominate its decision-making,
as demonstrated throughout this Corporate Governance Report.
UK CORPORATE GOVERNANCE CODE COMPLIANCE STATEMENT
The UK Corporate Governance Code issued by the Financial Reporting Council in April 2016 (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 2017 financial year.
The Company complied with all of the detailed provisions of the Code in 2017. At the time of Jean-Paul Luksic’s appointment as Chairman in
2004, he was not considered independent as he had previously been CEO of Antofagasta Minerals SA. The Company’s non-compliance with
the relevant provisions of the July 2003 Combined Code (which was the forerunner of the Corporate Governance Code) was explained in the
Statement of Compliance in the Company’s Annual Report.
The Code is not a rigid set of rules. It consists of principles (main and supporting) and provisions. The Listing Rules require companies to
apply the main principles and report to shareholders on how they have done so.
This Corporate Governance Report is structured according to the principles in the Code and a more detailed summary of key disclosures
against these principles is as follows:
LEADERSHIP
The role of the Board
− The Company is headed by an effective
Board which is collectively responsible for
the Company’s long-term success as
shown throughout this Corporate
Governance Report
− The Board reaffirmed the Group’s values
during the year as explained in the
Chairman’s introduction – page 71
− An overview of how the Board ensures
that its obligations to shareholders are met
is described throughout this Corporate
Governance Report and further details on
how the Board listens to and engages with
stakeholders is set out in the Sustainability
and Stakeholder Management Committee
report – pages 96 to 99
68
Division of responsibilities
− There is a clear division of responsibilities
between the Chairman and CEO – page 79
− The division of responsibilities between
the Chairman, the CEO and the Senior
Independent Director are recorded in
writing and have been approved by the
Board
The Chairman
− The Chairman is responsible for leadership
of the Board, and his responsibilities are
set out on page 79
− The Chairman is responsible for setting the
Board’s agenda and ensuring that
Directors receive accurate, timely and
clear information – page 83
− The roles of the Board and the Board
Committees are recorded in the
Schedule of Matters Reserved for the
Board and Terms of Reference for each
of the Board’s Committees, which are
available on the Company’s website at
www.antofagasta.co.uk
Non-Executive Directors
− The Non-Executive Directors
constructively challenge and help develop
proposals on strategy – page 79
Antofagasta plc Annual Report 2017 EFFECTIVENESS
Composition of the Board
− The Board has 11 Directors, comprising
Appointments to the Board
− There is a formal and transparent
a Non-Executive Chairman and ten other
Non-Executive Directors, five of whom
are independent
− All members of the Audit and Risk and
Remuneration and Talent Management
Committees are independent and two
of the three Nomination and Governance
Committee members are independent
− The Board comprises Directors with a
broad and complementary set of technical
skills, educational and professional
experience, nationalities, personalities,
cultures and perspectives – page 78
− The Directors’ biographies provide further
information on their experience – pages
76 and 77
− The Roles in the Boardroom diagram
shows participation in Board discussions
and deliberations – page 79
procedure for the identification and
appointment of new Directors – page 87
Commitment
− All Directors have confirmed they are
able to allocate sufficient time to meet
the expectations of their role
− Other significant commitments are
disclosed to the Board when they arise
– pages 73 and 124
− Time commitment is considered as part of
the Board effectiveness review and when
electing and re-electing Directors
Development
− New Directors receive a thorough
induction on joining the Board – page 89
− Directors are regularly updated and as a
minimum, receive an annual briefing on
legal, regulatory and other developments
that are relevant to directors of UK-listed
companies – page 89
Information and support
− The Board is provided with information
in a form and of a quality appropriate to
discharge its duties – page 83
− The Board has access to independent
professional advice – page 89
− The Board is regularly updated on the
Group’s performance between scheduled
Board meetings – page 83
Evaluation
− An externally-facilitated full Board
effectiveness review commenced in 2016
and concluded in 2017 – page 88
Re-election
− All Directors stand for annual re-election
ACCOUNTABILITY
REMUNERATION
RELATIONS WITH SHAREHOLDERS
The level and structure of remuneration
− The Company has no executive directors
Dialogue with shareholders
− The Company attended nearly 600
but voluntarily discloses the CEO’s
remuneration, which includes transparent,
stretching and rigorously applied
performance-related elements – pages
102 to 117
meetings with investors and potential
investors in the year. The Chairman and
Senior Independent Director were also
available to meet with shareholders
– pages 121 to 122
Financial and business reporting
− The Board has presented this Annual
Report, which is fair, balanced and
understandable – page 125
− Auditor’s report – pages 128 to 132
− Business model description – pages
26 and 27
− Going concern statement – page 18
Risk management and internal control
− Robust assessment of principal risks
– pages 19 to 23
− Effectiveness of risk management and
internal control systems – pages 16 and
17 and 93 and 94
− Viability statement – page 18
own remuneration
Audit Committee and auditors
− Three out of the four Audit and Risk
Committee members are considered
to have recent and relevant financial
experience
− Whistleblowing policy – page 95
− Internal audit function – page 93
Procedure
− The Directors’ Remuneration Policy was
approved by shareholders at the 2017
AGM – pages 118 to 120
− The procedure for setting policies on
executive remuneration is voluntarily
disclosed – pages 102 to 117
− No Director is involved in setting his or her
Constructive use of general meetings
− The Company held an accessible AGM
in central London with voting on a poll,
separate resolutions and proxy voting
(for, against or withheld)
− All Directors attended the meeting and
Committee Chairmen were available
to answer questions
− Notice was sent out at least 20 working
days before the meeting
69
antofagasta.co.ukGOVERNANCE LEADERSHIP: CHAIRMAN’S INTRODUCTION
STRONG AND
EFFECTIVE GOVERNANCE
“Strong and effective governance is
essential to the long‑term success of
our Group. Our governance structures
are designed to enable us to focus on
the matters and issues that will shape
our future.”
Jean-Paul Luksic, Chairman
INTRODUCTION
There were a number of important changes to the Group’s
governance structures in advance of the 2017 AGM, including
the appointment of independent Non-Executive Director
Francisca Castro, changes to the composition and Chairmanships
of Board Committees and the succession of Ollie Oliveira to the role
of Senior Independent Director.
We were pleased that we received strong (>96%) support from
shareholders for each of the resolutions proposed at the 2017 AGM.
There have been no further changes to the composition of the
Board and its Committees since 1 January 2017 and we continue
to fully comply with the Corporate Governance Code.
The Board and Committees have been responsible for pursuing
and overseeing a number of important developments during the year,
which are highlighted throughout this Corporate Governance Report,
a selection of which I highlight is this letter.
RISK AND RISK APPETITE
The changes in the membership of the Committees which took place
on 1 January 2017 means at least one member of the Audit and Risk
Committee serves on each of the other Board Committees and the
Chairman of the Sustainability and Stakeholder Management
Committee sits on the Audit and Risk Committee.
This overlap is designed to enable the Audit and Risk Committee
to comprehensively consider the risks faced by the Group and
to enable further constructive challenge of the analysis and
management of the Group’s risks.
The Audit and Risk Committee now holds at least one meeting each
year dedicated entirely to risk management. The first such session
was held in June 2017. The main focus of this meeting was to
consider the most relevant materialised risks at each of the Group’s
operations over the past 12 months, the current analysis of key risks
and mitigation activities, and the expected evolution of those key risks
over the next 12 months.
70
Antofagasta plc Annual Report 2017 We are also engaged in a process to update our assessment of the
Group’s risk appetite. This is being facilitated by the Group’s risk
management function, with support from external advisers. The risks
facing the Group are constantly evolving, and our approach and
attitude towards those risks must be equally dynamic. Accordingly, it is
important to ensure that the Group’s risk appetite and management’s
evaluation and attitude in respect of those risks remain current.
REVIEWING AND EMBEDDING OUR CULTURE
During 2017, a management committee, led by our CEO, was
established to design and implement a cultural reinforcement process.
The committee oversaw a critical review of the Group’s charter
of values and the development of behavioural guidelines, which set
out actions aligned with these values.
Further work is under way, with input from employees, to assist
in refining the Group’s purpose and to ensure the Group’s values
and culture are adopted across all levels of the organisation.
The Board actively set the tone for this process and provided
guidance to the committee as part of a dedicated session at the
Board’s strategy day in June. Progress since then has been overseen
by the Remuneration and Talent Management Committee and final
actions will be reported to the Board during 2018.
DIVERSITY AND INCLUSION
We have a diverse Board comprising Directors with a broad spectrum
of complementary skills, personalities and competencies. The Board
believes in the benefits of diversity throughout the Group, not just at
Board level, and that more diverse companies are able to attract the
best talent and achieve stronger, more reliable overall performance.
The Company has recently completed an assessment of the maturity
of the Group’s diversity and inclusion model, and will be implementing
definitive steps to improve further in this area during 2018. Progress
will once again be measured and assessed and included as a target
within the Group’s 2018 Annual Bonus Plan.
The Board fully supports the objectives of the diversity and inclusion
programme and the Remuneration and Talent Management
Committee will receive periodic updates on progress and ultimately
determine how successfully the programme performed in its
assessment of Group performance under the Annual Bonus Plan,
during the course of 2018.
SUCCESSION PLANNING AND EXECUTIVE REMUNERATION
The Nomination and Governance Committee is responsible for
succession planning for the Board and the CEO and reviewed these
succession plans during the year, as explained in more detail on
pages 86 and 87.
The Remuneration and Talent Management Committee oversees
executive talent management and succession planning for executives
reporting into the CEO and below. It conducted a detailed review
and update to the succession plans for each of the members of
the Executive Committee (excluding the CEO) in 2017, identifying
candidates at different stages of readiness in the talent pipeline to fill
roles in case of unexpected departures and to identify and define
development goals for these employees.
The Committee also commissioned a fundamental review of the
Group’s executive remuneration structures during 2017 with the
aim of simplifying the Annual Bonus and Long Term Incentive Plans,
enhancing the alignment between executive remuneration and
shareholder returns and incorporating flexibility to allow the Group
to react to significant changes that may arise within the Group
or externally.
This process has involved market analysis, Board and management
interviews, and workshops to provide feedback and further refine
these proposals. As a consequence of this work, the number of
measured performance criteria across both incentive programmes
has been reduced from 22 to 14.
STAKEHOLDER ENGAGEMENT
Mining is a long-term business and timescales often run into decades.
Our relationships with stakeholders are central to our long-term
success. The Group’s governance structures include a network of
arrangements to ensure that the views and interests of stakeholders
are represented in the Boardroom and considered as part of the
Board’s deliberations. A further explanation of these arrangements
is set out in the Sustainability and Stakeholder Management Report
on pages 98 and 99.
Along with fellow Directors, I regularly visit the Group’s operations
and projects to understand first-hand the realities and challenges that
exist on site. Interactions during these visits provide us with a closer
understanding of the topics that are important for our workforce and
other stakeholders and we will continue to prioritise visits to the
Group’s operations during 2018.
As always, I welcome questions or comments from shareholders
at the Annual General Meeting.
Jean-Paul Luksic
Chairman
71
antofagasta.co.ukGOVERNANCE LEADERSHIP: SENIOR INDEPENDENT DIRECTOR’S INTRODUCTION
SUPPORTING
KEY DECISIONS
“Providing an alternative channel
of communication to the Chairman
and the Board allows me to contribute
to the range of views and perspectives
to which the Board has access when
making decisions.”
Ollie Oliveira, Senior Independent Director
Q. What are your responsibilities 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 Europe 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. What impact does the controlling shareholding have
on Company decisions?
The Company has had a controlling shareholder for almost 40 years
and the controlling shareholder has demonstrated an excellent track
record over that period.
As an Independent Director and now as the Senior Independent
Director, I have had a number of meetings over the years with
shareholders at which the role of the controlling shareholder has
been discussed. As set out in more detail on pages 73 and 124,
the controlling shareholder is the E. Abaroa Foundation, in which
members of the Luksic family are interested.
The consensus view has been that the substantial controlling interest
is regarded as a positive, with shareholders comfortable in aligning
their interests with those of the controlling shareholder, taking
advantage of its understanding of the copper price cycle and market
fundamentals, its longer term vision of the industry, and its well-
known conservative operating, financing and growth strategy.
This support is – of course – always given on condition of being
assured of the continuation of the current corporate governance
framework which rigorously protects the interests of all shareholders.
I and all the Independent Directors place a strong emphasis on
maintaining this governance and protection regime. We guard this
independence and preside over a framework and processes that go
beyond the regulatory norm. We are invariably joined by the other
Directors who – like the Independent Directors – bring their own
perspectives and opinions.
The controlling shareholder, and the members of the Luksic family
who serve on the Board (including the Chairman), are not just
supportive of this framework but actively encourage the Independent
Directors to provide that independent input and challenge which we
all know proves indispensable in Board decision-making.
What follows in this report is a more detailed description of this
framework and the checks and balances it contains.
Ollie Oliveira
Senior Independent Director
72
Antofagasta plc Annual Report 2017 RELATIONSHIP AGREEMENT
The E. Abaroa Foundation (“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. Details of the Company’s substantial
shareholders are set out on page 124.
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 with, and, so far as the Directors are aware, each
controlling shareholder and its associates (including Metalinvest
Establishment and Kupferberg Establishment) has complied, with
the mandatory independence provisions at all times during 2017.
RELATED PARTY TRANSACTIONS
Certain related party transactions outside the ordinary course of
business must be subject to independent assessment and approval.
The Company has for many years also presented all such related
party transactions (regardless of its size) between the Company
and the controlling shareholder or its associates to a committee of
Directors independent from the controlling shareholder, to support
the negotiation process and ultimately to make an assessment as
to whether the Company should enter into that transaction. In most
cases, transactions of this nature will also be subject to independent
review by the third-party shareholders in each of the Group’s mining
operating companies.
Any other proposed related party transaction over $25 million,
whether or not in the ordinary course of business, is also tabled for
Board approval. If applicable, any Director with a potential conflict
or connection with the related party will not take part in the decision
on that transaction.
RELATED PARTY GOVERNANCE IN PRACTICE
There are a number of checks and balances which ensure that there is full transparency in the way related party transactions are dealt with
by the Board. The following diagram summarises the approach taken to identify and manage related party transactions and actual or potential
conflicts of interest.
IDENTIFYING DIRECTORS’ INTERESTS
Process
Monitoring of
Directors’ interests
How this is managed
If a Director has an interest in any other company, the Board will normally consider
that interest under its arrangements for authorising conflicts of interest under section
175 of the Companies Act.
Responsibility
Directors
+ Further details on this process are set out on page 124
MANAGING A RELATED PARTY TRANSACTION
Proposed
transaction
Process
Contract negotiation
and verification
Process
Independent
Director approval
Ongoing monitoring of Directors’ interests and related parties of the Company
Responsibility
provides the information to determine if a related party approval is required for a
proposed transaction.
How this is managed
The Executive Committee will seek to ensure that the best possible terms are achieved
for a proposed transaction and that they are verified by industry benchmarking reports
or independent third-party valuation/assessment.
If the potential transaction is between the Group and the controlling shareholder or
its associates, a committee of Directors independent from the controlling shareholder
and its associates is formed, to oversee and support management with this process
and to ensure that the Relationship Agreement is complied with.
How this is managed
Potential related party transactions outside the ordinary course of business that
involve the controlling shareholder or its associates are approved by a committee
of Independent Directors.
All other potential related party transactions over $25 million, whether or not in the
ordinary course of business, are approved by the Board and if applicable, any Director
with a potential conflict or connection with the related party will not take part in the
decision on that transaction. Transactions within the ordinary course of business
which are below $25 million require approval of the relevant subsidiary board.
Company Secretary,
Antofagasta Group
management and the
Executive Committee
Responsibility
Antofagasta Group
management and
Executive Committee
and, if involving the
controlling
shareholder,
Independent Directors
Responsibility
Independent
Directors
73
antofagasta.co.ukGOVERNANCE
LEADERSHIP: BOARD OF DIRECTORS
GROUP GOVERNANCE OVERVIEW
ANTOFAGASTA PLC BOARD
BOARD COMMITTEES
Nomination
and
Governance
Audit
and Risk
Sustainability
and
Stakeholder
Management
Projects
Remuneration
and Talent
Management
The Board is assisted in the fulfilment of its responsibilities by
five Board Committees. The Board has delegated authority to these
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,
if necessary, discuss matters considered in detail and to consider
the Committee’s recommendations.
The terms of reference for each Committee are available on the
Company’s website at www.antofagasta.co.uk.
KEY RESPONSIBILITIES
The key responsibilities of each Committee are set out on pages
84 and 85.
+ See pages 84 to 117 for an overview of the Committees’ activities during
the year
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, its risk and internal
control systems, and for ensuring that the Company acts in the best
interests of all shareholders and has regard to the interests of
stakeholders. The schedule of matters reserved for the Board
is available on the Company’s website at www.antofagasta.co.uk.
+ See pages 76 to 79 for Directors’ biographical details, skills and strengths
and specific roles within the boardroom
KEY RESPONSIBILITIES
− Strategy
− Governance
− Internal controls and risk management
− Approving material transactions
− Financial and performance reporting
− Shareholder engagement
+ See page 82 for an overview of the Board’s activities during the year
74
Antofagasta plc Annual Report 2017 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.
CEO AND EXECUTIVE COMMITTEE
SUBCOMMITTEES OF THE EXECUTIVE COMMITTEE
CEO and
Executive Committee
Operating
Performance
Review
Business
Development
Disclosure
Project
Steering
Ethics
The Board has delegated day-to-day 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, each of whom has executive
responsibility for his or her respective functions. Mr Arriagada chairs
the Executive Committee.
The Executive Committee reviews significant matters and approves
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.
+ See page 79 for an overview of the interaction between the CEO
and Executive Committee and the Board and pages 80 to 81 for the CEO
and Executive Committee members’ biographies
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.
Following the introduction of the EU Market Abuse Regulation,
the Board adopted its current Disclosure Procedures Manual and
delegated to the Disclosure Committee primary internal responsibility
for identifying information which may need to be disclosed to the
market and for managing disclosure of that information.
The Ethics Committee is responsible for implementing, developing
and updating the Group’s Code of Ethics and monitoring compliance.
75
antofagasta.co.ukGOVERNANCE LEADERSHIP: BOARD OF DIRECTORS CONTINUED
INDEPENDENT OVERSIGHT
Biographical details for each Director are set out below. All of the Directors have confirmed that their other commitments do not prevent
them from devoting sufficient time to fulfilling their roles.
JEAN-PAUL LUKSIC
Chairman, 53
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
GONZALO MENÉNDEZ
Non-Executive Director, 69
Independent: No
Appointed to the Board 1985
Commercial engineer and economist with
extensive experience in commercial and
financial businesses across South America
Previous roles
− CEO of Antofagasta Holdings plc (now
Antofagasta plc)
Previous roles
− Chairman of Consejo Minero, the industry
body representing the largest mining
companies operating in Chile
− Member of the governing board of Centro
de Estudios Públicos, a Chilean not-for-
profit academic foundation
− Member of the High Council of Universidad
RAMÓN JARA
Non-Executive Director, 64
Independent: No
Appointed to the Board 2003
Lawyer with considerable legal and
commercial experience in Chile
Current positions
− Chairman of Fundación Minera
Los Pelambres (charitable foundation)
− Director of Fundación Andrónico
Luksic A (charitable foundation)
8/8
Board meeting attendances
− CEO of the Group’s mining division
Current positions
− Member of the board of Consejo Minero
− Non-Executive Director of Quiñenco SA,
and Banco de Chile and Sociedad Matriz
SAAM SA, both of which are listed
companies in the Quiñenco group
− Member of the governing board of Centro
de Estudios Públicos, a Chilean not-for-
profit academic foundation
8/8
Board meeting attendance
OLLIE OLIVEIRA
Senior Independent Director, 66
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 SA
− Director and audit committee chairman
of Dominion Diamond Corporation
Current positions
− Director, senior independent director and
audit and risk committee and remuneration
committee member of Polymetal
International plc (effective 25 April 2018)
8/8
Board meeting attendance
76
de Antofagasta
− Member of the Council of COANIL,
a charitable foundation for intellectually-
disabled children
− Member of the Corporate Governance
Committee, SOFOFA/KPMG
− Member of the Council of the School of
Business and Economics, Diego Portales
University
− Professor, Graduate School of Business
and Economics, University of Chile
Current positions
− Chairman of the Board of Directors of
Banco Latinoamericano de Comercio
Exterior SA “Bladex”, listed on the NYSE
− Director of Quiñenco SA and other
companies in the Quiñenco group,
including Banco de Chile and Compañía
Sudamericana de Vapores SA
− Vice-Chairman of Fundación Andrónico
Luksic A (charitable foundation)
− Vice-Chairman of Fundación Educacional
Luksic (charitable foundation)
7/8
Board meeting attendance
Gonzalo Menéndez was unable to attend one meeting
during the year because of travel outside Chile.
Nevertheless, he reviewed Board papers, provided
comments to the Chairman ahead of the meeting and
validated meeting minutes.
JUAN CLARO
Non-Executive Director, 67
Independent: No
Appointed to the Board 2005
Extensive industrial experience in Chile,
including an active role representing Chilean
industrial interests nationally and
internationally
Previous roles
− Chairman of the Sociedad de Fomento
Fabril (Chilean Society of Industrialists)
− Chairman of the Confederación de la
Producción y del Comercio (Chilean
Business Confederation)
− Chairman of the Consejo Binacional de
Negocios Chile-China (Council for Bilateral
Business Chile-China)
Current positions
− Chairman of Coca-Cola Andina SA
and Energía Coyanco SA
− 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 academic foundation
8/8
Board meeting attendance
Key to Committees
Nomination and Governance
Audit and Risk
Sustainability and Stakeholder
Management
Projects
Remuneration and Talent Management
Chairman
Antofagasta plc Annual Report 2017 WILLIAM HAYES
Non-Executive Director, 73
ANDRÓNICO LUKSIC C
Non-Executive Director, 63
Independent: No
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
− 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.
8/8
Board meeting attendance
TIM BAKER
Non-Executive Director, 65
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 Canada, 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
7/8
Board meeting attendance
Tim Baker was unable to attend one meeting during
2017 because of a commitment outside Chile.
Nevertheless, he reviewed Board papers, provided
comments to the Chairman ahead of the meeting and
validated meeting minutes.
Appointed to the Board 2013
Extensive experience across a range
of business sectors throughout Chile,
Latin America and Europe
Current positions
− Chairman of Quiñenco SA, and of
Compañía Cervecerías Unidas SA and
Vice Chairman of Banco de Chile and
Compañía Sudamericana de Vapores SA,
all of which are listed companies in the
Quiñenco group
− Director of Nexans SA, a company listed
on NYSE Euronext Paris
5/8
Board meeting attendance
Andonico Luksic was unable to attend three meetings
during the year because of travel outside Chile.
Nevertheless, he reviewed Board papers, provided
comments to the Chairman ahead of the meetings
and validated meeting minutes.
VIVIANNE BLANLOT
Non-Executive Director, 62
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
del Energía (National Energy Commission
in Chile)
− Minister of Defence for 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
Current positions
− Director of Empresas CMPC SA, a pulp
and packaging company listed in Chile
− Director of Colbún SA, an energy company
listed in Chile
8/8
Board meeting attendance
JORGE BANDE
Non-Executive Director, 65
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 SA, Electroandina SA
(now E-CL SA) and Bupa Chile SA
− Member of the Experts Committee for
Copper Prices for the Chilean Ministry
of Finance
Current positions
− Director of CESCO
− Professor of the International Post-
Graduate Programme in Mineral
Economics at the University of Chile
− Director of NEXTMinerals SA
− Member of the Advisory Council
of Sacyr-Chile
− Member of the Comité de Vigilancia
of CleanTech Fund
8/8
Board meeting attendance
FRANCISCA CASTRO
Non-Executive Director, 55
Independent: Yes
Appointed to the Board 2016
Commercial engineer with over 25 years’
experience in industry including mining,
energy, finance and public/private
infrastructure projects in the United States
and Chile
Previous roles
− Executive Vice-President of Strategic
Business and Subsidiaries at Codelco
− General Co-ordinator of Concessions
at the Chilean Ministry of Public Works
− Various roles within the Chilean Finance
Ministry
− World Bank, Washington
Current positions
− Member of the Chilean Pension Funds Risk
Classification Committee
− Member of the independent Technical
Panel of Chilean Public Works Concessions
8/8
Board meeting attendance
77
antofagasta.co.ukGOVERNANCE LEADERSHIP: BOARD BALANCE AND SKILLS
A DIVERSE AND
EFFECTIVE BOARD
The Board comprises Directors with a broad and complementary set of technical skills, educational and professional experience, nationalities,
personalities, cultures and perspectives. The Group’s management team, led by Iván Arriagada, performs an essential role in ensuring that the
Board has the information required to make effective decisions and to report in real time on the Company’s performance and implementation
of the Group’s strategy.
BOARD BALANCE
INDEPENDENCE1
GENDER DIVERSITY
TENURE
NATIONALITY2
1
2
5
Chairman
Independent
Non-Independent
5
Male
Female
5
1-5 years
6-9 years
9+ years
9
2
4
1
1
1
Chile
USA
Canada
UK
8
1. The Board reviews the independence of Directors annually. None of the relationships set out in Provision B.1.1. of the Code apply to the Company’s Independent Directors.
2. “A Report into the Ethnic Diversity of UK Boards” (Sir John Parker, The Parker Review Committee, 12 October 2017), identified eight of the current Directors as being from
an ethnic minority background (which includes individuals with South American heritage). As explained on page 87, because the Group’s footprint is primarily in Chile, the
Board aims to include a number of Directors from outside Chile in support of its vision and strategy.
co m pensation
Executive
Latin A m erican
experience
U K m arket
m anage m ent
Project
Energy experience
Govern m ent
relations
Sustainability
Co m m unication
BOARD SKILLS MATRIX
Independence
CEO experience
experience
M ining
M ining operations
experience
Board governance
Financial
Legal
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
78
Antofagasta plc Annual Report 2017 LEADERSHIP: ROLES IN THE BOARDROOM
SENIOR INDEPENDENT DIRECTOR
CHAIRMAN
Ollie Oliveira
Jean-Paul Luksic
(Non-Executive Chairman)
CEO
Iván Arriagada
(not a Director)
− Provides a sounding board for the
− Leads the Board and ensures its
− Leads the implementation of 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 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.
INDEPENDENT NON-EXECUTIVE
DIRECTORS
Tim Baker
Jorge Bande
Vivianne Blanlot
Francisca Castro
Ollie Oliveira
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.
effectiveness in all aspects of its duties.
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 80 and 81
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 between the Board
and management.
− Ensures Board members have access
to the information they need to perform
their roles.
Julian Anderson
− 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.
− 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 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.
ROLES
NON-EXECUTIVE DIRECTORS
Juan Claro
William Hayes
Ramón Jara
Andrónico Luksic C
Gonzalo Menéndez
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.*
− 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.
* 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 SA
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.
79
antofagasta.co.ukGOVERNANCE LEADERSHIP: EXECUTIVE COMMITTEE
AN EXPERIENCED
MANAGEMENT TEAM
IVÁN ARRIAGADA
CEO
ALFREDO ATUCHA
CFO
P
P
Joined the Group in 2015
Commercial engineer
and economist with over
20 years’ international
experience in the mining
and oil and gas industries.
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
experience with Shell in
Chile, the United
Kingdom, Argentina and
the United States
Joined the Group in 2013
Chartered accountant
with a MBA and over
30 years’ financial and
International experience
in the mining, energy and
fast-moving consumer
goods industries.
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 Manager at
British American
Tobacco
RENÉ AGUILAR
Vice President of
Corporate Affairs and
Sustainability
P
Joined the Group in 2017
Industrial psychologist
with 20 years’ experience
in mining, including in
sustainability, safety,
human resources and
corporate affairs.
Previous roles
− Group Head of Safety at
Anglo American plc,
London
− Vice President of
Corporate Affairs and
Sustainability at
Codelco, Chile
− Health and Safety
Director at International
Council on Mining and
Metals “ICMM”, London
PATRICIO ENEI
Vice President of Legal
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
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
− General Counsel
at Codelco
− Corporate Affairs
Manager of Minera
Escondida
− Senior lawyer at BHP
Billiton in Chile
− Chief Legal Counsel at
Minera Doña Inés de
Collahuasi
− Lawyer at the Instituto
de Normalización
Previsional and in
private practice
80
Antofagasta plc Annual Report 2017 HERNÁN MENARES
Vice President
of Operations
P
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 SA
ANA MARÍA
RABAGLIATI
Vice President of Human
Resources
Joined the Group in 2013
Human resources
specialist with more than
25 years’ experience in
international companies
across a range of
industries, 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 of the Lafarge
Group in Chile
− Various positions at
Shell, including Human
Resources Manager of
the Lubricants Business
of Shell Oil Latin
America
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
FRANCISCO WALTHER
Vice President of Projects
Joined the Group in 2007
Mining engineer with over
25 years’ experience in
mining operations and
engineering for open pit
and underground mines.
Previous roles
− Project Director
of Reko Diq
− Director of Codelco’s
Chuquicamata
underground mine
project
− Head of engineering for
Codelco’s Mansa Mina
(now Ministro Hales)
project
FRANCISCO VELOSO
Vice President of Investor
Relations
P
Joined the Group in 1993
Lawyer with over
25 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
Key to Committees
Operating Performance Review Committee
Business Development Committee
Ethics Committee
Disclosure Committee P Project Steering Committees
81
antofagasta.co.ukGOVERNANCE EFFECTIVENESS: BOARD ACTIVITIES
THE BOARD’S ACTIVITIES
The Board met eight times during 2017. Each Director withdrew from any meeting when
his or her own position was being considered. All Directors attended the 2017 AGM.
1
THE EXISTING
CORE BUSINESS
2
GROWTH OF THE
CORE BUSINESS
3 GROWTH BEYOND
THE CORE BUSINESS
− Oversaw implementation of the
Group’s new operating model
− Monitored dialogue with
governments in Argentina and
Chile in connection with the
Cerro Amarillo waste dump at
Los Pelambres
− Reviewed the Group’s compliance
with environmental commitments
− Approved the disposal of the
Group’s interest in the Alto Maipo
hydroelectric project
− Monitored labour relations at
the Group’s mining operations
− Monitored an independent
review of tailings dam safety at
Los Pelambres and Centinela
− Reviewed and monitored the
Group’s operating performance
− Reviewed and approved the
Group’s copper concentrate and
copper cathode sales strategy
− Approved key procurement
contracts
STRATEGY AND MANAGEMENT
− Held a standalone strategy day with
particular focus on the Group’s growth
strategy and strategic pillars
− Reviewed the Group’s innovation
and technology programme
− Reviewed the Group’s diversity
and inclusion strategy
− Approved the Group’s tax strategy
BOARD AND SENIOR MANAGEMENT
STRUCTURE
− Refreshed membership of the Board’s
Committees
− Welcomed new Vice President of
Corporate Affairs and Sustainability,
René Aguilar
82
− Approved 2017 work plans,
− Approved a “Growth beyond the
budgets and studies in relation
to the Los Pelambres Incremental
Expansion and Centinela Second
Concentrator projects
− Approved 2017 budgets and
construction work plans in
relation to the Encuentro Oxides
and Molybdenum Plant projects
at Centinela
Core Business” strategy guideline
for management, on the preferred
geography, commodity, size and
stage for growth opportunities
outside the Group’s core business
− Monitored developments at the
Twin Metals project in Minnesota
− Reviewed and approved the
acquisition of mining properties
in Chile
FINANCIAL AND PERFORMANCE
REPORTING
− Approved the Group’s 2016 full-year
and 2017 half-year results
− Reviewed and approved the base
case and development case for the
Group’s assets
− Reviewed the Group’s ongoing capital
management strategy and commercial
parameters
− Approved the dividends paid
to shareholders during 2017
− Reviewed and approved the Group’s
2018 budget
INTERNAL CONTROLS AND
RISK MANAGEMENT
− Reviewed the Group’s risk matrix
− Approved a work stream to implement
proposals to improve further the
Group’s internal control and risk
management systems
GOVERNANCE AND STAKEHOLDER
ENGAGEMENT
− Reviewed Director independence
− Oversaw the implementation of key
recommendations arising from the
2016–2017 externally facilitated Board
effectiveness review
− Reviewed the 2017 Sustainability
Report
− Engaged with shareholders on
corporate governance matters at the
2017 AGM
Antofagasta plc Annual Report 2017 BOARD AND COMMITTEE
INFORMATION FLOWS
CHAIRMAN AGREES AGENDA WITH DIRECTORS
The Chairman tables an agenda of standing topics to be considered by the Board each year, which is then supplemented by agreed key
topics and events requiring consideration during the year.
PAPERS CIRCULATED IN ADVANCE OF MEETINGS
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, which is an open and candid summary of his views on evolving challenges, changes in risk assessments
and emerging issues, as well as the management report with detailed information on the Group’s performance against key indicators.
BOARD AND COMMITTEE MEETINGS
Each Board and Committee meeting has one or more short sessions without management present to allow Directors to set expectations for
the meeting and to reflect on and evaluate the meeting upon its conclusion. The CEO provides timely updates to the Board on emerging
issues, and 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.
MINUTES PREPARED, CIRCULATED AND APPROVED
The Secretary to the Board minutes all Board and Committee meetings. These minutes are circulated and reviewed by the Board and
management before being updated as necessary and tabled for approval.
ACTION LISTS PREPARED AND UPDATED
AS KEY ACTIONS ARE IMPLEMENTED
The Board and each Committee respectively 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.
INFORMATION BETWEEN MEETINGS
Between Board meetings, Directors receive flash reports with monthly and year-to-date production and financial results, including key
metrics in respect of safety, environmental and social performance, ensuring that the Board is regularly updated on the Group’s
performance. From time to time, Directors may also receive reports highlighting key developments in the Group’s exploration, projects
and business development activities, or general information on the commodity markets or innovations in mining.
83
antofagasta.co.ukGOVERNANCE ACCOUNTABILITY: INTRODUCTION TO THE COMMITTEES
BOARD COMMITTEES
The Board relies on its
Committees to ensure
that deliberations by
the Board are focused
on the key issues and
that proposals are
subject to detailed
specialist debate and
rigorous challenge.
Each Committee also
provides an essential
forum to allow the
views and perspectives
of stakeholders to be
discussed, so that they
too can be represented
in the Board’s
deliberations.
84
NOMINATION AND
GOVERNANCE
COMMITTEE
p86
AUDIT AND RISK
COMMITTEE
p90
SUSTAINABILITY
AND STAKEHOLDER
MANAGEMENT COMMITTEE
p96
PROJECTS
COMMITTEE
p100
REMUNERATION AND
TALENT MANAGEMENT
COMMITTEE
p102
Antofagasta plc Annual Report 2017 CHAIRMAN
Jean-Paul Luksic
MEMBERS
Tim Baker
Ollie Oliveira
CHAIRMAN
Ollie Oliveira
MEMBERS
Jorge Bande
Vivianne Blanlot
Francisca Castro
CHAIRMAN
Vivianne Blanlot
MEMBERS
Jorge Bande
Juan Claro
William Hayes
CHAIRMAN
Ollie Oliveira
MEMBERS
Tim Baker
Jorge Bande
Ramón Jara
CHAIRMAN
Tim Baker
MEMBERS
Vivianne Blanlot
Francisca Castro
− Board effectiveness
reviews
− Risk and internal control
− Compliance
KEY RESPONSIBILITIES
− Corporate governance
− Succession planning for
the CEO and the Board
− Board and Committee
composition
KEY RESPONSIBILITIES
− Financial reporting
− External audit
− Internal audit
KEY RESPONSIBILITIES
− Policies and commitments
− Safety and health
− Community relations
− Environment
KEY RESPONSIBILITIES
− Policies and commitments
− Reviews all major projects
− Reviews lessons learned
from completed projects
KEY RESPONSIBILITIES
− Directors’ remuneration
− Executive remuneration
− Group pay structures
− Talent management
and succession planning
for the Executive
Committee
85
antofagasta.co.ukGOVERNANCE ACCOUNTABILITY: NOMINATION AND GOVERNANCE COMMITTEE REPORT
“The Committee is focused on ensuring
that the Board and its Committees
operate effectively at all times.”
2017 MEMBERSHIP AND MEETING ATTENDANCE
Jean-Paul Luksic, Chairman
Jean-Paul Luksic (Chairman)
Tim Baker
Ollie Oliveira
Number
attended
4/4
4/4
4/4
− Other regular attendees include the 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.
KEY RESPONSIBILITIES
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.
The Committee identifies qualified individuals to join the Board,
recommends any changes to Board and Committee composition
and monitors an annual process to assess Board effectiveness.
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
− overseeing Board 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.
KEY ACTIVITIES IN 2017
Corporate
governance
Succession
planning
Board and committee
composition
Board effectiveness
reviews
− Reviewed the impact of
− Reviewed the Board
changes to the composition
of all Committees which took
effect from 1 January 2017.
− Reviewed the independence
of all Directors, making
recommendations to the
Board.
effectiveness report prepared
by Independent Audit Limited
− Oversaw the implementation
of the recommendations
arising from the review.
− Reviewed the Governance
section of the 2016 Annual
Report and recommended it
to the Board for approval.
− Reviewed the governance
structures in place at the
Group’s operating companies.
− Reviewed Directors’ potential
conflicts of interest.
− Reviewed feedback provided
by shareholders and proxy
advisers in advance of the
2017 AGM.
− Reviewed the details of
proposals for UK corporate
governance reform.
− Reviewed updated written
succession plans for the
Board and its Committees.
− Reviewed succession plans
for the CEO.
− Provided input to the
Remuneration and Talent
Management Committee in
relation to succession plans
for the Executive Committee
(excluding the CEO) and the
Group’s diversity and
inclusion programme.
86
Antofagasta plc Annual Report 2017
BOARD COMPOSITION AND
SUCCESSION PLANNING
Succession planning at Board level includes setting policies that encourage a strong
and diverse pipeline of candidates well into the future.
Q. What steps does the Committee take in order to identify
and appoint new Directors?
The Committee reviews the composition of the Board and its
Committees on an ongoing basis and, formally, at least once per year.
appointments continue to be made on merit. To assist with this, the
Board will ensure that searches for new Directors access the widest
possible talent pool and that one half of the candidates on longlists
comprise women.
There is a written succession plan in place for all Board and
Committee positions, including contingency plans in the event
of an unexpected departure.
The Committee regularly discusses relevant profiles for future
appointments and potential candidates, taking into account the results
of Board effectiveness reviews, as shown on page 88, having regard
to the Group’s vision and strategy, as shown on pages 12 and 13, the
Board’s diversity policy (below) and the core competencies and areas
of expertise on the Board, as shown on page 78.
When actively searching for a new Director, the Committee usually
appoints an independent external search consultancy to assist with
the process. The external search consultancy will receive a briefing
on the skills and experience of the existing Directors and will be asked
to 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 Committee will then identify a shortlist of
candidates to be interviewed by members of the Committee who then
collectively decide whether the candidate should be recommended
to the Board for appointment.
Q. What is the Board’s position in relation to diversity?
The Board believes in the benefits of diversity and that more diverse
companies are able to attract the best talent and achieve stronger and
more reliable overall performance. However, diversity is a general
term that is made up of a number of different aspects including
gender, disability, educational and professional experience, nationality,
personality type, culture and perspective. Our vision is to be an
international mining company based in Chile, and we consider all
of these aspects when making appointments and setting policies
in support of our vision and strategy.
Q. What policy is currently in place to ensure that there is
diversity at Board level?
The Committee has worked hard to ensure that the Board is suitably
diverse across the individual aspects of diversity set out above and
the Board reviews its effectiveness in meeting diversity goals each
year as part of the annual Board evaluation process.
As noted on page 68, the Group’s current activities are focused in
Chile. Nevertheless, for many years the Board has included a number
of Directors from outside Chile in support of our vision and strategy
and we actively look for opportunities to increase gender diversity
beyond the levels in the wider mining workforce in Chile, while
ensuring that appointments continue to be made on merit. Two of our
three most recent appointments have been women. The Board plans
to continue to actively look for opportunities to increase female
representation beyond the current level while ensuring that
Q. What policies are in place to promote a diverse pipeline
of talent for the future?
To further promote diversity at the Executive Committee level and
below, a new Group Diversity and Inclusion strategy was approved
by the Board during the year. This strategy was prepared following
an exercise to assess the maturity of the Group’s existing diversity
and inclusion model which included interviews with stakeholders,
bench marking and a comprehensive review of the Group’s policies
and processes. The review assessed whether structural impediments
existed that needed to be addressed in order to achieve a sustained
improvement in the maturity of the Group’s diversity and
inclusion model.
The Group carefully considered the elements of diversity that would
contribute most towards achievement of the Group’s vision and
strategy and has committed to materially increasing the percentage
of women, persons with disabilities and persons with international
backgrounds and/or experience in the workforce by 2022, and for
these improvements to be embedded, sustained and improved upon
from then. The current levels of gender diversity within the mining
division’s workforce and further rationale behind the choice of these
elements are set out within the Strategic Report on page 59.
As shown on page 113, metrics associated with the development
of the Diversity and Inclusion strategy accounted for 2.5% of the
Group’s Annual Bonus Plan in 2017 and will also account for 2.5%
in the Group’s Annual Bonus Plan in 2018, with performance to be
assessed by the Remuneration and Talent Management Committee
at the end of the year.
The Remuneration and Talent Management Committee is also
responsible for succession planning for the Executive Committee
(excluding the CEO) which allows for ongoing monitoring of the
impact of the Diversity and Inclusion strategy on appointments
and progress within the Company, and further details are set out
on page 104.
Q. What support does the Company provide to facilitate
induction and assist with professional development?
The Company provides a thorough induction to new Directors,
and insurance, access to resources and continuing professional
development for incumbent Directors. Further details are set out
on page 89.
Jean-Paul Luksic
Chairman of the Nomination and Governance Committee
87
antofagasta.co.ukGOVERNANCE ACCOUNTABILITY: BOARD EFFECTIVENESS REVIEWS
REVIEWING THE
BOARD’S EFFECTIVENESS
The Board’s commitment to continuous improvement is reflected in its
candid and thorough effectiveness reviews.
EXTERNAL REVIEW
The most recent externally-facilitated Board effectiveness review
commenced in 2016 and concluded in 2017. It was carried out by
Independent Audit Limited* (“Independent Audit”) which had
previously conducted an externally-facilitated review of the
effectiveness of the Board and its Committees in 2013 and was
therefore well placed to assess progress on the committed action
plans carried out in the years since.
Following the 2016 externally-facilitated review and based
on interviews and reviews of Board and Committee
papers, Independent Audit stated in its February
2017 report that:
− considerable progress has been made across many aspects
of the Board’s activities, 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
− 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. In turn,
the Board will need to assess how the Group will
respond to industry trends, macroeconomic
developments and innovation
Year 1 – 2016
• External effectiveness review,
including benchmarking
• Annual review of the Chairman by
the Non-Executive Directors, led by
the Senior Independent Director
− a very thorough approach to
follow-through of the agreed
actions had been adopted
INTERNAL
REVIEW
Following the
externally-facilitated
review, the Chairman
and the Senior
Independent Director
met to agree an action
plan for closing the
gaps identified by
Independent Audit.
Year 3 – 2018
• Internal review, gap
closure and
development of plan for
external assessment
• Annual review of the
Chairman by the
Non-Executive
Directors, led by the
Senior Independent
Director
During the year, the Senior
Independent Director also asked
Non-Executive Directors to
complete a survey on the
Chairman’s effectiveness. At a
meeting without the Chairman present,
the Senior Independent Director presented
consolidated results to Non-Executive Directors
and agreed on both positive aspects and
improvement opportunities, which were summarised in a
feedback letter shared by the Senior Independent Director with the
Chairman. The Chairman used these comments to improve further
the effective operation of the Board.
Year 2 – 2017
• Progress assessment
and gap closure from
external effectiveness
review
• Annual review of the
Chairman by the
Non-Executive
Directors, led by the
Senior Independent
Director
In turn, the Chairman
assessed each of
the Non-Executive
Directors’ individual
effectiveness,
performance and
potential to assume new
Board or Committee
roles, as input to update
the Board and Committee
succession plans.
Significant improvements
have been made to Board
effectiveness over the past
four years.
The Board will continue to use
the findings of the February 2017
progress report to make additional,
focused improvements to Board and
Committee effectiveness.
The Board will conduct an internal effectiveness
assessment in 2018 in preparation for the next external
evaluation in 2019 or 2020.
“We applaud the seriousness with which the Company takes
its reviews of effectiveness and the follow‑through.”
Independent Audit Limited
* Independent Audit Limited is an external independent adviser with no other connection to the Company.
88
Antofagasta plc Annual Report 2017 ACCOUNTABILITY: PROFESSIONAL DEVELOPMENT
PROFESSIONAL
DEVELOPMENT
INDUCTION
New Directors receive a thorough induction on joining the Board. This includes meetings with the Chairman, other Directors,
the CEO and Executive Committee members; briefings on the Group’s operations, projects and exploration activities; and site visits.
CONTINUING PROFESSIONAL DEVELOPMENT
Directors receive an annual briefing on legal, regulatory and other developments that are relevant to directors of UK-listed companies
as well as specific briefings on topics that may be requested from time to time.
Directors have access to, and are encouraged to regularly attend, round-table discussions, seminars and other events that cover topics
relevant to their position and to the Group as a whole.
RESOURCES
The Company provides Directors with the necessary resources to maintain and enhance their knowledge and capabilities.
All Directors have access to management and to such further information as they need to discharge their duties and responsibilities
fully and effectively.
Directors are also entitled to seek independent professional advice concerning the affairs of the Group at the Company’s expense.
INSURANCE
The Company has appropriate insurance in place to cover Directors against any claims that may be made against them.
antofagasta.co.uk
89
GOVERNANCE ACCOUNTABILITY: AUDIT AND RISK COMMITTEE REPORT
TT
TBC
“The Audit and Risk Committee supports
the Board in its responsibilities relating
to financial reporting and risk
management.”
Ollie Oliveira, Chairman
2017 MEMBERSHIP AND MEETING ATTENDANCE
Ollie Oliveira (Chairman)
Jorge Bande
Vivianne Blanlot1
Francisca Castro
Number
attended
4/4
4/4
3/4
4/4
1. Vivianne Blanlot was unable to attend one Committee meeting during the year.
Nevertheless, she reviewed Committee papers, provided comments to the
Chairman ahead of the meeting and validated meeting minutes.
− Other regular attendees include the CEO, CFO, Group Financial
Controller, Head of Internal Audit, Strategic Planning Manager,
Head of Risk and Secretary to the Board.
− 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, Jorge Bande and Francisca Castro are all
considered to have recent and relevant financial experience.
− The Committee as a whole has significant experience relevant
to the mining sector.
KEY RESPONSIBILITIES
The Audit and Risk Committee assists the Board in meeting its
responsibilities relating to financial reporting and control and risk
management. The Committee’s main responsibilities cover:
− overseeing the external audit process and managing the
relationship with PwC, the Group’s external auditor
− internal audit, including monitoring of the Group’s Internal Audit
− financial reporting, which includes responsibility for reviewing the
function, processes and findings
year-end and half-year financial reports, and monitoring the
overall financial reporting process
− assisting the Board with its responsibilities in respect of risk
management and related controls and compliance.
KEY ACTIVITIES IN 2017
Financial
reporting
External
audit
Risk and internal control
Compliance
− Reviewed the 2016
year-end and 2017
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
2016 Annual Report
is fair, balanced and
understandable,
and reviewed the
long-term viability
statement contained in
the 2016 Annual
Report.
− Reviewed and
− Conducted detailed
reviews with the General
Managers of each of the
Group’s operations,
covering the operations’
key risks.
− Monitored the work
which commenced
during 2017 to provide
an updated assessment
of the maturity of the
Group’s risk
management process,
and also an updated
review of the Group’s
risk appetite and risk
tolerance.
approved the 2017
audit plan, including
fees.
− Assessed the
effectiveness of the
external audit process.
Internal
audit
− Reviewed the key
findings from the
internal audit reviews
conducted during
2017.
− Agreed the scope
and areas of focus
for the 2018 internal
audit plan.
− 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 the Group’s
whistleblowing
arrangements,
including details of
the most significant
reports and the
resulting actions
taken.
− Reviewed updates to
the conflict of interest
declarations by the
Group’s employees
and suppliers, and
details of the Group’s
limited relationships
with politically
exposed persons.
− Monitored the
functioning of the
Group’s crime
prevention model,
in accordance with
Chilean and UK
anti-corruption
legislation.
90
Antofagasta plc Annual Report 2017
FOCUSING ON RISK
An increased focus on risk has enhanced the Committee’s oversight
and consideration of the inputs and sensitivities that apply to the Group’s
periodically reported financial position.
Q. What were the key developments and activities for the
FINANCIAL REPORTING
Committee in 2017?
We are in a more positive market environment than has been the
case for several years, but this does not mean that we can in any
way be complacent in terms of managing the risks facing the Group.
Ours is a long-term business, and many of our most significant risks
are present throughout the cycle; in fact, a more robust market
environment can bring its own heightened risks. The operation of the
Committee during 2017 has reflected this need for our focus on risk
to continue to develop and evolve.
The size of the Committee increased from three to four members
from the start of 2017, which has been very useful in dealing with the
significant responsibilities of the Committee. This also means that we
now have members of the 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, and the more specific risks relating to project
execution, safety, environmental and community issues considered in
detail by the other Committees. To illustrate the benefit of this linkage,
internal audit conducted a review during 2017 relating to sustainability
issues across the Group, and having Vivianne Blanlot and Jorge
Bande on both the Audit and Risk Committee and the Sustainability
and Stakeholder Management Committee was very helpful in ensuring
efficient Board-level monitoring of this work.
In June 2017, for the first time, we held a meeting devoted solely to
risk management. At this meeting we reviewed the main materialised
risks at each of the Group’s operations over the past 12 months, and
the current assessment of the key risks for each of the operations,
their related mitigation activities and the expected evolution of those
risks over the coming 12 months.
The Committee has also been monitoring work which commenced
during 2017 to provide an updated assessment of the maturity of
the Group’s risk management process, as well as an updated review
of the Group’s risk appetite and risk tolerance.
Q. What are the Committee’s main activities in respect of the
Group’s financial reporting?
The Committee reviews the year-end financial statements and
half-yearly financial report, and we 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.
The Committee assists the Board in undertaking 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 assessment, 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.
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antofagasta.co.ukGOVERNANCE ACCOUNTABILITY: AUDIT AND RISK COMMITTEE REPORT CONTINUED
Q. What were the significant accounting issues in relation
to the financial statements considered by the Committee
during 2017?
The main accounting issues considered in detail by the Committee
in respect of the 2017 financial statements were:
− Asset valuations: we have considered whether there were any
indicators of impairment (or reversal of previous impairments)
at the Group’s operations, and concluded that there were not.
Accordingly, we have not performed any impairment reviews
in respect of the Group’s assets at the 2017 year end. As part of
this consideration we have taken into account the general copper
market environment, which has shown some improvement
in the near-term outlook, as reflected in the copper price
as at 31 December 2017 of around $3.25/lb, compared with
approximately $2.50/lb as at 31 December 2016. We also
considered the specific operating performance of the Group’s
businesses, which have generally performed in line with
expectations during 2017.
+ Further details in respect of the valuation and sensitivity of the Group’s
assets is set out in Note 4 to the financial statements
− Twin Metals: we have reviewed the developments in respect
of the renewal of two of the project’s mining leases, and the
potential impact of this on the carrying value of the project’s
assets. In December 2017 the US Department of the Interior
(“DOI”) confirmed Twin Metals’ right to renew the leases. This
replaced the DOI’s previous legal opinion from March 2016,
which had served as the basis for the December 2016 action by
the Bureau of Land Management and the US Forest Service to
deny the renewal of the two leases. This positive legal development,
along with consideration of the current forecasts of the potential
value to be generated by the project, supported the conclusion
that no adjustment to the carrying value of the project’s assets
was necessary.
− Inventories: we keep the Group’s inventory balances under close
review. This reflects a combination of the value of the inventories,
the long-term nature of some of the balances, and also the fact that
the monitoring of mining work-in-progress inventories, particularly
in respect of leaching processes, can be relatively complex. We
monitor the specific accounting policies applied to the inventory
balances, the level of headroom indicated by net realisable value
tests, the forecast future movements in the value of the balances
and any other specific issues which may arise. These reviews have
not indicated any concerns with the carrying value of the Group’s
inventory balances as at 31 December 2017.
EXTERNAL AUDIT
Q. What are the Committee’s activities in respect of the
external audit process?
The Committee is responsible for overseeing Antofagasta’s
relationship with PwC, the Group’s external auditor. I 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 three years. We carried out a
tender process during 2014, which resulted in PwC being appointed
with effect from 2015 onwards. 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.
Q. How do you assess the effectiveness of the external
audit process?
The Committee considered the following factors as part of its 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 co-ordination between the UK and Chilean
audit teams
− 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
− the review of reports from the external auditor detailing its own
internal quality control procedures, as well as its annual
transparency report
− the results of the review of PwC’s 2016 audit by the Audit Quality
Review team of the UK’s Financial Reporting Council, including the
main findings and any impact on the 2017 year-end audit.
In light of this assessment, the Committee considers it appropriate
that PwC be reappointed as external auditor.
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.
92
Antofagasta plc Annual Report 2017 INTERNAL AUDIT
Q. What are the Committee’s 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, headcount
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. The permanent team includes members
with specific expertise in some of the most relevant areas for the
Group, including mining technical experience, IT and sustainability.
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 main activities in relation to risk
management and internal control?
The Committee plays 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.
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.
An updated policy has been applied from 1 January 2017, reflecting
the implementation of the EU Audit Regulation and Directive. The
policy specifies services which the external auditor may not provide
to any Group entity. This includes any services which involve playing
any part in the management or decision-making of the entity,
preparing accounting records and financial statements and designing
or implementing internal control procedures relating to the
preparation of financial information. In addition, a number of more
specific services are prohibited, including internal audit services,
valuation services which would have a material effect on the financial
statements and the preparation of material tax calculations. The policy
also includes “blacklisted” services which may not be provided to
Antofagasta plc or its subsidiaries within the European Union (EU) –
for instance, virtually all services in respect of taxation are prohibited.
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. In addition to this pre-approval
process for specific non-audit services, the Audit and Risk Committee
also 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.
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 $274,000, or 17% of the fees for audit and audit-related
services. This mainly related to the following services:
− assisting with the assessment of the maturity of the Group’s risk
management process and the updated review of the Group’s risk
appetite and risk tolerance
− due diligence services provided to an associate of the Group
− assurance services in respect of the Group’s sustainability
reporting
− tax advisory services provided to Group companies outside the EU.
In general, where the external auditor is selected to provide non-audit
services it is because it is considered to have specific expertise or
experience in the relevant area which means they it is 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 2017.
93
antofagasta.co.ukGOVERNANCE ACCOUNTABILITY: AUDIT AND RISK COMMITTEE REPORT CONTINUED
Q. What were the Committee’s main activities in 2017
Q. How does the Committee interact with the Board
relating to risk?
and other Committees?
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 present to the Committee at least
once a year, covering their assessments of their respective
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 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 principal cyber security risks
facing the Group, and the main control activities undertaken to
address those risks.
During 2017 the Group commenced work on an updated assessment
of the maturity of the Group’s risk management process, and we have
been monitoring the progress of this activity.
+ Further information relating to the Group’s key risks and risk management
processes is given in the Risk Management section of the Strategic Report
on pages to 16 and 17
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 under consideration,
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.
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. To this end, 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. During
2017 we commenced work on an updated review of the Group’s risk
appetite and risk tolerance. This is a Board-led process, with the
Committee assisting in monitoring the progress of this work.
Each year the Board, with the support of the Committee, reviews the
effectiveness of the 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 2017.
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.
AUDIT AND RISK COMMITTEE, BOARD AND RISK MANAGEMENT FUNCTION INTERACTION
BOARD
The 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 on each operation’s
key risks and materialised risks
94
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
Antofagasta plc Annual Report 2017
COMPLIANCE
Q. What are the Committee’s main responsibilities relating
to compliance?
The Committee ensures 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 monitors and oversees the performance of the role. The Crime
Prevention Officer is currently Alfredo Atucha, the CFO. The
Committee receives reports from the Risk Management function in
respect of the Group’s crime prevention model, in accordance with
Chilean and UK anti-corruption legislation.
Q. What were the Committee’s main activities in 2017 relating
to compliance?
The Committee reviewed the Group’s whistleblowing arrangements,
which enable employees and contractors to raise concerns about
possible improprieties or non-compliance with the Group’s Code
of Ethics in confidence. This is important 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.
We reviewed updates in respect of the conflict of interest
declarations by the Group’s employees and suppliers, as well as
details of the Group’s limited relationships with politically exposed
persons (ie individuals who hold prominent public positions). We also
reviewed details of the compliance training undertaken by the Group’s
employees during the year.
Ollie Oliveira
Chairman of the Audit and Risk Committee
95
antofagasta.co.ukGOVERNANCE ACCOUNTABILITY: SUSTAINABILITY AND STAKEHOLDER MANAGEMENT COMMITTEE REPORT
“Commitments must be fulfilled.
That is, and must be, the mind‑set
of the Sustainability and Stakeholder
Management Committee, the Board
and the whole Group.”
Vivianne Blanlot, Chairman
2017 MEMBERSHIP AND MEETING ATTENDANCE
Vivianne Blanlot (Chairman)
Jorge Bande
Juan Claro1
William Hayes
Number
attended
8/8
8/8
7/8
8/8
1. Juan Claro was unable to attend one Committee meeting during the
year. Nevertheless, he reviewed Committee papers, provided comments
to the Chairman ahead of the meeting and validated meeting minutes.
KEY RESPONSIBILITIES
The Sustainability and Stakeholder Management 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.
− Other regular attendees include the CEO, the Vice President
of Corporate Affairs and Sustainability and the Secretary
to the Board.
− 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.
The Committee provides guidance to the Board in relation
to sustainability matters, 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), while monitoring and reviewing the Group’s
performance in respect of sustainability matters, indicators
and targets.
KEY ACTIVITIES IN 2017
Policies and
commitments
Safety and
health
Community
relations
Environment
− Reviewed the 2017
Antofagasta Minerals
Sustainability Report.
− Reviewed and endorsed a
new Group-wide sustainability
policy.
− Reviewed sustainability
aspects of the Group’s
development projects at Los
Pelambres and Centinela.
− Monitored the continued
− Evaluated the Group’s
− Reviewed the new
environmental management
system and monitored its
deployment.
− Reviewed the Group’s
environmental compliance
programme.
deployment of the Group’s
safety and occupational health
strategy.
− Monitored the work
conducted by the Independent
Technical Review Board
appointed to advise Los
Pelambres in the operation
of the Mauro tailings deposit.
− Reviewed a risk and safety
analysis of the transport
division which included the
launch of a fatigue and
somnolence programme for
train and truck operators and
a review of all 356 railway
crossings.
community and stakeholder
relations model, “Somos
Choapa”, and monitored its
deployment.
− Reviewed a new
Communications and Public
Affairs strategy.
− Reviewed plans to set up
a technical training centre
at Los Vilos in partnership
with a technical education
specialist.
− Reviewed an externally-
facilitated evaluation of the
Somos Choapa community
relations programme, whose
recommendations are being
incorporated in the Group’s
processes and procedures.
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Antofagasta plc Annual Report 2017
COMMITMENT TO
STAKEHOLDERS
The Committee discusses topics and issues that are raised by the Group’s stakeholders
and ensures that they are considered as part of the Board’s deliberations.
Q. How does the Committee ensure that the Board takes into
Q. Significant progress has been made in relation to
account the views and interests of stakeholders?
The Committee met on eight occasions in 2017 and these sessions
were regularly attended by Directors who are not Committee
members, including the Chairman of the Board.
Committee meetings provide a forum for more detailed discussion
of the key issues that matter for our workforce (such as safety
and health), local communities and other stakeholders. As Chairman
of the Committee, I report on the Committee’s deliberations at the
beginning of each Board meeting and, along with fellow Committee
members, ensure that these are incorporated into the Board’s
wider deliberations.
+ Further details on how the Board listens to and engages with stakeholders
are set out on pages 98 and 99
Q. What were the key achievements overseen by the
Committee during the year?
We are extremely pleased that there were no fatal accidents during
the year. We believe that the systematic and thorough application
of safety standards and high levels of near-miss reporting by our
operating companies has significantly contributed towards this
outcome and we will continue to focus on these standards and
reporting in our pursuit of a fatality-free working environment.
Work on the Environmental Impact Assessment (EIA) for the Los
Pelambres Incremental Expansion project progressed during the year
and the EIA was approved in February 2018. Preparatory work is also
underway towards the submission of an EIA that would extend
Zaldívar’s mine life until 2029.
The number of environmental commitments across the Group
continues to grow and currently stands at 6,745. The Committee
has focused on instilling recognition of the importance of fulfilling
these commitments and seeking new approvals when new conditions
or new technology require a practical adjustment to commitments
previously given. During the year the Committee reviewed an
externally-facilitated gap analysis of the Group’s environmental
commitments and an internally-driven gap closure plan which
was presented to, and approved by, the Chilean
Environmental Superintendency.
community relations at Los Pelambres. What about
stakeholders elsewhere in the Group?
The future of our operating companies depends on committed
and sustained collaboration with neighbouring communities and
local, regional and national governments. During 2017, the Committee
oversaw an evaluation of the Somos Choapa model as implemented
at Los Pelambres and the lessons learned from this programme
are being used to assist with the deployment of similar models at
the other mining operations and at the transport division. The model
has attracted the attention of other organisations as a possible
best practice in stakeholder relations and the addressing of
community issues.
Q. What are the Committee’s priorities in 2018?
− Our number one priority continues to be the safety and health
of our workforce. Meeting the Group’s target of zero fatalities
requires relentless application of the Group’s safety standards
and verification, monitoring and reporting by the Group’s operating
companies. We will continue to closely monitor safety performance
and the work being done across the Group to take occupational
health processes to the same level of maturity as the Group’s
safety standards and processes.
− The Committee will continue to monitor the implementation
of the Group’s environmental management system by the operating
Group companies responsible. The fulfilment of commitments by
our operating companies is the foundation of our licence to operate.
− Work is under way to update climate change mitigation actions
and associated carbon footprint metrics and measurable targets for
reduced CO2 emissions were recently adopted as explained
on page 63.
− A good long-term relationship with our neighbours is built day by
day. The Committee will continue to monitor the implementation
of the Group’s social programmes and the work that is being done
with the communities near our operations.
Vivianne Blanlot
Chairman of the Sustainability and Stakeholder Management
Committee
97
antofagasta.co.ukGOVERNANCE ACCOUNTABILITY: STAKEHOLDER ENGAGEMENT
HOW WE LISTEN AND
ENGAGE WITH OUR
STAKEHOLDERS
Successful relationships with stakeholders are essential to the long‑term success of
the Group. The Group has a network of arrangements in place to ensure that the views
and interests of stakeholders are represented in the Boardroom and considered as part
of the Board’s deliberations.
Why we engage
Constructive relationships
built on mutual respect
and transparency help the
Group to retain employees
and avoid labour disputes,
contributing to greater
productivity and business
efficiency.
How we engage
− Site visits
− Quarterly on-site
CEO updates
− Engagement surveys
− On-site reviews
− Regular meetings
with unions
WORKFORCE
The Group has a
workforce of
approximately 21,000
people working at its
operations, on projects,
in exploration and at the
Group’s corporate offices.
More than 99% of the
workforce are based in
Chile and more than 95%
work at the Group’s
operations.
LOCAL COMMUNITIES
Our activities naturally
affect local communities
and we strive to prevent,
mitigate and compensate
for any adverse impact
that these activities
may have.
Why we engage
The wellbeing of our local
communities is a direct
enabler of our business
success and we are
convinced that our
activities bring
opportunities for national
and local development.
How we engage
− Ongoing dialogue
through the Somos
Choapa local
engagement framework,
as described on
pages 60 to 61
− Regular reporting
of local community
dialogue to the
Sustainability
and Stakeholder
Management Committee
and the Board
98
SUSTAINABILITY
FORWARD
THINKING
CORE
EXCELLENCE
Antofagasta plc Annual Report 2017 EMBEDDING CULTURE
As noted in the Chairman’s introduction on page 71, during
2017 a management committee led by the CEO was established
to design and implement a cultural reinforcement process
in consultation with employees.
The Group’s charter of values was critically reviewed and it
was agreed that these values continued to reflect our industry,
the nature of our Company and our Chilean culture. As part of
this exercise it was agreed that the supporting explanations
and behaviours that align with these values should be updated
to provide a clearer understanding and alignment with the
Group’s strategy and the current business environment.
Further work is also under way to refine the Group’s purpose
and to ensure that the Group’s values and culture are adopted
across all levels of the organisation. As was the case when the
current values were adopted in 2013, the Group’s employees
were invited to participate in forums to assist with this during
the fourth quarter of 2017. The deployment of the refreshed
values and Group purpose will be completed in 2018.
The Board set the tone for this process during a dedicated
session held as part of the Board’s strategy discussion in
June. Progress since then has been overseen by the
Remuneration and Talent Management Committee and final
actions will be reported to the Board during 2018.
SAFETY
AND HEALTH
VALUES RESPECT
INNOVATION
CUSTOMERS
The majority of our sales
are to industrial
customers who refine
or further process the
copper concentrate and
cathodes that we sell.
Most sales are made
under long-term
framework agreements
or annual contracts with
sales volumes agreed for
the following year.
Why we engage
The majority of the
Group’s sales are based
on long-term customer
relationships and
commitments. Without
these long-term
relationships, the Group
would be required to sell
a greater proportion of
cathodes and concentrate
on the spot market, which
entails greater uncertainty
around pricing and
volumes that may be sold.
How we engage
− Major customers are
equity holders in our
mining operations
− Annual trip to Japan
by the Chairman and
several Directors to
meet our partners
− Marketing team
regularly meet with
customers around the
world
− Representative
marketing office
in Shanghai
SUPPLIERS
Suppliers provide a large
range of products and
services, from grinding
media to catering.
Why we engage
Suppliers play a critical
role in the Group’s ability
to operate safely and
efficiently.
How we engage
− The procurement team
maintains close
relationships and
regularly meets with
suppliers at the
operations and in
Santiago
− The Group encourages
suppliers to raise any
issues or concerns
they have about their
relationship with the
Company, their
contracts or the
workforce
GOVERNMENTS
AND REGULATORS
Governments and
regulators implement
social policy and set the
framework within which
we are required to operate.
Why we engage
Mining is a long-term
business and timescales
can run into decades.
Political cycles are
typically far shorter and
material developments
and changes to policy,
legislation or regulations
can have a major impact
on the Group’s business.
How we engage
− We work with industry
bodies to engage with
governments on public
policy, laws, regulations
and procedures that
may affect our business
− We provide broad-based
explanations of the
activities of mining
companies to the public
99
antofagasta.co.ukGOVERNANCE ACCOUNTABILITY: PROJECTS COMMITTEE REPORT
“The Projects Committee oversees the
full project lifecycle, from concept to
start of operations, carefully assessing,
through robust challenge, investment
proposals prior to submission to
the Board.”
Ollie Oliveira, Chairman
2017 MEMBERSHIP AND MEETING ATTENDANCE
Number
attended
− Other regular attendees include the CEO, Projects Vice President,
Projects Finance Manager and Secretary to the Board.
Ollie Oliveira (Chairman)
Tim Baker 1
Jorge Bande
Ramón Jara
8/8
7/8
8/8
8/8
1. Tim Baker was unable to attend one Committee meeting during the year
because of a commitment outside Chile. Nevertheless, he reviewed Committee
papers, sent questions and detailed comments to the Chairman and Committee
members ahead of the meeting and validated meeting minutes.
KEY RESPONSIBILITIES
The Projects Committee reviews all aspects of projects to be
submitted for Board approval, highlighting key matters throughout
the project lifecycle for the Board’s consideration and making
recommendations to management to ensure that all projects
submitted to the Board are aligned with the Group’s strategy
and risk appetite.
KEY ACTIVITIES IN 2017
− Effective 1 January 2017, Ramón Jara joined the Committee.
− The Committee meets as necessary and at least twice per year.
The Committee adds an important level of governance and control
to 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.
Policies and
commitments
Projects in study/
execution phase
Lessons learned
from projects
− Reviewed the Group’s mining projects
portfolio including budget and schedule.
− Reviewed the Los Pelambres Incremental
− Reviewed Antucoya’s dust control status
Expansion project, Phases 1 and 2.
and work plan.
− Reviewed risk management methodology
− Reviewed the Centinela Second
used in project development.
Concentrator project and an alternative
plan to expand the existing concentrator.
− Reviewed the Encuentro Oxides project.
− Reviewed the Molybdenum Plant project.
100
Antofagasta plc Annual Report 2017
THOROUGH
PROJECT REVIEW
The Committee supports the Board to ensure that deliberations across projects are
focused on comparable metrics and that project execution decisions are in the long‑term
interests of the Company.
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
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 to enhance the value of the Group’s projects,
enabling a focused discussion within the Board.
CENTINELA
The Committee reviewed progress on the Centinela Second
Concentrator project’s feasibility study, including a detailed review
of crushing and grinding technology alternatives.
The Committee also reviewed a scoping study on an alternative
expansion plan for Centinela with lower investment, taking advantage
of the optimisation of the current tailings deposit, to be studied in
parallel with the Second Concentrator feasibility study. The Committee
reviewed strategic options for Centinela’s water pipeline.
The Committee reviewed the Encuentro Oxides project, including
construction and pre-commissioning activities and the
commissioning plan.
The Committee reviewed the Molybdenum Plant project, including
construction and pre-commissioning activities, the commissioning
plan and the engineering procurement and construction contract.
ANTUCOYA
As a lesson for future projects, the Committee reviewed Antucoya’s
dust control status and work plan, assessing how this issue could
have been identified and mitigated during project development.
In 2018, the Committee will review close-out reports to derive lessons
learned from the Encuentro Oxides and Molybdenum Plant projects.
Q. What are the Committee’s priorities in 2018?
− To carefully assess progress of the Los Pelambres and Centinela
expansion projects, particularly with respect to critical path items
for investment decisions.
− To review the Twin Metals project and projects at Zaldívar and the
transport division.
− To continue to review and further enhance the ADS framework.
Ollie Oliveira
Chairman of the Projects Committee
Q. What tools does the Committee use?
The Committee provides guidance to each project manager from the
early stages of project planning through completion, to ensure that
policies, strategies, and the Group’s standard ADS implementation
framework are applied.
ADS is a project management system whose processes and practices
are widely used in the mining industry. ADS defines standards and
common criteria, including governance by a steering committee,
functional quality assurance reviews and risk management.
Q. What were the Committee’s key activities in 2017?
The Committee reviewed the risk management methodology applied
to project development from the scoping study stage to project
execution, which includes risk identification, analysis, assessment and
control. The risk chapter for each feasibility study is formally assessed
during the functional quality assurance review carried out after the
completion of the feasibility study. In addition, the corporate projects
team ensures that interconnectivity of risk is appropriately covered
and this was discussed with the Committee in relation to the Group’s
projects during 2017.
LOS PELAMBRES
The Committee reviewed the feasibility study results for Phase
I of the Los Pelambres Incremental Expansion project as well
as the functional quality assurance review, Environmental Impact
Assessment progress, technical permitting matters, detailed
engineering, vendor and contracting strategy, project execution plan,
and co-ordination with the community relations team. A special area
of focus was the planned operation of the desalination plant including
testing potential cost savings.
The Committee also reviewed Phase 2 of the Los Pelambres
Incremental Expansion project, including the work plan and budget for
a feasibility study for the plant expansion, the increase in capacity of
the Mauro tailings dam and tailings disposal alternatives, waste dumps
and stability, bottleneck analysis, mining and environmental plans. An
Environmental Impact Assessment is planned for submission in 2018.
101
antofagasta.co.ukGOVERNANCE REMUNERATION: REMUNERATION AND TALENT MANAGEMENT COMMITTEE REPORT
“The Committee is focused on ensuring
that the Group’s remuneration and talent
management arrangements support the
Group’s objective of generating value for
stakeholders in a safe and sustainable
way through the commodity cycle.”
Tim Baker, Chairman
2017 MEMBERSHIP AND MEETING ATTENDANCE
Tim Baker (Chairman)
Vivianne Blanlot
Francisca Castro
− Other regular attendees include the CEO, Vice President
of Human Resources, Company Secretary and Secretary
to the Board.
Number
attended
6/6
6/6
6/6
− Effective 1 January 2017, William Hayes and Ollie Oliveira rotated
off the Committee and Vivianne Blanlot and Francisca Castro
joined the Committee.
− The Committee held a special session in London in May 2017
with internal and external advisers to review the latest trends
in executive remuneration, reporting and shareholder feedback
in the lead-up to the 2017 AGM.
− The Committee meets as necessary and at least twice per year.
− All Committee members are independent.
KEY RESPONSIBILITIES
The Remuneration and Talent Management Committee ensures
that the Group’s remuneration arrangements support the effective
implementation of the Group’s strategy and enable the recruitment,
motivation and retention of talent.
The Committee is responsible for setting the remuneration for
the Chairman and the CEO and for monitoring the compensation
KEY ACTIVITIES IN 2017
strategy, level, structure and outcomes for the Executive Committee.
The Committee is actively involved in the talent management
strategy for the Group’s senior management, including the
implementation and review of succession plans for members
of the Executive Committee (excluding the CEO).
Directors’
remuneration
Executive
remuneration
Human resources
and policy
Talent management and
succession planning
− Evaluated Chairman, Director
− Evaluated the CEO's
− Oversaw a review of the
− Reviewed the Group’s
and Committee fees.
− Reviewed the 2016 Directors'
Remuneration Report prior
to its approval by the Board
and subsequent approval
by shareholders at the
2017 AGM.
− Reviewed the 2017 Directors'
Remuneration Policy prior
to its approval by the Board
and subsequent approval
by shareholders at the
2017 AGM.
talent management strategy
and succession plans for
members of the Executive
Committee (excluding the
CEO).
− Approved the implementation
of succession plans and
revisions to the composition
of the Executive Committee
including the appointment of
the Vice President Corporate
Affairs and Sustainability,
Vice President of Projects
and new General Managers
at Los Pelambres, Antucoya
and Zaldívar.
performance and determined
the variable compensation
payable under the 2016
Annual Bonus Plan.
− Oversaw a fundamental
review of the Group’s Annual
Bonus Plan and LTIP and
recommended changes to the
Board for approval.
− Reviewed LTIP eligibility,
participants and criteria and
approved the grant of 2017
awards.
− Reviewed performance for
LTIP awards granted in 2014
and approved vesting.
− Reviewed Group performance
against the 2016 Annual
Bonus Plan performance
metrics and reviewed the
metrics to apply to the
2017 Annual Bonus Plan.
− Reviewed and approved the
individual performance of the
members of the Executive
Committee under the 2016
Annual Bonus Plan.
Group's values in line with
an initiative to strengthen
the Group’s organisational
culture.
− Oversaw the conclusion of
the functional simplification
programme, which involved
the centralisation of support
functions.
− Oversaw the design and
implementation of the Group's
new operating model, which
is now standardised across
the Group's operations.
− Reviewed compensation
across the Group to ensure
that it remains competitive,
motivating and appropriately
aligned with the Group’s
performance and strategy.
− Monitored collective
bargaining negotiations at
Los Pelambres. Centinela
and Zaldívar.
102
Antofagasta plc Annual Report 2017
REMUNERATION AND
TALENT MANAGEMENT
The Committee is currently overseeing a number of significant strategic initiatives
including those focused on culture and diversity and inclusion.
Dear Shareholder,
As set out in the Chairman’s and CEO’s introductory letters and the
Group’s performance highlights on the opening pages of this Annual
Report, 2017 was a strong year for the Group.
Our most pleasing achievement during the year was ensuring that
there were no fatalities. On top of that, our operating performance was
in line with guidance, two key project milestones were achieved with
first production achieved for the Encuentro Oxides project and the
commencement of commissioning for the Centinela Molybdenum Plant
project, and we made significant progress on a number of cultural
and qualitative initiatives which are described in more detail below.
The Committee has a broad oversight role in relation to the Group’s
remuneration and talent management arrangements and all Group
employees, including the CEO, participate in the Annual Bonus Plan
which, alongside individual performance, takes into account Group
performance against criteria set at the beginning of each year. Since
2016, the Group’s performance score under the Annual Bonus Plan
is subject to an automatic adjustment of 15% downwards if there
is a fatality during the year and 15% upwards if there are no fatalities
during the year.
The Committee was very pleased to endorse the automatic 15%
upwards adjustment for the 2017 Annual Bonus Plan in recognition
of the efforts of all employees to ensure that there were no fatalities
during the year. The Committee continues to support the Sustainability
and Stakeholder Management Committee and the Board in their
oversight of the performance of the Group’s safety and health risk
management processes through incentives in the Group’s Annual
Bonus Plan that relate specifically to safety and health performance
and through oversight of the Group’s cultural reinforcement
programme, which includes safety as a core value.
AREAS OF FOCUS FOR THE COMMITTEE IN 2017
2017 was another busy year for the Committee. I was very
pleased that Vivianne Blanlot and Francisca Castro agreed to join
the Committee on 1 January 2017 and would like to thank William
Hayes and Ollie Oliveira for their significant contributions to the
Committee over a number of years. Between us, at least one
Committee member serves on each of the other Board Committees
which allows us to take into account strategic priorities and the views
of all stakeholders in our deliberations.
As noted by the Chairman on page 71, the Committee is currently
overseeing two of the Group’s most significant strategic initiatives:
the cultural reinforcement programme and the diversity and inclusion
programme. These programmes depend on each other to succeed
and strong leadership from the Board and the Committee is required
to ensure that our inclusive culture and values are entrenched in the
actions of all of our employees and the wider workforce. We all
benefit from the increased levels of productivity, innovation and
employee engagement that come with more diverse and inclusive
workplaces. As noted in the Nomination and Governance Committee
report on page 87, metrics for the design and implementation of the
diversity and inclusion programme were included in the Group’s 2017
Annual Bonus Plan and I am pleased to report that metrics for this
programme will again be included in the 2018 Annual Bonus Plan.
The Committee has also overseen significant initiatives aimed at
improving the reliability and performance of the Group’s mining
operations: the conclusion of the functional simplification programme,
which centralised certain functions that support our mining operations
(including finance, human resources, legal and external affairs and
sustainability), and the implementation of the Group’s new operating
model. The purpose of the new operating model is to improve safety,
reliability and profitability by implementing a standard model at each
of the Group’s mining operations, balancing the focus on operations,
maintenance, planning and operating excellence, and we fully expect
to begin to realise the benefits of this model in 2018.
As noted by the Chairman on page 71, the Committee also
commissioned a fundamental review of the Group’s remuneration
structures during 2017. The aim was to restructure the Annual Bonus
and Long Term Incentive Plans to make them simpler and better
understood by employees, to enhance the alignment for all employees
between remuneration and shareholder returns and to incorporate
flexibility to allow the Committee to react to any significant change
either within the Group or externally.
The Committee considered a wide range of proposals and
assessed the impact of each proposal versus the expected cost of
implementation. The Committee determined that the fundamental
structure of both plans continued to be appropriate but that from 2018
the number of KPIs in the Annual Bonus Plan would be reduced from
15 to ten and the number of KPIs in the LTIP would be reduced from
seven to four. Further detail on these changes is set out within the
2017 Executive Remuneration Report on page 117.
EXECUTIVE REMUNERATION
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 recommending the metrics to the
Board for approval.
The Group’s performance score for 2017 under the Annual Bonus
Plan, which forms the basis for calculating 70% of the CEO’s and
Executive Committee’s annual bonus, was 104.0, within a range of 90
(Threshold) to 110 (Maximum). This score includes the 15% upwards
adjustment for zero fatalities described above. A full breakdown
of performance against each metric is set out on page 113.
At the beginning of this year, the Board and the Committee each
carefully considered the pay arrangements for Iván Arriagada taking
into account individual and Group performance, the Group’s current
strategy and packages available to market peers both internationally
and in Chile. The findings showed that all elements of the CEO’s
package were significantly below the FTSE 100 and international
mining markets, both of which are considered to be talent markets for
our CEO. The decision was taken to increase his base salary by 10%
and his target and maximum annual bonus to 67% (from 50%) and
133% (from 100%) of base salary, respectively. The total potential
remuneration awarded for 2018 and the total remuneration for
the lead executive in the Group for the past nine years is shown
on page 110.
103
antofagasta.co.ukGOVERNANCE REMUNERATION: REMUNERATION AND TALENT MANAGEMENT COMMITTEE CONTINUED
The Committee carefully considered a number of factors when setting
Iván’s remuneration below the level of his predecessor at the time of
his appointment in 2016, including broader market conditions and the
opportunity to increase his remuneration at a later time if his
performance warranted it. The Board and the Committee are pleased
to recognise Iván’s performance through this increase, which brings
his total remuneration package into closer alignment with international
peers, albeit still towards the lower end of market practice.
TALENT MANAGEMENT AND SUCCESSION PLANNING
The Committee dedicated a significant amount of time and effort
towards reviewing the Group’s talent management and succession
plans during the year. Mining is cyclical and all of our employees work
in a strong and competitive mining jurisdiction. The work that the
Committee has put into talent management and succession planning
in recent years has allowed us to develop common standards across
all the Group’s operations, promote internally, develop career paths
within the organisation, and identify and retain key talent. More work
remains to be done, but significant progress has been made.
The Committee is responsible for reviewing, monitoring and
recommending the talent management strategy for the Group’s senior
management. This includes succession plans assessing any changes
in compensation policies across the Group that may have a significant
long-term impact on labour costs, and overseeing the Group’s
compensation and talent management strategies.
In 2017 the Committee reviewed and updated succession plans for the
Executive Committee (excluding the CEO) and the General Managers
of each of the Group’s operating companies. This exercise involved
identifying the individuals within the Group’s talent pool that form part
of these succession plans and identifying their individual stages of
readiness and development needs. This ensures that talented
individuals are available at each stage of the pipeline in the future,
or if there are unexpected departures. 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.
REVIEW OF NON-EXECUTIVE
DIRECTOR AND COMMITTEE FEES
Fee levels for Non-Executive Directors have remained unchanged
since 2012. The basic Non-Executive Director fee will continue at the
same level in 2018, however, from 1 April 2018, there will be a $5,000
per annum increase in Committee Chairman’s fees and a $2,000 per
annum increase in Committee members’ fees in recognition of the
considerable additional time commitments and responsibilities attached
to these roles, which have grown in recent years.
The Committee and the Board also reviewed the fee payable and time
commitments provided for under Ramón Jara’s service contract,
which resulted in an exceptional 8% increase to the hourly rate for
services under this contract with effect from 1 January 2018. This
contract was last reviewed in 2011 and the adjustments made bring
the hourly rate into line with the market and reflect the time that
Ramón Jara commits to the Group under this contract.
Each of these adjustments are in accordance with the 2017 Directors’
Remuneration Policy that was approved by shareholders at the 2017
AGM and further details of which are set out within the 2017
Directors’ Remuneration Report on pages 106 and 108.
KEY OBJECTIVES FOR THE COMMITTEE IN 2018
The Committee’s objectives for 2018 are to ensure that the
remuneration policies and structures that are in place contribute
towards the generation of value for stakeholders in a safe and
sustainable way.
As set out on page 71, the Committee will continue to oversee
the implementation of the cultural reinforcement and diversity
and inclusion programmes and the implementation of the new
operating model.
Shareholders are invited to vote on the 2017 Directors’ Remuneration
Report and we trust that there will continue to be strong support for
the Group’s pay arrangements.
Tim Baker
Chairman of the Remuneration and Talent Management Committee
Q. WHAT ARRANGEMENT DOES THE COMMITTEE HAVE IN PLACE
WITH ADVISERS?
During the year, the Committee reappointed remuneration
consultants Willis Towers Watson to provide advice to the
Committee on compensation benchmarking, regulatory and
corporate governance developments and market practice, and to
advise the Committee in relation to the fundamental review of the
Group’s executive remuneration structures carried out during the
year. This reappointment was based on the Committee’s
satisfaction with advice received in previous years.
Willis Towers Watson is an independent global professional
services firm that is a signatory to, and adheres to, the Code
of Conduct for Remuneration Consultants. This can be found
at www.remunerationconsultantsgroup.com.
The Committee is satisfied that the advice provided by Willis
Towers Watson in 2017 was objective and independent, that no
conflict of interest arose as a result of these 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 £99,671.
The Committee also received assistance from the Chairman, the
CEO, the Vice President of Human Resources and the Company
Secretary during 2017, none of whom participated in discussions
relating to their own remuneration.
The Committee Chairman and the Committee as a whole regularly
speak with 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 can be debated between
the Committee members.
104
Antofagasta plc Annual Report 2017 REMUNERATION
AT A GLANCE
REMUNERATION REPORT
2017 Executive Remuneration Report – Voluntary Disclosures
2017 Directors’
Remuneration
Report
2017 Total
Remuneration
2017 Annual
Bonus Plan
Long-Term
Incentive Plan
p106
p110
p112
p114
Illustration of CEO
Remuneration
Policy in 2018
p116
Summary of Directors’
Remuneration
Policy
p118
REMUNERATION PHILOSOPHY AND APPROACH TO REPORTING
The Directors’ Remuneration Policy was approved at the 2017 AGM. This policy applies to Non-Executive Directors and is designed
to ensure that Non-Executive Directors are fairly rewarded with regard to their responsibilities.
A summary of the policy is set out on pages 118 to 120 and a report on the implementation of that policy in 2017 is set out in the 2017
Directors’ Remuneration Report on pages 106 to 108.
Although the Directors’ Remuneration Policy does not apply to executives, the Company voluntarily reports the CEO’s remuneration as if
he were a member of the Board and provides additional information on the structure and components of the other Executive Committee
members’ and wider Group remuneration in the 2017 Executive Remuneration Report on pages 109 to 117.
The CEO and the Executive Committee receive a base salary and benefits in line with market conditions in Chile and taking into
consideration international factors, as appropriate. They participate in the Annual Bonus and Long Term Incentive Plans which are
designed to align remuneration with overall Group performance and promote outcomes which are for the long-term benefit of the Group.
As explained on page 68, market conditions and remuneration structures available in Chile are a central consideration when setting
executive remuneration and some elements of the Group’s LTIP may therefore differ slightly from arrangements that would typically
be expected for UK-listed companies.
2017 SHARE PRICE PERFORMANCE
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 a nine-year period, measured
by total shareholder return.
CEO TOTAL REMUNERATION IN 2017
$2.0m
37%
$1.8m
37%
33%
29%
$1.4m
34%
23%
$0.6m
100%
43%
30%
34%
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
29/12/17
Minimum
Target
Maximum
Actual
ANTOFAGASTA
FTSE ALL SHARE
EUROMONEY GLOBAL MINING
FIXED ELEMENTS
ANNUAL VARIABLE ELEMENTS
LONG-TERM VARIABLE ELEMENTS
Further details on the selection of these indices and the
calculations of total shareholder return are set out on page 110.
Maximum, Target and Minimum opportunities reflect the potential
2017 outcomes using the realised exchange rate, share price and
inflation adjustments during the year. A detailed breakdown of the
CEO’s 2017 remuneration is set out in the 2017 Executive
Remuneration Report on pages 109 to 117.
105
antofagasta.co.ukGOVERNANCE 2017 DIRECTORS’
REMUNERATION REPORT
INFORMATION INCORPORATED BY
REFERENCE
The information set out on pages 102 to 120 forms part of (and is
incorporated by reference into) this 2017 Directors’ Remuneration
Report, provided that any disclosure relating to the remuneration
of the CEO and other executives (none of whom is a Director) is
provided on a voluntary basis and strictly, therefore, does not form
part of the Directors’ Remuneration Report.
STATEMENT OF SHAREHOLDER VOTING
The table below shows the voting results on the 2017 Directors’
Remuneration Policy and on the Company’s 2016 Directors’
Remuneration Report at the 2017 AGM:
RESOLUTION TO APPROVE THE 2017 DIRECTORS’
REMUNERATION POLICY
Votes for
Votes against
Votes cast as a percentage
of issued share capital
Votes withheld
1,080,230,434
99.81%
2,069,669
0.19%
RESOLUTION TO APPROVE THE COMPANY’S 2016 DIRECTORS’
REMUNERATION REPORT
Votes for
Votes against
Votes cast as a percentage
of issued share capital
Votes withheld
1,081,950,198
99.88%
1,324,778
0.12%
91.35%
87,242
The considerable vote in favour of the 2017 Directors’ Remuneration
Policy and the Company’s 2016 Directors’ Remuneration Report
confirms the strong support received from shareholders for the
Group’s remuneration arrangements in recent years.
IMPLEMENTATION OF THE DIRECTORS’
REMUNERATION POLICY IN 2017
CHAIRMAN
Jean-Paul Luksic was appointed Executive Chairman in 2004 and
was re-designated as Non-Executive Chairman in 2014. Mr Luksic’s
total fee in 2017 was $1,000,000, (2016 – $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 as Chairman of the Antofagasta Minerals board:
$260,000 per annum.
This fee level reflects his responsibility, experience and time
commitment to the role.
106
91.27%
1,062,115
In addition to Board fees, the Senior Independent Director receives
an additional fee which reflects his responsibility, experience and time
commitment to the role.
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 $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 $130,000. Therefore, the combined base fees payable to
Non-Executive Directors amount to $260,000 per annum.
The Board periodically reviews both the structure and levels of
fees paid to Non-Executive Directors and will continue to review
these fees from time to time, in accordance with the Directors’
Remuneration Policy.
The Board remains satisfied that the current fee structure is aligned
with the Group’s international peers and did not recommend any
change in 2017. As part of the review of fees this year it was
determined that basic fee levels also continued to be in line with
market, but that fees paid to the Committee Chairmen should be
increased by $5,000 per annum and that fees paid to Committee
members should be increased to reflect the considerable additional
time commitments and responsibilities attached to these roles, which
have grown in recent years.
ADDITIONAL DIRECTOR FEES PAYABLE IN 20171
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)
202
20
10
10
4
16
10
16
10
16
10
1. These fees will be adjusted with effect from 1 April 2018, as described above.
2. As disclosed in the 2016 Annual Report, this fee was approved by the Board
on 24 January 2017 and took effect from that date.
The 2017 Directors’ Remuneration Policy does not allow for the payment
of variable remuneration to the Chairman or Non-Executive Directors.
It is not expected that there will be any change to the Directors’
benefits in 2018. However, because the cost of travel to Board
meetings is reported as an expense benefit, the amounts relating
to benefits in 2018 will ultimately depend on the number and location
of Board meetings.
Antofagasta plc Annual Report 2017
REMUNERATION REPORTING REGULATIONS
This Directors’ 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.
AUDITED SINGLE FIGURE OF DIRECTORS’ REMUNERATION TABLE
The remuneration of the Directors for 2017 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 serving on subsidiary and joint venture company boards are also included in the amounts below.
As explained in the Directors’ Remuneration Policy, Directors do not receive pensions or performance-related pay and are not eligible
to participate in the LTIP.
Chairman
Jean-Paul Luksic
Non-Executive Directors
Ollie Oliveira
Gonzalo Menéndez
Ramón Jara1
Juan Claro
Hugo Dryland (retired effective 31 October 2016)
William Hayes
Tim Baker
Andrónico Luksic C
Vivianne Blanlot
Jorge Bande
Francisca Castro (appointed 1 November 2016)
Total Board
Fees
2017
$000
2016
$000
1,000
1,000
319
260
863
270
–
318
290
260
296
290
280
4,446
299
260
833
270
217
339
300
260
270
280
43
4,371
Benefits2,3
2017
$000
11
129
25
21
11
58
49
46
3
8
9
6
376
2016
$000
Total
2017
$000
2016
$000
10
1,011
1,010
65
13
6
6
46
22
52
–
5
5
–
230
448
285
884
281
58
367
336
263
304
299
286
4,822
364
273
839
276
263
361
352
260
275
285
43
4,601
1. During 2017, remuneration of $569,000 (2016 – $533,000) for the provision of services by Ramón Jara was paid to Asesorías Ramón F Jara Ltda. The reported increase
in 2017 is due to currency fluctuation and, to a lesser extent, the annual adjustment for inflation in Chile. This amount is included in the amounts attributable to Ramón Jara
of $863,000 (2016 – $833,000).
2. Amounts for Jean-Paul Luksic include the provision of life, accident and health insurance. Amounts for Ramón Jara include the provision of accident insurance.
3. Except as described in footnote 2, all “benefits” amounts included in this table arose in connection with the fulfilment of Directors’ duties and, in particular, the cost
of attending Board meetings. These amounts have been calculated based on what the Company believes would be deemed by HMRC to be taxable benefits if the
Non-Executive directors were UK tax resident and domiciled, relating to the costs of flights for attending Board meetings in Santiago, Chile and associated hotel and
subsistence expenses and to the cost of flights for attending Board meetings in London. Given these expenses are incurred by Directors in connection with the fulfilment
of their duties, the Company also pays the professional fees incurred to complete individual tax returns and the actual tax incurred by Directors on these expenses, the
latter of which has led to the higher reported figures for the Company’s UK resident Directors. Figures are reported in the year that they are paid, or would be payable, by
the Company. Figures for 2016 are different from those disclosed in the 2016 Directors’ Remuneration Report because the tax position for expenses in relation to attending
Board meetings was not confirmed with HMRC until 2017.
107
antofagasta.co.ukGOVERNANCE
REMUNERATION: 2017 DIRECTORS’ REMUNERATION REPORT CONTINUED
DIRECTORS’ INTERESTS (AUDITED)
The Directors who held office at 31 December 2017 had the following
interests in ordinary shares of the Company:
Jean-Paul Luksic1
Ramón Jara2
Ordinary shares of 5p each
31 December 2017
41,963,110
5,260
1 January 2017
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 2017 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.
The 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 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, 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.
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 a majority of
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.
This arrangement was reviewed and amended during 2017 and
it was agreed that, from 1 January 2018, the needs and time
commitment expected from Ramón Jara are greater than had
previously been provided for under this contract and that additionally,
the hourly rate payable in respect of these services would be
increased by 8% to bring the rate into line with the market. This
exceptional increase is in line with the average real wage increase
for employees at large mining companies in Chile over the last
six years. The hourly rate payable and expected time commitments
under this contract were last reviewed in 2011.
No other Director is party to a service contract with the Group.
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 2017. No payments
were made to past Directors.
By order of the Board
Tim Baker
Chairman of the Remuneration and Talent Management Committee
12 March 2018
108
Antofagasta plc Annual Report 2017
2017 EXECUTIVE
REMUNERATION REPORT
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 Iván 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,
including the 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 CEO and the Group’s executives, including the
variable pay mechanisms (Annual Bonus Plan and LTIP) designed
to motivate the CEO and the Group as a whole to implement the
Group’s strategy effectively.
REMUNERATION PRINCIPLES
The remuneration arrangements in place for Iván Arriagada and
the Executive Committee align remuneration with performance,
the Group’s strategic objectives and stakeholders’ interests. Iván
Arriagada and the other Executive Committee members 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 111 shows the total remuneration for the Group’s
lead executive over the last nine years. The total remuneration for
the CEO in 2017 was 18% lower than in 2016.
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.
SHAREHOLDING GUIDELINES
The Group does not have shareholding guidelines or requirements
for the CEO and Executive Committee members, all of whom are
based in Chile.
The CEO, the Executive Committee and certain senior executives
participate in the 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 pages 114 and 115.
The Committee considers cash-based awards to be appropriate
because share-based awards would be taxable on the date of grant
for Chilean employees. Independent advice was sought by the
Committee on the viability of granting an interest in shares, rather
than cash-based awards, during 2017. After reviewing this advice,
the Committee determined that it remains appropriate to continue
to use cash-based awards due to the negative tax consequences
of issuing interests in shares; however, the Committee will continue
to monitor this position.
SALARY AND BENEFITS
The total remuneration paid to Iván Arriagada in 2017 was $1.8
million. Fixed remuneration comprises base salary and benefits, and
in 2017 represented less than 34% of his total remuneration.
Benefits payable to Iván Arriagada reflect amounts paid to maintain
life and health insurance policies.
According to Chilean law, all employees are required to pay their own
pension and compulsory health insurance 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 Chile, 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 1 January 2017 was
Ch$32,170,017 ($49,579) per month and his salary is adjusted for
inflation in Chile every three months.
Iván Arriagada’s total salary payments for 2017 were Ch$390,416,994
($603,387). Other than adjustments for inflation, there were no
adjustments to his salary in 2017. Under his employment contract
Iván Arriagada is entitled to 20 working days’ paid holiday per year.
Because Iván Arriagada’s salary is paid in Chilean pesos, it is subject
to annual exchange rate movements when reported in US dollars.
2018 CEO REMUNERATION ADJUSTMENT
As noted in the 2016 Annual Report, the Committee closely monitors
Iván Arriagada’s performance and pay arrangements. The Committee
did not adjust Iván Arriagada’s remuneration package in 2017, but has
subsequently decided to increase Iván Arriagada’s base salary by 10%
and to increase his target and maximum annual bonus opportunity to
67% (from 50%) and 133% (from 100%) of base salary respectively.
These changes will take effect from 1 April 2018.
The explanation for this increase is set out in the Committee
Chairman’s introduction on page 103.
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 2018 up to 60% of the Executive Committee’s
total annual remuneration (excluding that of the CEO) may be received
under the Annual Bonus Plan and the LTIP.
109
antofagasta.co.ukGOVERNANCE 2017 EXECUTIVE REMUNERATION REPORT CONTINUED
2017 TOTAL REMUNERATION
SINGLE FIGURE OF CEO REMUNERATION TABLE:
CEO (not on the Board)
Iván Arriagada1 (appointed CEO 8 April 2016)
Total
Salary
Benefits2
Annual Bonus3
LTIP4
Total
2017
$000
2016
$000
2017
$000
2016
$000
2017
$000
2016
$000
2017
$000
2016
$000
2017
$000
603
603
417
643
7
7
6
8
526
526
258
375
662
662
–
–
1,799
1,799
2016
$000
681
681
1. The amounts disclosed for Iván Arriagada in 2016 relate to remuneration paid from 8 April 2016, including the pro-rata value of his base salary, benefits and annual bonus.
No pension is payable to Iván Arriagada.
2. The benefits expense represents the provision of life and health insurance and does not include taxable benefits relating to expenses.
3. The annual bonus paid to Iván Arriagada in 2016 is reported based on the exchange rate as at 1 April 2016. In the 2016 Remuneration Report a slightly higher figure of
$260,000 was reported, which reflected the anticipated exchange rate at the date the 2016 Remuneration Report was published. Iván Arriagada’s 2017 annual bonus will
be paid following the date of publication of this report and the exchange rate used to calculate this figure is as at 1 March 2018 and as calculated as shown on page 112.
4. As explained on pages 114 and 115, awards granted pursuant to the LTIP are split between Restricted Awards and Performance Awards. Amounts relating to Restricted
Awards are reported in the year they vest. Performance Awards are reported in the year the performance period ends. The 2016 amounts payable to Iván Arriagada under
the LTIP have been restated on the basis that no awards vested following his appointment in 2016. The 2017 amounts payable to Iván Arriagada under the LTIP relate to
Restricted Awards and Performance Awards granted in 2015 and to Restricted Awards granted in 2016 (prior to his appointment as CEO). The performance period for
Performance Awards granted in 2015 concluded on 31 December 2017 and those awards will vest on or after 25 March 2018. Because the Performance Awards granted
in 2015 have not yet vested, the amounts attributable to these awards have been estimated applying the performance scores set out on page 115 and using the closing
share price on 31 December 2017 of 1005p and the exchange rate as at 31 December 2017 of $1.35/£1.00. As noted on pages 114 and 115, LTIP participants receive
conditional rights to receive a cash payment by reference to a specified number of the Company’s shares (“phantom share awards”). Participants are not compensated for
dividends paid by the Company between the date of grant and vesting.
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 a nine-year period, measured by total shareholder return (as defined below). The FTSE All-Share Index has been
selected as an appropriate broad equity market index 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. The Euromoney Global Mining Index is also shown
because this index has been determined to be the most appropriate specific comparator group for the Company and total shareholder return
performance in comparison with the Euromoney Global Mining Index is one of the performance criteria in the Group’s LTIP as set out on
pages 114 to 115.
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
29/12/17
ANTOFAGASTA
FTSE ALL SHARE
EUROMONEY GLOBAL MINING
Total shareholder return represents share price growth plus dividends reinvested over the period.
Total Return base index – 31 December 2008 = 100.
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 are calculated by aggregating the returns of all individual constituents of those indices
at the end of a nine-year period.
110
Antofagasta plc Annual Report 2017
LEAD EXECUTIVE REMUNERATION FOR THE LAST NINE YEARS
The total remuneration of the lead executive in the Group for the past nine years, in US dollars, is as follows:
Single figure of remuneration for
the Group’s lead executive $000
Chairman – Jean-Paul Luksic
CEO – Diego Hernández
CEO – Iván Arriagada
Total
Percentage change on previous year
Proportion of maximum annual bonus
paid to the CEO
Proportion of maximum LTIP awards
vesting in favour of the CEO4
2009
3,184
–
–
3,184
2010
3,330
–
–
3,330
2011
3,521
–
–
3,521
2012
3,598
–
–
3,598
2013
3,615
–
–
3,615
20141,2
2,196
688
–
2,884
2015
–
2,445
–
2,445
20163
–
1,525
681
2,206
–
–
–
–
–
–
–
–
–
–
69%
76%
39%
16%
61%
–
2017
–
–
1,799
1,799
(18)%
79%
85%
1. The single figure of 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 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 CEO.
3. The single figure of remuneration for the Group’s lead executive in 2016 comprises Diego Hernández’s remuneration until 8 April 2016 (when he stepped down as CEO)
and Iván Arriagada’s remuneration from 8 April 2016 (when he became CEO), as disclosed in more detail in the 2016 Annual Report.
4. No Performance Awards vested for the CEO in 2016. As Restricted Awards do not have a performance element, they are not included in these calculations.
RELATIVE CHANGE IN REMUNERATION
The total remuneration paid to Iván Arriagada in 2017 was 18% lower
than the combined remuneration paid to Iván Arriagada and Diego
Hernández during their terms as CEO in 2016. This included a 6%
decrease in base salary and a 2% increase in benefits.
The equivalent average percentage increase in total remuneration for
Group employees as a whole in 2017 was 4.8%. This comprised a
2.9% increase in salaries, a 2.3% increase in benefits and a 13.7%
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.
The table below compares the changes from 2016 to 2017 in base
salary, benefits and annual bonus paid to the CEO and Group
employees as a whole. The underlying elements of the CEO’s pay
are calculated using the values reported in the single figure of
remuneration table on page 110.
RELATIVE IMPORTANCE OF REMUNERATION SPEND
The table below shows the total expenditure on employee
remuneration, the levels of distributions to shareholders and the
taxation cost in 2016 and 2017.
Employee remuneration1
Distributions to shareholders2
Taxation3
2016
($m)
379.2
181.4
261.2
2017
($m)
417.8
501.8
509.8
Percentage
change
10.2%
176.6%
95.2%
1. Employee remuneration cost includes salaries and social security costs, as set out
in Note 8 to the financial statements.
2. 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.
CEO1
Employees
Percentage
change in
base salary
(6)%
2.9%
Percentage
change in
benefits
2%
2.3%
Percentage
change in
annual bonus
40%
13.7%2
1. The figures for the CEO relate to the percentage changes for the amount paid to
Iván Arriagada in 2017 and the aggregate amount paid to Diego Hernández and
Iván Arriagada during their terms as CEO in 2016.
2. This figure relates to the percentage change in the 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 Zaldívar and Centinela in 2017. 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.
111
antofagasta.co.ukGOVERNANCE
2017 EXECUTIVE REMUNERATION REPORT CONTINUED
2017 ANNUAL BONUS PLAN
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.
For 2017, the bonus payable to the 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.
The bonus payable to the CEO for achieving both Group and personal
performance targets in 2017 was 50% of annual base salary.
The maximum bonus receivable by the CEO for achieving stretch
performance targets in 2017 was 100% of annual base salary
(67% for the Executive Committee members (excluding the CEO)).
For 2017, the bonus for the CEO was 79% of base salary and the
average bonus for the Executive Committee members (excluding the
CEO) was approximately 47% of base salary.
The Group performance criteria for the Annual Bonus Plan and the
individual performance criteria for the CEO are set annually by the
Committee. The individual performance criteria for the Executive
Committee are set by the CEO and reviewed by the Committee.
Annual Bonus Plan metrics are provided on a voluntary basis,
including the outcomes against each of the performance metrics
relating to business development, sustainability and organisational
capabilities. This is to provide shareholders with further clarity on the
structure of the metrics and reassurance that the metrics are based
on stretching performance criteria.
A critical issue for a mining company is the commodity price and the
impact of changes in this price on our long-term and annual
performance targets are carefully reviewed to ensure there is fair
opportunity for achievement under each metric.
IVÁN ARRIAGADA – INDIVIDUAL PERFORMANCE UNDER THE
2017 ANNUAL BONUS PLAN
The Committee, with input from the Board, assessed Iván Arriagada’s
performance against his individual objectives as 110 (within a range of
90 (Threshold) to 110 (Maximum)) for his individual contribution to the
business during the year. This performance score reflects exceptional
performance during the year in which all of his individual objectives
were met or exceeded and counts towards 30% of his annual bonus.
Iván Arriagada’s performance against his individual objectives is
summarised below:
Category
Leadership
Performance
− Strong safety leadership demonstrated through regular mine inspections, integration of new safety leadership
and initiation of further training and development at the operating companies
− Effective working relationship with the Board
− Effective leadership of the cultural reinforcement and diversity and inclusion programmes
Results
− Alignment with strategy demonstrated through focus on the Group’s core business
− Zero fatalities
− Met production target
− Achieved significant cost reductions
− Exceeded financial results target
Succession planning and
talent development
− Excellent progress on environmental performance
− Successful implementation of succession plans for key management positions
− Successful initiation of the Group’s new operating model with good initial results
− Strong emphasis on succession planning, talent management and ensuring synergies across the Group’s
operating companies
Project development
− Encuentro Oxides and Centinela Molybdenum Plant projects on budget and key milestones of first production
and commissioning respectively, delivered through the successful management of in-house teams
− Flexible and considered leadership of the Los Pelambres Incremental Expansion and Centinela Second
Concentrator projects to maximise flexibility and ability to take advantage of opportunities
Based on performance achieved against targets during the 2017 financial year, the Committee determined that Iván Arriagada would receive
a bonus payment of $525,930 for 2017. This figure was determined as follows:
Overall Performance Score
Overall Performance Score as a percentage to be applied to the Maximum
Gross Annual Bonus
(70% x 104) + (30% x 110) = 105.8
(105.8 – 90) ÷ 20 = 79%
79% of Ch$395,186,184 (Maximum)
= Ch$312,197,085
Calculated in US dollars using the exchange rate as at 1 March 2018 of $1 = Ch$593.
Because the annual bonus is calculated and paid in Chilean pesos, it is subject to annual exchange rate movements when reported in US dollars.
112
Antofagasta plc Annual Report 2017 GROUP PERFORMANCE UNDER THE 2017 ANNUAL BONUS PLAN
Group performance under the 2017 Annual Bonus Plan is shown in the table below. 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
60%
Core Business
Measure
2017 Threshold
(90)
2017 Target
(100)
2017 Maximum
(110)
2017 Outcome
2017 Performance
score1
102
EBITDA2
Copper production3
Costs4
Cash costs before by-product credits (17%)
Corporate expenditure (3%)
Sustaining capital expenditure5
Business Development
Growth projects – construction execution6
Growth projects – study progress7
Exploration programme8
10%
25%
20%
5%
15%
5%
5%
5%
25%
5%
5%
Sustainability and Organisational Capabilities
Safety – KPIs, reporting and safety model9
People – Supervisors benefits update and diversity
and inclusion policy Board approval10
Environmental performance11
Social performance12
10%
5%
Total – pre adjustments
Adjustment for meeting zero fatality target13
Total – post adjustments
1. Performance score 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.
3. 100% basis, except for Zaldívar (50%).
4. The threshold, target and maximum target figures for cash costs were adjusted for
exchange rate fluctuations and the figures for corporate expenditure were adjusted
for the net impact of one-off bonuses paid as part of labour negotiations at the Group’s
operating companies which were not included in the Group’s budget and were
not included in the figures disclosed in the 2016 Annual Report due to their
commercial sensitivity.
5. 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 the budget. The weighted
outcome for the Group’s mining operations was 103.
6. Split between the Encuentro Oxides (2.5%) and Centinela Molybdenum Plant (2.5%).
Specific targets based on budgets for costs incurred, production contribution to
Centinela and project completion date, with opportunity to achieve the Maximum if total
capex was not more than the approved budget and planned production was met. For
both projects capex matched budget but project completion date and production targets
were only partially met. Outcome was 96, comprising 97 for Encuentro Oxides and 95
for the Centinela Molybdenum Plant.
7. Split between the Centinela Second Concentrator (2.5%) and Los Pelambres
Incremental Expansion (2.5%). Specific targets based on budgets for capex and study
completion dates, with opportunity to achieve the Maximum if completion of the study
was met on time with a 2.5% reduction in capex and profitability greater than the
pre-feasibility study in respect of the Centinela Second Concentrator and if the
investment proposal is presented for Board approval by the end of 2017, along with the
accomplishment of 110% progress against the critical permits plan for the Los
Pelambres Incremental Expansion. The Centinela Second Concentrator project was
re-planned following discussions and deliberations by the Projects Committee to
consider an alternative project. The feasibility study for the Los Pelambres Incremental
Expansion has advanced and was granted its key environmental permit in February
2018. Outcome was 98 comprising 100 for the Centinela Second Concentrator project
and 95 for the Los Pelambres Incremental Expansion project.
$m
kt
$/lb
$m
2,138
663
1.71
76
2,376
705
1.61
72
2,613
726
1.57
69
2,494
704
1.60
75
Measured according to schedule and budget as described
in more detail in the footnotes
Measured according to schedule and budget 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
105
100
103
92
103
101
96
98
110
104
108
105
102
105
102.2
+1.83
104.0
8. Maximum and Target were defined according to the progress of execution of planned
exploration programmes including drilling targets measured in kilometres and the
discovery of prospects with sufficient potential mineralisation. The Maximum (110) was
achieved against the plan approved at the beginning of 2017.
9. Split between safety and health risk management at the Group’s operations (3%)
through the implementation of critical controls for each type of risk, 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 safety
and health risk management and reporting of near-miss accidents with high potential
and 101 for performance against the global lost-time accident frequency rate index.
10. Split between the implementation of an action plan to modernise benefits available to
supervisors (2.5%) with a Target of achieving the planned key dates and milestones
and the diversity and inclusion strategy proposal approved by Board (2.5%) with a
Target of 30 September. For both the maximum was achievable if the quality exceeded
both the CEO’s and the Remuneration and Talent Management Committee’s
expectations. The outcome was 105 for both goals.
11. Split between obtaining the Environmental Approval Resolution (EAR) for the Los
Pelambres Incremental Expansion project (5%) with Target for obtaining it by 31
December and Maximum if it was obtained before 30 September; and to agree with the
corresponding environmental authority a compliance plan in respect of commitments
under environmental permits (5%) with Target if agreement was reached by 31
December and Maximum achievable if a set of predefined activities related to
environmental compliance were accomplished. The outcome for Los Pelambres
Incremental Expansion project was 98 and for the Compliance Plan was 105.
12. The control of risks relating to social incidents performance within the budget across all
companies where maximum was achievable with no social incidents impacting
production and without costs incurred outside the scope of the budget. There were no
social incidents that impacted on production. The outcome was 105 because Antucoya
had a minor issue that required some expenditure outside the scope of the budget.
13. As noted in the Company’s 2015 Remuneration Report, a standalone adjustment trigger
amounting to 15% of the performance score applies to the Annual Bonus Plan –
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 increase of 1.83 to the final
Group performance score for 2017 (ie 15% of 102.2 – 90).
113
antofagasta.co.ukGOVERNANCE
2017 EXECUTIVE REMUNERATION REPORT CONTINUED
LONG TERM INCENTIVE PLAN
LONG TERM INCENTIVE PLAN (LTIP)
The Company introduced the LTIP in 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 and Directors are
not eligible to participate.
Under the LTIP, participants are eligible to receive conditional rights to
receive a cash payment by reference to a specified number of the
Company’s ordinary shares (“phantom share awards”), which are
paid in cash upon vesting based on the price of the Company’s
ordinary shares at the time of vesting. Participants are not
compensated for dividends paid by the Company between the date of
grant and the vesting of awards.
LTIP awards are split between Restricted Awards and Performance
Awards. Restricted Awards vest only if the relevant employee
remains employed by the Group on the vesting date. Performance
Awards 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.
− Performance Awards reward performance over three years. There
is no additional holding period before these amounts are paid.
− Restricted Awards vest one-third in each year over a three-year
period following the grant of the award.
The Committee carefully considered the design of the LTIP, including
the vesting and holding periods for Restricted Awards and
Performance Awards and the mix of awards that are granted to
participants in the LTIP, and confirmed that the current design
continues to be appropriate, taking into account the overall quantum
of remuneration available to the CEO and the Executive Committee
and remuneration structures typically used in the market in Chile.
The number of Performance Awards and Restricted Awards 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 is expected to receive total
payments of $661,808 in respect of the Restricted Awards granted in
2015 and 2016, that vested and were paid in 2017 and Performance
Awards granted in 2015 which include performance elements that
concluded on 31 December 2017 but that will not vest until on or after
25 March 2018 as shown below and the details of which are set out
in more detail on page 115. These anticipated total payments amount
to 110% of his base salary.
LTIP awards granted after 17 March 2015 are subject to malus
provisions under the LTIP rules. These allow the Committee to, at its
discretion, reduce the number of shares to which an award relates
or to cancel an award as a result of:
− actions by a participant that, in the reasonable opinion of the
Committee, amount to gross misconduct which has or may have
a material effect on the value or reputation of the Company or any
of its subsidiaries
− a materially adverse error in the consolidated financial statements
of the Group during the performance period
− any reasonable circumstance that the Committee determines in
good faith to have resulted in an unfair benefit to the participant.
Clawback has not been introduced due to uncertainty around its legal
validity in Chile.
IVÁN ARRIAGADA’S “IN FLIGHT” LTIP AWARDS
The following LTIP awards with one or more outstanding tranches have been granted to Iván Arriagada. The number of shares over which each
grant relates is determined based on the limits set out in the LTIP rules, considerations around retention and the share price at the time of grant.
Year of
grant1
2015
2016
2017
Award
type
Performance
Awards
Restricted
Awards
Performance
Awards
Restricted
Awards
Performance
Awards
Restricted
Awards
Number of
shares to
which the
grant relates
Vesting
dates
35,645 25 March 2015 25 March 2018
Date of
grant
35,645 25 March 2015 25 March 2016
25 March 2017
25 March 2018
85,559 22 March 2016 22 March 2019
36,668 22 March 2016 22 March 2017
22 March 2018
22 March 2019
76,070 30 March 2017 30 March 2020
32,602 30 March 2017 30 March 2018
30 March 2019
30 March 2020
Face value
of award
(using market
price at date of
grant) $’000
375
375
630
270
770
330
Market
price at
the date
of grant
$2
End of
performance
period
10.77 31 December
2017
N/A
10.77
% of award
receivable
if Threshold
performance
achieved
0%
% of award
receivable
if Target
performance
achieved
50%
% of award
receivable
if Maximum
performance
achieved
100%
0%
100%
100%
7.14 31 December
2018
N/A
7.14
8.14 31 December
2019
N/A
8.14
0%
0%
0%
0%
50%
100%
100%
100%
50%
100%
100%
100%
1. 2015 and 2016 awards were granted before Iván Arriagada was appointed CEO.
2. The market price used at the date of grant was the closing share price on the dealing day before the grant date, converted into US dollars using the exchange rate on the
date of grant.
114
Antofagasta plc Annual Report 2017
ANTICIPATED GROUP PERFORMANCE UNDER THE 2015 LTIP
As noted in the single figure table on page 110, performance against the Performance Awards granted in 2015 will not be finally determined
by the Committee until after the date of this report, once the Group’s 2017 results have been released to the market. The performance criteria
attaching to these Performance Awards and the anticipated performance against these criteria, based on estimates as at the date of this report,
are as follows:
Weighting
33%
Objective
Relative total
shareholder
return2
30%
EBITDA3
5%
Mineral resources
increase
Threshold (0%)
0% vesting at
performance below
the index during the
three-year period
0% vesting at
$3,496 million or
below
0% vesting at
77.8 million tonnes
of contained copper
or below as at
31 December 2017
Measure
Target (see below)
33% vesting at
performance
equal to the
index during the
three-year period
75% vesting at
$3,933 million
Maximum (100%)
100% vesting at
performance equal
to or greater than the
index plus 5% during
the three-year period
100% vesting at
$4,370 million
Anticipated
performance
To be updated at the
vesting date
Anticipated
achievement1
100%
EBITDA for the period
was $4,416 million
100%
100%
50% vesting at
79.8 million tonnes
of contained
copper
100% vesting at
81.9 million tonnes
of contained copper
Resources increased
to 85.1 million tonnes
of contained copper
Projects, development
and sustainability
1. Encuentro Oxides
and Centinela Second
Concentrator (four
project-specific goals)
(12%)
2. Environmental
and communities (five
specific goals) (7%)
3. Los Pelambres
Incremental
Expansion project
(13%)
32%
Total
At least two of
the four goals
achieved
At least three of
the four goals
achieved
All four goals achieved None of the goals achieved
0%
At least two of the
five goals achieved
At least four of the
five goals achieved
All five goals achieved Four of the five
goals met
Environmental
Impact Assessment
(EIA) strategy and
communications plan
approved by Board
in March 2015
Feasibility study
completed and EIA
submitted by
31 June 2016
EIA approved and
project approved for
execution by 31
December 2017
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 is
likely to agree to adjust the
performance criteria that
apply to Performance Awards
granted in 2015 relating to the
Los Pelambres Incremental
Expansion project. The
maximum performance goal
was ultimately achieved within
three months of the original
target date set in 2015.
75%
90%
85%
1. Anticipated achievement is based on estimates made as at the date of this report. These awards will not vest until after the Group’s 2017 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 the 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 2015-17, versus the 2015 budget figure and the Group’s 2015 internal base case
figures for 2016 and 2017. The final calculations have been adjusted for commodity price and exchange rate fluctuations.
115
antofagasta.co.ukGOVERNANCE
2017 EXECUTIVE REMUNERATION REPORT CONTINUED
ILLUSTRATION OF CEO REMUNERATION
POLICY IN 2018
ILLUSTRATION OF CEO REMUNERATION POLICY IN 2018
A significant proportion of the remuneration available to Iván
Arriagada is dependent on the performance of the Group and in 2018
his total remuneration will consist of the same elements as in 2017:
− Fixed elements comprising an annual base salary of
Ch$395,186,184 ($598,767) as at 1 January 2018, subject to
adjustments for Chilean inflation, and the 10% merit-based increase
explained on page 109, which takes effect from 1 April 2018, plus
benefits.
− Annual variable elements comprising an annual bonus equivalent to
67% of base salary as at 31 December 2018 if Target performance
is achieved, with a Maximum of 133% of base salary if stretch
targets are met.
− Long-term variable elements comprising the grant of LTIP awards
(30% Restricted Awards and 70% Performance Awards), up to a
limit of 200% of base salary or 325% if the Committee determines
that exceptional circumstances apply.
The chart opposite outlines the CEO’s total potential remuneration
in 2018 under different performance scenarios.
The figures 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 50% of the maximum
potential Annual Bonus award and the vesting of LTIP awards at
100% of the maximum potential award for Restricted Awards and
50% of the maximum potential award for Performance Awards
− Maximum consists of base salary, benefits, 100% of the maximum
potential Annual Bonus award and the vesting of LTIP awards at
100% of the maximum potential award for Restricted Awards and
for Performance Awards.
− Long-term variable elements are calculated on the basis of the
usual 200% maximum limit.
− All elements and annual variable elements are estimated in Chilean
pesos using an exchange rate of $1 = Ch$660 and are therefore
subject to exchange rate fluctuations during the year.
52%
$2.8m
46%
31%
44%
$1.9m
44%
22.5%
$0.7m
100%
33.5%
23%
Minimum
Target
Maximum
FIXED ELEMENTS
ANNUAL VARIABLE ELEMENTS
LONG-TERM VARIABLE ELEMENTS
2018 ANNUAL BONUS PLAN
The Board has agreed Group performance criteria for the 2018 Annual Bonus Plan as follows. 70% of the CEO and Executive Committee’s
2018 annual bonus will be calculated based on the Group’s performance against these criteria in 2018.
Weighting
60%
15%
Objective
Core Business
EBITDA
Measure
Threshold
Target
Maximum
$m
≤-10% The Group’s future metals price assumptions are
≥+10%
commercially sensitive and therefore the target
for EBITDA will not be disclosed in advance.
However, the Company will disclose the 2018
target and outcome in the 2018 Annual Report.
tonnes
693,000
705-740,000
759,000
$/lb
$m
1.76
83.0
1.65
79.0
1.61
75.1
Measured according to KPIs and milestones. The Company will disclose the
2018 targets and outcomes in the 2018 Annual Report.
Measured according to KPIs and milestones. The Company will disclose the
2018 targets and outcomes in the 2018 Annual Report.
25%
20%
20%
15%
5%
20%
5%
5%
5%
5%
116
Copper production
Costs
Cash costs before by-product
credits (17%)
Corporate expenditure (3%)
Business Development –
Growth Projects Execution
Projects
Exploration
Sustainability and
Organisational Capabilities
Safety
People
Environmental
Social
Antofagasta plc Annual Report 2017
PERFORMANCE SCORE ADJUSTMENTS AND BOARD
DISCRETION
As was the case in 2016 and 2017, the final performance score under
the 2018 Annual Bonus Plan will be subject to a 15% adjustment
upwards if there are no fatalities, and 15% downwards if there are
one or more fatalities, during 2018.
The final performance score for Core Business will also automatically
be adjusted to 90 (0% bonus) when applied to the 2018 annual bonus
for the Executive Committee if the Group does not record a profit
after tax (excluding extraordinary non-cash items and changes to
legislation or accounting rules and calculated using the statutory
nominal tax rate) in 2018.
The Committee maintains discretion to adjust the final performance
score within a range of 3% however use of this adjustment must be
approved by the Board.
IMPACT OF THE 2017 STRUCTURAL REVIEW ON THE 2018
ANNUAL BONUS PLAN
The weighting attributable to Business Development – Growth
Projects Execution has been increased by 5% in 2018. This reflects
the importance of the Group’s current projects portfolio. However,
as noted on page 103, as part of the fundamental review of the
Group’s executive remuneration structures in 2017, the number of
KPIs in the 2018 Annual Bonus Plan has been reduced from 15 to ten.
The weighting for EBITDA has increased from 10% to 15% as a
consequence of its removal from the LTIP performance criteria.
The target of sustaining capital expenditure has been removed from
the Group-level Annual Bonus Plan but retained for the Annual Bonus
Plan at the individual mining operations to reflect the concentration
of efforts to meet these targets at the operating company level.
The number of objectives for Business Development, and
Sustainability and Organisational Capabilities has been reduced
to a single priority objective in respect of Projects, Exploration
(regarding Business Development) and Safety, People, Environmental
and Social (regarding Sustainability and Organisational Capabilities).
By concentrating on these objectives it is expected that management
will be in a better position to focus on the objectives that most closely
align with the Group’s strategy.
2018 LTIP AWARDS
Awards will not be granted under the LTIP in 2018 until after the date
of this report and following publication of the Group’s 2017 results.
As noted on page 103, it is not currently expected that there will be
any change to the design of the LTIP in 2018 and a mix of Restricted
Awards and Performance Awards are expected to be granted to the
CEO and Executive Committee members in accordance with the 30%
Restricted Award, 70% Performance Award split following practice
in recent years and subject to the limits set out in the LTIP rules.
The performance conditions attaching to Performance Awards are
anticipated to be those set out opposite. If the performance conditions
set by the Committee end up being materially different from those
disclosed, the revised performance conditions will be disclosed in the
2018 Annual Report.
Weighting Objective
50%
Relative Total
Shareholder
Return
25%
Mineral
Resources
Increase
12.5% Projects
Performance
Measure
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.
Tonnes of contained copper at the end
of 2020. Maximum is expected to be 85.7
million tonnes of contained copper, with
an anticipated Target and Threshold of
84.7 and 82.7 million tonnes of contained
copper respectively.
Relates to the Group’s priority projects.
12.5% Environmental
Performance
Relates to the Group’s environmental
performance.
IMPACT OF THE 2017 STRUCTURAL REVIEW ON LTIP
The LTIP review was supported by Willis Towers Watson and 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 reflected current business challenges.
As noted on page 103, the number of KPIs for the 2018 LTIP has been
reduced from seven to four. The EBITDA target has been removed,
with a corresponding increase in weighting in the Annual Bonus Plan
and there will be a single goal for Projects and Environmental
Performance. The weighting for relative Total Shareholder Return,
as the primary KPI in the 2018 LTIP associated with financial results
(following the removal of EBITDA and its increased weighting in the
Annual Bonus Plan) has been increased to 50% of total performance,
Mineral Resources Increase has been increased to 25% and the total
for Projects Performance and Environmental Performance has
marginally decreased from 30% to 25% (12.5% each).
In addition to the above mechanical changes to the LTIP, which will
apply from 2018, the Committee also reviewed and simplified the
eligibility criteria and calibration process that applies to plan
participants across the Group, as well as the system for determining
grant levels based on individual performance and importance of the
role. As part of the feedback process, it was confirmed that a lack of
clarity about the Group’s collective performance against three-year
performance metrics during the performance period reduced the
value that employees ascribed to the LTIP and the Committee has
therefore sanctioned additional and more detailed communications to
employees in connection with the LTIP.
Tim Baker
Chairman of the Remuneration and Talent Management Committee
12 March 2018
117
antofagasta.co.ukGOVERNANCE SUMMARY OF 2017 DIRECTORS’ REMUNERATION POLICY
DIRECTORS’
REMUNERATION POLICY
The 2017 Directors’ Remuneration Policy was approved by
shareholders at the AGM held on 24 May 2017 and took effect
from that date. The following information on pages 118 to 120 is
provided for reference and covers elements of the policy that apply
to all Directors. It does not form part of the 2017 Directors’
Remuneration Report.
The full policy 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/
POLICY SCOPE
The policy applies 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 is appropriate given that the CEO, Executive
Committee members 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 policy does 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 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 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.
118
Antofagasta plc Annual Report 2017 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.
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.
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 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 the heading “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
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.
Benefits
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 is entitled to 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.
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.
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 detailed on page 120.
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.
119
antofagasta.co.ukGOVERNANCE
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.
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.
The Senior Independent Director meets with shareholders regularly
and the Chairman, and the Chairman of the Remuneration and Talent
Management 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 the Company 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 the
Company’s shareholders.
DIRECTORS’ REMUNERATION POLICY CONTINUED
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 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 Corporate
Governance Code. Under the terms of the letters, if a majority of
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.
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 one month’s fees.
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.
120
Antofagasta plc Annual Report 2017 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 Directors’ Report on page 124, 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 presentations 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 Investor Relations, 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.
G
O
V
E
R
N
A
N
C
E
WHAT OUR INVESTORS FOCUSED ON MOST IN 2017
− cost reduction programmes to control operating and capital costs
and the generation of free cash flow
− capital allocation
− impact of events in Chile, including changes to labour laws and
availability of energy and water
− mining labour negotiations in Chile
− the Group’s capital expenditure programme and the potential from
longer-term growth projects
− 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 met shareholders at the 2017 Annual General Meeting.
CORPORATE GOVERNANCE ENGAGEMENT
Senior Independent Director Ollie Oliveira met with a number of
proxy advisers and major shareholders in London in October 2016 to
discuss corporate governance and associated matters relating to the
Company, its strategy and management performance. 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.
At the request of shareholders, the Company sent a letter to proxy
advisers and the Company’s 20 largest shareholders in Q4 2017,
providing an update on corporate governance developments during
the year and offering face-to-face meetings with the Company
and, if required to discuss a particular topic, the Senior Independent
Director. A number of invitations were accepted and these meetings
took place in Q1 2018.
121
antofagasta.co.uk RELATIONS WITH SHAREHOLDERS CONTINUED
2017 SHAREHOLDER ENGAGEMENT CALENDAR
Q1
Q2
− CEO presented at industry conference for institutional
− CEO presented at industry conference for institutional
investors in the US
investors in Europe
− 3 days of 1-on-1 meetings with over 55 investors
− 2 days of 1-on-1 meetings with over 40 investors
− Presentation of full-year 2016 results by the CEO and
− Annual General Meeting in London
CFO
− US East Coast roadshow – 2 days
− London roadshow – 3 days
− Europe roadshow – 1 day
− Investor relations team attended three conferences, two
in the UK and one in Chile
− US West Coast roadshow – 2 days
− Buy-side analysts visited Los Pelambres
− Scandinavia roadshow – 1 day
− Investor relations team attended two industry
conferences in the UK and one in the US
Q3
Q4
− CEO presented to the Melbourne Mining Club in Australia
− Europe roadshow – 1 day
with roadshow – 2 days
− Presentation of half-year 2017 results
− Europe roadshow – 1 day
− London roadshow – 3 days
− US East Coast roadshow – 3 days
− Investor relations team attended four industry
conferences, three in the UK and one in Chile
− Sustainable and responsible investment roadshow
– France and the UK – 2 days
− CEO lunch with key investors
− Investor relations team attended three industry
conferences in the UK
122
Antofagasta plc Annual Report 2017 DIRECTORS’ REPORT
DIRECTORS’ REPORT
DIRECTORS
Directors who have served during the year and summaries of current
Directors’ key skills and experience are set out in the Corporate
Governance Report on pages 76 to 78.
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 24 to the financial statements.
RESULTS AND DIVIDENDS
The consolidated profit before tax has increased from $875.9 million
in 2016 (excluding exceptional items) to $1,830.8 million in 2017.
The Board has recommended a final dividend of 40.6 cents per
ordinary share (2016 – 15.3 cents). An interim dividend of 10.3 cents
was paid on 6 October 2017 (2016 interim dividend – 3.1 cents). This
gives total dividends per share proposed in relation to 2017 of 50.9
cents (2016 – 18.4 cents) and a total dividend amount in relation to
2017 of $501.8 million (2016 – $181.4 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
(2016 – $0.2 million). Further information relating to dividends
is set out in the Financial Review on page 52 and in Note 13 to the
financial statements.
POLITICAL CONTRIBUTIONS
The Group did not make political donations during the year ended
31 December 2017 (2016 – nil).
AUDITOR
The Company’s auditor, PwC LLP, has indicated its willingness to
continue in office and a resolution seeking their reappointment 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 is 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 auditor is
aware of that information.
CAPITAL STRUCTURE
Details of the authorised and issued ordinary share capital are
shown in Note 29 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 22 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.
When the preference shares were issued, they carried one vote on a
poll at any general meeting of the Company in parity with ordinary
shares in issue at that time. The number of ordinary shares in issue
has increased since then through stock splits and bonus issues and
because the preference shares were not split at the same time as the
ordinary shares, in order to maintain proportionate voting rights
attaching to the preference shares, the voting rights attaching to
preference shares have increased to 100 votes on a poll at any
general meeting of the Company.
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 2016, 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.
The percentages of the total nominal share capital of the Company
represented by each class of share are:
Class
Ordinary shares
of 5p each
Preference shares
of £1.00 each
Number in issue
985,865,695
Nominal value
per share
5p
Percentage
of capital
96.10%
2,000,000
£1
3.90%
AUTHORITY TO ISSUE SHARES AND AUTHORITY TO PURCHASE
OWN SHARES
At the 2017 AGM, held on 24 May 2017, 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 23 May 2018. No such shares have been issued as at the date of
this report or during the year. The Directors propose to seek renewal
of this authority at this year’s AGM.
A further special resolution passed at the 2017 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 by
way of two separate resolutions, in line with the Investment
Association’s guidance and the Pre-Emption Group’s Statement
of Principles.
123
antofagasta.co.ukGOVERNANCE DIRECTORS’ REPORT CONTINUED
The Company was also authorised by a shareholders’ resolution
passed at the 2017 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 2017, 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
Each year, the Directors complete a form identifying interests
that may constitute a conflict of interest including, for example,
directorships in other companies. Directors are also required to
notify the Company during the year of any material changes in
those positions or situations.
The Board, with assistance from the Nomination and Governance
Committee, considers the potential and actual conflict situations and
decides 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, and the
monitoring, and, if appropriate, authorisation of actual and potential
conflicts of interest is an ongoing process.
124
SUBSTANTIAL SHAREHOLDINGS
As at 31 December 2017 and 12 March 2018, 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 %
50.72
9.94
4.26
Preference
share
capital %
94.12
–
–
Total share
capital %
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 35 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.
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 122, the Statement
of Directors’ Responsibilities on page 125 and Note 24 to the financial
statements are incorporated into this 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 28 to 47
Page 18
Pages 28 to 47
Pages 31 to 32
Page 64
Disclosures required pursuant to Listing Rule 9.8.4R can be found
on the following pages of the Annual Report:
Location in
Annual Report
See Notes 5, 9 and 15
to the financial
statements on Pages
147 to 151, 157 and 162
and 163.
Page 73
Statement of interest capitalised by the
Group (LR 9.8.4(1))
Relationship agreement (LR 9.8.4(14))
By order of the Board
Julian Anderson
Company Secretary
12 March 2018
Antofagasta plc Annual Report 2017
DIRECTORS’
RESPONSIBILITIES
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 the 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 (“IFRS”) 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:
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, confirms that to the best of his or
her knowledge:
− the Group financial statements, which have been prepared in
accordance with IFRS 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.
− select suitable accounting policies and then apply them consistently
By order of the Board
Jean-Paul Luksic
Chairman
Ollie Oliveira
Senior Independent Director
12 March 2018
− make judgements and accounting estimates that are reasonable
and prudent
− state whether the IFRS 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
− 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.
125
antofagasta.co.ukGOVERNANCE
COMMITTED
TO OUR FINANCIAL
PERFORMANCE
FINANCIAL STATEMENTS
128
Independent auditors’ report
133
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
134
135
136
137
186
134
OTHER INFORMATION
Five-year summary
Production statistics
Ore reserves and mineral
resources estimates
Glossary and definitions
Shareholder information
Directors and advisers
193
195
196
206
211
IBC
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF ANTOFAGASTA PLC
Basis for opinion
We conducted our audit in accordance with International Standards on
Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under
ISAs (UK) are further described in the Auditors’ responsibilities for the audit
of the financial statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Independence
We remained independent of the group in accordance with the ethical
requirements that are relevant to our audit of the financial statements in
the UK, which includes the FRC’s Ethical Standard, as applicable to listed
public interest entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services
prohibited by the FRC’s Ethical Standard were not provided to the group or
the parent company.
Other than those disclosed in note 7 to the financial statements, we have
provided no non-audit services to the group or the parent company in
the period from 1 January 2017 to 31 December 2017.
REPORT ON THE AUDIT OF THE FINANCIAL
STATEMENTS
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 2017 and of the group’s profit and
the group’s and the parent company’s cash flows for the year then ended;
– have been properly prepared in accordance with IFRSs as adopted
by the European Union and, as regards the parent company’s financial
statements, as applied in accordance with the provisions of the
Companies Act 2006; and
– 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.
We have audited the financial statements, included within the Annual Report
and Financial Statements (the “Annual Report”), which comprise: the group
and parent company balance sheet as at 31 December 2017; the group
income statement and statement of comprehensive income, the group
statement of cash flows, and the group and parent company statements
of changes in equity for the year then ended; and the notes to the financial
statements, which include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Our audit approach
Overview
MATERIALITY
– Overall group materiality: $49 million (2016: $45 million), based on 5% of three-year average profit before
tax adjusted for one-off items.
– Overall parent company materiality: $18 million (2016: $17 million), based on 1% of Total Assets.
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 94% 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 indicator assessments at Antucoya and Centinela, carrying value of the Twin Metals project assets,
and the valuation of inventory stockpiles at Centinela and Zaldívar.
128
128
Antofagasta Annual Report 2017
Antofagasta plc Annual Report 2017
The scope of our audit
As part of designing our audit, we determined materiality and assessed 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.
We gained an understanding of the legal and regulatory framework applicable to the group and the industry in which it operates, and considered the risk of
acts by the group which were contrary to applicable laws and regulations, including fraud. We designed audit procedures at group and significant component
level to respond to the risk, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting
from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
We designed audit procedures that focused on the risk that non-compliance with the Companies Act 2006 and the UK Listing Rules, gives rise to a material
misstatement in the financial statements. In assessing compliance with laws and regulations, our tests included checking the financial statement disclosures
to underlying supporting documentation, assessment of certain component auditors’ work, enquiries with management and enquiries of legal counsel. There
are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is from the events and
transactions reflected in the financial statements, the less likely we would become aware of it.
We did not identify any key audit matters relating to irregularities, including fraud. As in all of our audits we also addressed the risk of management override
of internal controls, including testing journals and evaluating whether there was evidence of bias by the directors that represented a risk of material
misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements of the current
period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had
the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any
comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.
Key audit matter
How our audit addressed the key audit matter
Impairment indicator assessments at Antucoya and Centinela
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.
There is a heightened level of impairment risk at Antucoya from the
perspective of its high cost base; and Centinela from the perspective if its
sensitivity to changes in the long term copper price, and that a significant
portion of its value is dependent upon an expansion project that has not
yet been formally approved.
Based on the Directors considerations of the results of their carrying value
review, they concluded that no impairment indicators existed in respect of
Antucoya and Centinela.
In considering whether there were indicators of impairment, and to support
the sensitivity analysis, the Directors considered the recoverable amount
of the CGU’s. 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
no impairment indicators existed. Our consideration is described below,
and incorporates consideration of sensitivity disclosures and the need for
impairment reversals.
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 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 operational results
and concluded the forecasts had been appropriately prepared, based on updated
assessments of future operational performance and cost savings initiatives. With
respect to Centinela, the Directors confirmed to us that they expected to approve
the expansion project within the next 12 months.
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
recoverable amounts were particularly sensitive to changes in the long-term
copper price assumption. 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 within 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.
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.
antofagasta.co.uk
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antofagasta.co.ukFINANCIAL STATEMENTS
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF ANTOFAGASTA PLC CONTINUED
Key audit matter
How our audit addressed the key audit matter
Twin Metals
In the prior year a potential impairment indicator with respect to the Twin
Metals project was noted due to the non-renewal of two of the mining
leases. However in December 2017 the US Department of the Interior
(“DOI”) confirmed Twin Metals’ right to renew the leases. This replaced
the DOI’s previous legal opinion from March 2016, which had served as
the basis for the December 2016 action by the Bureau of Land
Management and the US Forest Service to deny the renewal of the
two leases. The Directors concluded that this positive legal development,
along with consideration of the current forecasts of the potential value to
be generated by the project, supported the conclusion that no adjustment
to the carrying value of the project’s assets was necessary.
We considered the status of the licences and whether this was an indicator
of impairment. In addition to a site visit to Ely, Minnesota, to enhance our
understanding of the project and its economics, we have reviewed the
developments in respect of the renewal of the project’s mining leases,
obtaining legal representations in respect of the December 2017
confirmation from the DOI.
As a consequence of the above, we concluded there to be no impairment
of the carrying value of capitalised assets relating to the project.
Valuation of inventory stockpiles at Centinela and Zaldívar
Both Centinela and Zalidívar have a significant amount of working capital
tied up in inventory stockpiles. There are a number of complexities involved
in the determination of the grade and recovery assumptions that form the
basis for the valuation of these inventory stockpiles.
On a periodic basis, the Directors monitor the specific accounting policies
applied to these inventory balances, the level of headroom indicated by
net realisable value tests, the forecast future movements in the value of
the balances and any other specific issues which may arise. These reviews
have not indicated any concerns with the carrying value of the group’s
inventory balances as at 31 December 2017.
The group engaged an independent expert to review the physical properties
of the group’s inventory stockpiles as at the 31 December 2017. In addition
to assessing the competency and objectivity of the expert, we have read the
expert’s report and discussed with the expert their valuation methodology
for inventory, along with the key judgements they made.
In addition to the above, we have performed a detailed review of the Directors
net realisable value tests. These tests support the Directors view that there
are no concerns with the carrying value of the group’s inventory balances
as at 31 December 2017.
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 structure of the group and the parent company, the accounting processes and controls, and the industry in which they operate.
The core mining business consists of four assets: Los Pelambres and Centinela; Antucoya; 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.
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.
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
elevated risk 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.
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.
UK resources were seconded to PwC Chile to be an integral part of the team. In addition the Senior Statutory Auditor visited Chile three times, including
one mine site, and attended key audit meetings with management and met 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.
130
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Antofagasta Annual Report 2017
Antofagasta plc Annual Report 2017
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 in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Overall materiality $49 million (2016: $45 million).
Parent company financial statements
$18 million (2016: $17 million).
How we
determined it
Rationale for
benchmark applied
5% of three-year average profit before tax adjusted for one off items.
1% of Total Assets.
We believe that profit before tax adjusted for one-off items 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.
As the parent company is a non-operating holding
company we will use total assets as our benchmark.
As the parent company is PIE we will use a 1% rule
of thumb.
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of materiality
allocated across components was between $10 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 (group audit) (2016: $1.5
million) and $923,000 (parent company audit) (2016: $874,000) as well as misstatements below those amounts that, in our view, warranted reporting for
qualitative reasons.
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
Outcome
We are required to report if we have anything material to add or draw attention to in respect
of the directors’ statement in the financial statements about whether the directors considered it
appropriate to adopt the going concern basis of accounting in preparing the financial statements
and the directors’ identification of any material uncertainties to the group’s and the parent
company’s ability to continue as a going concern over a period of at least twelve months
from the date of approval of the financial statements.
We have nothing material to add or to draw attention
to. However, because not all future events or conditions
can be predicted, this statement is not a guarantee as to
the group’s and parent company’s ability to continue as
a going concern.
We are required to report if the directors’ statement relating to Going Concern in accordance
with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.
We have nothing to report.
REPORTING ON OTHER INFORMATION
The other information comprises all of the information in the Annual Report
other than the financial statements and our auditors’ report thereon. The
directors are responsible for the other information. Our opinion on the
financial statements does not cover the other information and, accordingly,
we do not express an audit opinion or, except to the extent otherwise
explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility
is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially
misstated. If we identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude whether
there is a material misstatement of the financial statements or a material
misstatement of the other information. If, based on the work we have
performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report
based on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also
considered whether the disclosures required by the UK Companies Act
2006 have been included.
Based on the responsibilities described above and our work undertaken in
the course of the audit, the Companies Act 2006, (CA06), ISAs (UK) and
the Listing Rules of the Financial Conduct Authority (FCA) require us also
to report certain opinions and matters as described below (required by ISAs
(UK) unless otherwise stated).
STRATEGIC REPORT AND DIRECTORS’ REPORT
In our opinion, based on the work undertaken in the course of the audit, the
information given in the Strategic Report and Directors’ Report for the year
ended 31 December 2017 is consistent with the financial statements and has
been prepared in accordance with applicable legal requirements. (CA06)
In light of the knowledge and understanding of the group and parent company
and their environment obtained in the course of the audit, we did not identify any
material misstatements in the Strategic Report and Directors’ Report. (CA06)
THE DIRECTORS’ ASSESSMENT OF THE PROSPECTS OF THE
GROUP AND OF THE PRINCIPAL RISKS THAT WOULD THREATEN
THE SOLVENCY OR LIQUIDITY OF THE GROUP
We have nothing material to add or draw attention to regarding:
– The directors’ confirmation on page 19 of the Annual Report 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 18 of the Annual Report 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.
antofagasta.co.uk
131
131
antofagasta.co.ukFINANCIAL STATEMENTS
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF ANTOFAGASTA PLC CONTINUED
We have nothing to report having performed a review of the directors’
statement that they have carried out a robust assessment of the principal
risks facing the group and 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 UK Corporate Governance Code (the
“Code”); and considering whether the statements are consistent with the
knowledge and understanding of the group and parent company and their
environment obtained in the course of the audit. (Listing Rules)
OTHER CODE PROVISIONS
We have nothing to report in respect of our responsibility to report when:
– The statement given by the directors, on page 125, that they consider the
Annual Report taken as a whole to be fair, balanced and understandable,
and provides the information necessary for the 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 obtained in the course of performing our audit.
– The section of the Annual Report on pages 90 to 95 describing the
work of the Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
– The directors’ statement relating to the parent company’s compliance
with the Code does not properly disclose a departure from a relevant
provision of the Code specified, under the Listing Rules, for review by
the auditors.
DIRECTORS’ REMUNERATION
In our opinion, the part of the Directors’ Remuneration Report to be audited has
been properly prepared in accordance with the Companies Act 2006. (CA06)
RESPONSIBILITIES FOR THE FINANCIAL
STATEMENTS AND THE AUDIT
RESPONSIBILITIES OF THE DIRECTORS FOR THE FINANCIAL
STATEMENTS
As explained more fully in the Directors’ Responsibilities Statement set
out on page 125, the directors are responsible for the preparation of the
financial statements in accordance with the applicable framework and for
being satisfied that they give a true and fair view. The directors are also
responsible for such internal control as they determine is necessary to
enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for
assessing the group’s and the parent company’s ability to continue as a
going concern, disclosing as applicable, matters related to going concern
and using the going concern basis of accounting unless the directors either
intend to liquidate the group or the parent company or to cease operations,
or have no realistic alternative but to do so.
AUDITORS’ RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL
STATEMENTS
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will always
detect a material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of
users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements
is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditors’ report.
USE OF THIS REPORT
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.
OTHER REQUIRED REPORTING
COMPANIES ACT 2006 EXCEPTION REPORTING
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
– certain disclosures of directors’ remuneration specified by law are not
made; 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.
APPOINTMENT
Following the recommendation of the audit committee, we were appointed
by the members on 20 May 2015 to audit the financial statements for the
year ended 31 December 2015 and subsequent financial periods. The period
of total uninterrupted engagement is 3 years, covering the years ended
31 December 2015 to 31 December 2017.
Jason Burkitt
Senior Statutory Auditor
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
12 March 2018
132
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Antofagasta Annual Report 2017
Antofagasta plc Annual Report 2017
FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2017
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
30
12
12
2017
$m
4,749.4
(2,908.3)
1,841.1
59.7
1,900.8
23.8
(91.5)
(2.3)
(70.0)
1,830.8
(633.6)
1,197.2
0.5
1,197.7
447.1
750.6
Before exceptional
items
2016
$m
Exceptional items
(Note 4)
2016
$m
3,621.7
(2,698.1)
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
2016
$m
3,621.7
(3,154.7)
467.0
(111.3)
355.7
26.9
(86.1)
(11.9)
(71.1)
284.6
(108.6)
176.0
38.3
214.3
–
(456.6)
(456.6)
(134.7)
(591.3)
–
–
–
–
(591.3)
204.9
(386.4)
–
(386.4)
(164.6)
(221.8)
56.3
158.0
US cents
US cents
US cents
US cents
76.1
0.1
76.2
34.7
3.9
38.6
(22.6)
–
(22.6)
12.1
3.9
16.0
antofagasta.co.uk
133
133
antofagasta.co.ukFINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2017
Profit for the year
Items that may be subsequently reclassified to profit or loss:
Losses in fair value of cash flow hedges deferred in reserves
Share of other comprehensive gains of associates and joint ventures, net of tax
Gains in fair value of available-for-sale investments
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
Deferred tax effects arising on amounts transferred to the income statement
Total items that may be subsequently reclassified 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 Other Comprehensive Income 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
Total comprehensive income for the year
Attributable to:
Non-controlling interests
Owners of the parent
Note
5
24
17
18
24
24
27
2017
$m
1,197.7
(16.8)
–
1.4
(1.0)
18.0
–
0.3
1.9
26
5.7
(1.0)
4.7
6.6
1,204.3
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
30
448.8
755.5
24.9
256.1
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2017
At 1 January 2016
Profit for the year
Other comprehensive income for the year
Dividends
At 31 December 2016
Profit for the year
Other comprehensive income for the year
Dividends
At 31 December 2017
Share capital
$m
Share premium
$m
Other reserves
(note 29)
$m
Retained
earnings (note
29)
$m
Equity
attributable
to equity
owners of
the parent
$m
Non-controlling
interests
$m
Total
Equity
$m
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
–
–
–
–
–
–
–
9.8
–
750.6
(4.9)
(252.4)
750.6
4.9
447.1
1,197.7
1.7
6.6
(252.4)
(320.0)
(572.4)
89.8
199.2
(12.5)
7,041.9
7,318.4
1,823.2
9,141.6
134
134
Antofagasta Annual Report 2017
Antofagasta plc Annual Report 2017
CONSOLIDATED BALANCE SHEET
As at 31 December 2017
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
Assets of disposal group classified as held for sale
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 provisions
Deferred tax liabilities
Liabilities of disposal group classified as held for sale
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
Note
2017
$m
2016
$m
14
15
19
17
20
24
18
27
19
20
24
21
21
22
24
23
22
24
23
17
26
28
27
29
29
29
30
150.1
9,064.3
3.5
111.1
150.1
8,737.5
2.6
157.3
1,069.7
1,086.6
67.0
0.2
6.5
69.1
66.7
0.2
4.6
82.8
10,541.5
10,288.4
483.6
739.2
155.2
0.1
1,168.7
1,083.6
3,630.4
37.8
393.4
735.5
255.2
2.2
1,332.2
716.3
3,434.8
–
14,209.7
13,723.2
(753.6)
(7.1)
(609.0)
(192.4)
(836.8)
(2.0)
(595.2)
(119.4)
(1,562.1)
(1,553.4)
(1,955.1)
(2,283.4)
–
(7.4)
(2.0)
(114.0)
(433.0)
(994.1)
(0.5)
(7.9)
(3.1)
(92.2)
(392.1)
(880.9)
(3,505.6)
(3,660.1)
(0.4)
(5,068.1)
9,141.6
89.8
199.2
(12.5)
7,041.9
7,318.4
1,823.2
9,141.6
–
(5,213.5)
8,509.7
89.8
199.2
(22.3)
6,548.6
6,815.3
1,694.4
8,509.7
The financial statements on pages 133 to 185 were approved by the Board of Directors on 12 March 2018 and signed on its behalf by
Jean-Paul Luksic
Chairman
Ollie Oliveira
Senior Independent Director
antofagasta.co.uk
135
135
antofagasta.co.ukFINANCIAL STATEMENTS
Notes
31
17
17
17
11
21
13
13
30
31
31
31
31
31
2017
$m
2,495.0
(59.1)
(338.4)
2,097.5
(45.4)
–
81.8
3.1
(2.3)
(2.2)
6.9
(899.0)
163.5
14.3
2016
$m
1,457.3
(46.3)
(272.6)
1,138.4
(10.1)
20.0
10.2
10.0
(7.0)
–
0.5
(795.1)
(408.1)
14.4
(679.3)
(1,165.2)
(252.3)
(0.1)
(320.0)
272.0
(725.5)
(33.5)
(1,059.4)
358.8
716.3
358.8
8.5
(30.6)
(0.1)
(260.0)
938.8
(693.1)
(31.3)
(76.3)
(103.1)
807.5
(103.1)
11.9
716.3
21,31
1,083.6
FINANCIAL STATEMENTS CONTINUED
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2017
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 associates
Disposal of subsidiary and joint ventures
Acquisition of mining properties
Cash reclassified as part of disposal group
Proceeds from sale of property, plant and equipment
Purchases of property, plant and equipment
Net decrease/(increase) 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
Proceeds from issue of new borrowings
Repayments of borrowings
Repayments of obligations under finance leases
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Net increase/(decrease) in cash and cash equivalents
Effect of foreign exchange rate changes
Cash and cash equivalents at end of the year
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Antofagasta plc Annual Report 2017
NOTES TO THE FINANCIAL STATEMENTS
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 Risk Management
Framework section of the Strategic Report.
Antofagasta plc is a company limited by shares, incorporated and domiciled
in the United Kingdom at Cleveland House, 33 King Street, 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 is mainly related to mining and
exploration activities and rail and road cargo.
Significant events during 2017
The Group completed the disposal of its 40% interest in Alto Maipo in
March 2017 for nil consideration. An impairment provision was recognised
in respect of the carrying value of the Group’s investment in Alto Maipo in
the 2016 year-end results, and no gain or loss resulted from the completion
of the disposal in the current period.
Antucoya satisfied the terms of the completion test relating to its project
financing in December 2017, resulting in the release of the parent
guarantees provided by Antofagasta plc and Marubeni Corporation.
A) Adoption of new accounting standards
The following accounting standards, amendments and interpretations
became effective in the current reporting period:
– Recognition of Deferred Tax Assets for Unrealised Losses (Amendments
to IAS 12)
– Disclosure Initiative (Amendments to IAS 7)
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
– IFRS 17, Insurance Contracts
– IFRS 22, Foreign Currency Transactions and Advance Consideration
– IFRIC 23, Uncertainty over Income Tax Treatments
– Sale or Contribution of Assets between an Investor and its Associate
or Joint Venture (Amendments to IFRS 10 and IAS 28)
– 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)
– Prepayment Features with Negative Compensation (Amendments to IFRS 9)
– Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28)
– Annual Improvements to three IFRS Standards 2015–2017 Cycle
The Group is continuing to evaluate in detail the potential impact of these
new interpretations, excluding IFRS 15, IFRS 9, IFRS 16.
IFRS 15 Revenue from Contracts with Customers.
Adoption of this standard is mandatory in 2018. The standard has been
endorsed by the EU.
The core principle of IFRS 15 is that an entity recognises revenue to depict
the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange
for those goods or services. The standard introduces a five-step process for
applying this principle, which includes guidance in respect of identifying the
performance obligations under the contract with the customer, allocating
the transaction price between the performance obligations, and recognising
revenue as the entity satisfies the performance obligations.
The Group has concluded its evaluation of the impact of IFRS 15, and
determined that the only relevant impact for the Group relates to the shipping
of material sold to customers. The Group sells a significant proportion of its
products on Cost, Insurance & Freight (CIF) Incoterms, which means that the
Group is responsible for shipping the product to a destination port specified by
the customer. Under IAS 18 Revenue the Group recognised the total contract
revenue when the material had been loaded at the port of loading, at which
point the legal title and risks and rewards relating to the material passed to
the customer, as well as accruing the related shipping costs at that point.
Under IFRS 15 the shipping service will represent a separate performance
obligation, and should be recognised separately from the sale of the material
when the shipping service has been provided, along with the associated costs.
The impact of this change in the 2017 comparatives to be included within the
2018 financial statements will be to increase both 2017 revenues and expenses
by approximately $5 million (less than 0.2% of revenue and expenses), with no
significant impact on net earnings or net assets.
The Group’s copper and molybdenum sale contracts 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. As
explained in more detail below provisional pricing adjustments to revenue will
be dealt with under IFRS 9 rather than IFRS 15, and therefore the IFRS 15 rules
on variable consideration do not apply to the provisional pricing mechanism of
the Group’s sales contracts.
The standard will be applied in 2018 with retrospective restatement of the prior
year comparatives.
IFRS 9 Financial Instruments.
Adoption of this standard is mandatory in 2018. The standard has been
endorsed by the EU.
The Group has concluded its evaluation of the impact of IFRS 9 and
determined that the principal impact of the standard on the Group relates
to its commodity price hedging. Under IAS 39 Financial instruments –
recognition and measurement the time value element of changes in the fair
value of derivative options is excluded from the designated hedging relationship,
and is recognised directly in the income statement within other finance items.
Under IFRS 9 we expect to recognise the time value element within other
comprehensive income rather than the income statement, therefore reducing
income statement volatility. During 2017 an expense of $7.8 million was
recognised within other finance items in the income statement in respect
of the time value element of derivative options.
IFRS 9 introduces an expected credit loss model for impairment of financial
assets which replaces the incurred loss model used in IAS 39. This is not
expected to have a significant impact on the Group given our credit risk
management processes, and the resulting very low level of credit losses.
As explained above, the Group’s copper and molybdenum sale contracts
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. Under IAS 39 the final pricing adjustment mechanism represents
an embedded derivative which is separated from the host contract (the copper
or molybdenum sales contract) and recognised at fair value through profit
or loss. Under IFRS 9 the receivable asset is measured at fair value through
profit or loss which will result in a similar overall impact on the income
statement and balance sheet.
antofagasta.co.uk
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antofagasta.co.ukFINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
1 BASIS OF PREPARATION CONTINUED
IFRS 16 Leases.
Adoption of this standard is mandatory in 2019. The standard has been
endorsed by the EU.
The Group’s work on the implementation of the new standard to date has
included an analysis of the main impacts of the standard on the Group, an
estimation of the likely overall impact on the Group’s results and balance
sheet, including the impact on the Group’s key financial ratios, and
commencing a detailed contract review process. The detailed contract
review process and relevant staff training will complete during 2018.
The standard will result in most of the Group’s existing operating leases
being accounted for similar to finance leases under the current IAS 17
Leases standard, 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 2017 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 2018 of approximately $150 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 $90 million, an increase in annual depreciation
of approximately $80 million, an increase in finance costs of less than
$15 million, and a net impact on profit before tax of less than $10 million.
The cash flow from operations figure per the cash flow statement will
increase, as currently all cash payments relating to operating leases are
included within this line, but under IFRS 16 the payments will be classified
either as interest payments or repayment of borrowings.
The standard will be applied in 2019, and the current expectation is that it
will be applied with retrospective restatement of the prior year comparatives.
PRINCIPAL ACCOUNTING POLICIES
2
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”).
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.
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Antofagasta Annual Report 2017
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.
Investments in associates
C)
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 the 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.
Antofagasta plc Annual Report 2017
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.
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 four
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. For associates and joint ventures, it is recorded
as a decrease of the investment.
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 which 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.
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antofagasta.co.ukFINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
Intangible assets
J)
Intangible assets with finite useful lives that are acquired separately are
carried at cost less accumulated amortisation and accumulated impairment
losses. Exploration and mining licences are classified as intangible assets
when construction of the related mining operation has not yet commenced.
When construction commences the licences are transferred from intangible
assets to the mining properties category within property, plant & equipment.
Amortisation is recognised on a straight-line basis over the estimated useful
lives of the intangible assets. 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.
PRINCIPAL ACCOUNTING POLICIES CONTINUED
2
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 and mining licences are classified
for as intangible assets when construction of the related mining operation
has not yet commenced. When construction commences the licences are
transferred from intangible assets to the mining properties category within
property, plant & equipment.
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.
Operating stripping costs relate to the costs of extracting waste material
as part of the ongoing mining process. The ongoing 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.
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Antofagasta plc Annual Report 2017
L) Depreciation of property, plant and equipment
Depreciation of an asset begins when it is available for use, i.e. when it is in
the location and condition necessary for it to be capable of operating in the
manner intended.
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.
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.
Inventory
N)
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 and Antucoya. 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
(vii) Assets under construction – no depreciation until asset is available
in the production process; and
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.
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. Value in use reflects the expected present value of the future
cash flows which the Group would generate through the operation of
the asset in its current condition, without taking into account potential
enhancements or further development of the asset. The fair value less
costs of disposal valuation will normally be higher than the value in use
valuation, and accordingly the Group typically applies this valuation
estimate in its impairment assessments.
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,
– 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 costs 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 expected to be 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.
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antofagasta.co.ukFINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
PRINCIPAL ACCOUNTING POLICIES CONTINUED
2
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
are 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.
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Antofagasta Annual Report 2017
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.
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. Financial assets are derecognised when the contractual
rights to the cash flows from the financial asset expire or the Group has
transferred the asset to another party. Financial liabilities are removed
from the Group’s balance sheet when they are extinguished – i.e. when
the obligation specified in the contract has been discharged, cancelled
or expired.
(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 25(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.
Antofagasta plc Annual Report 2017
(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.
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 (Note 4).
Profit excluding exceptional items is considered to be a useful performance
measure as it provides an indication of the underlying earnings of the
Group’s operations, excluding these one-off items.
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.
(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 24(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.
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antofagasta.co.ukFINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
3
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF
ESTIMATION UNCERTAINTY CONTINUED
A) Judgements
The following are the critical judgements, apart from those involving
estimations (which are dealt with separately), that the directors have
made in the process of applying the Group’s accounting policies and
that have the most significant effect on the amounts recognised in the
financial statements.
(i)
Capitalisation of property, plant and equipment 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. As at
31 December 2017 $211.4 million of feasibility study costs relating to
projects which are still under evaluation and have not yet received final
Board approval were capitalised within property, plant and equipment.
(ii) Deferred taxation
As explained in Note 2(O), deferred tax assets are recognised only
to the extent that it is probable that they will be recovered through
sufficient future taxable profits. The key assumptions to which the
forecasts of the probable level of future taxable profits are most
sensitive are future commodity prices, production levels and operating
costs. Generally under Chilean tax law most tax losses can be carried
forward indefinitely, and so the expiry of tax losses is not generally an
issue. As set out in Note 27, the Group has recognised $272.1 million
of deferred tax assets in respect of provisions, short-term timing
differences and tax losses as at 31 December 2017.
B) Estimates
The group makes estimates and assumptions concerning the future. The
resulting accounting estimates will, by definition, seldom equal the related
actual results. The estimates and assumptions that have a significant risk
of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are addressed below.
(i)
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.
The total depreciation and amortisation charge for 2017 was $578.4
million, and so as a very simplistic sensitivity, a 10% adjustment to
the useful economic lives of all of the Group’s property, plant and
equipment would result in an impact of approximately $60 million
on the annual depreciation charge.
(ii) Non-financial assets Impairment
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 2017 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, licensing 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.
Details of the valuation and sensitivities of the assets of the Group’s
mining operations are included in Note 4, including quantitative
sensitivity analyses.
(iii) 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.
Details of the decommissioning and restoration provisions are set out
in Note 28. The total value of these provisions as at 31 December 2017
was $433.0 million.
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Antofagasta Annual Report 2017
Antofagasta plc Annual Report 2017
EXCEPTIONAL ITEMS
4
Exceptional items are material items of income and expense which are non-regular or non-operating and typically non-cash movements. Profit
excluding exceptional items is considered to be a useful performance measure as it provides an indication of the underlying earnings of the Group’s
operations, excluding these one-off items. There are no exceptional items in the year ended 31 December 2017. The exceptional items in the year
ended 31 December 2016 are shown in the table below.
Before exceptional items
1,841.1
923.6
Operating profit
2017
$m
2016
$m
Share of results
from associates
and joint ventures
Profit before tax
Earnings per share
2017
$m
59.7
2016
$m
23.4
2017
$m
2016
$m
1,830.8
875.9
2017
$m
76.2
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
–
–
–
–
–
(241.0)
–
(215.6)
–
(456.6)
–
–
–
–
–
–
(126.6)
–
(8.1)
(134.7)
–
–
–
–
–
(241.0)
(126.6)
(215.6)
(8.1)
(591.3)
–
–
–
–
–
2016
$m
38.6
(6.3)
(5.8)
(10.7)
0.2
(22.6)
After exceptional items
1,841.1
467.0
59.7
(111.3)
1,830.8
284.6
76.2
16.0
This valuation exercise demonstrated positive headroom for all of the
Group’s mining operations, with the recoverable amount of the assets
in excess of their carrying value. As an additional down-side sensitivity,
a valuation was performed with a 5% reduction in the long-term copper
price. Los Pelambres and Zaldívar still showed positive headroom in this
alternative down-side scenario, however the Antucoya valuation indicated
a potential deficit of $40 million and the Centinela valuation indicated a
potential deficit of $400 million. This was a simple sensitivity exercise,
looking at an illustrative change in the forecast long-term copper price 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 operational changes, which could partly mitigate
these estimated potential sensitivities.
(i) Other asset sensitivities
There were no indicators of potential impairment, or reversal of previous
impairments, for the Group’s operations at the 2017 year-end, and
accordingly no impairment reviews have been performed. However,
in order to provide an indication of the sensitivities of the recoverable
amount of the Group’s mining operations, a valuation and sensitivity
analysis has been performed.
The recoverable amount is the higher of fair value less costs of disposal
and value in use. Fair value less costs of disposal reflects the net amount
the Group would receive from the sale of the asset in an orderly transaction
between market participants. For mining assets this would generally be
determined based on the present value of the estimated future cash flows
arising from the continued use, further development or eventual disposal of
the asset. Value in use reflects the expected present value of the future cash
flows which the Group would generate through the operation of the asset
in its current condition, without taking into account potential enhancements
or further development of the asset. The fair value less costs of disposal
valuation will normally be higher than the value in use valuation, and
accordingly the Group typically applies this valuation estimate in its
impairment or valuation assessments.
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
$3.0 usd/lb has been used in the base valuations. 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.
antofagasta.co.uk
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145
antofagasta.co.ukFINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
SEGMENT INFORMATION
5
The Group’s reportable segments are as follows:
– Los Pelambres
– Centinela
– Antucoya
– Zaldívar
– Exploration and evaluation
– Corporate and other items
– Transport and other transport services
For management purposes, the Group is organised into two business
divisions based on their products – Mining and Transport and other
transport services. The mining division is split further for management
reporting purposes to show results by mine and exploration activity.
A) Segment revenues and results
For the year ended 31 December 2017
Los Pelambres produces primarily copper concentrate and molybdenum
as a by-product. Centinela produces copper concentrate containing gold as
a by-product and copper cathodes. Antucoya and Zaldívar produce copper
cathodes. The transport division provides rail cargo and road cargo together
with a number of ancillary services. All the operations are based in Chile.
The Exploration and evaluation segment incurs exploration and evaluation
expenses. “Corporate and other items” comprises costs incurred by the
Company, Antofagasta Minerals 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
the 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.
Revenue
2,423.9
1,645.8
Operating cost excluding depreciation
Depreciation and amortisation
(Loss)/gain on disposals
Operating profit/(loss)
Equity accounting results
Investment income
Interest expense
Other finance items
Profit/(loss) before tax
Tax
Profit/(loss) for the year from continuing operations
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
Capital expenditure
Segment assets and liabilities
Segment assets
Deferred tax assets
Investment in associates and Joint Ventures
Los Pelambres
$m
Centinela
$m
Antucoya
$m
Zaldívar
$m
Exploration and
evaluation2
$m
Corporate
and other items
$m
Railway
and other
transport services
$m
Mining
$m
(995.8)
(205.2)
(5.6)
1,217.3
–
4.4
(5.8)
6.7
1,222.6
(360.1)
862.5
–
862.5
(342.1)
520.4
1,428.1
(786.4)
(276.6)
(3.7)
579.1
–
6.2
(24.9)
(5.9)
554.5
(196.8)
357.7
–
357.7
(93.7)
264.0
859.4
508.6
(301.3)
(76.1)
–
131.2
–
0.7
(41.0)
(5.8)
85.1
(1.2)
83.9
–
83.9
(11.3)
–
–
–
–
–
58.5
–
–
–
58.5
–
58.5
–
58.5
–
72.6
207.3
58.5
134.2
–
(68.8)
–
–
–
4,578.3
(70.8)
(2,223.1)
(6.7)
0.9
(564.6)
(8.4)
(68.8)
(76.6)
1,782.2
–
–
–
–
(68.8)
–
(68.8)
–
(68.8)
–
(68.8)
(68.8)
(8.2)
11.9
(17.8)
(3.2)
(93.9)
(58.6)
50.3
23.2
(89.5)
(8.2)
1,758.0
(616.7)
(152.5)
1,141.3
0.5
0.5
(152.0)
1,141.8
–
(447.1)
(152.0)
694.7
(71.7)
2,488.5
171.1
(95.8)
(16.5)
0.1
58.9
9.4
0.6
(2.0)
5.9
72.8
(16.9)
55.9
–
55.9
–
55.9
98.1
Total
$m
4,749.4
(2,318.9)
(581.1)
(8.3)
1,841.1
59.7
23.8
(91.5)
(2.3)
1,830.8
(633.6)
1,197.2
0.5
1,197.7
(447.1)
750.6
2,586.6
263.6
619.2
78.2
3,687.5
5,479.2
1,712.0
–
–
–
–
0.5
–
–
–
–
982.1
–
–
8.4
969.4
32.1
1,001.5
9.5
–
–
(4.5)
1,810.4
12,698.6
372.3
13,070.9
64.8
22.1
65.3
1,004.2
3.8
65.5
69.1
1,069.7
(657.1)
(4,951.7)
(116.4)
(5,068.1)
Segment liabilities
(1,387.0)
(1,943.0)
(960.1)
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 (Note 37B).
2. Operating cash outflow in the exploration and evaluation segment was $45.6 million.
146
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Antofagasta Annual Report 2017
Antofagasta plc Annual Report 2017
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
Revenue
1,845.6
1,338.0
Operating cost excluding depreciation
Depreciation and amortisation
(Loss) 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
Profit/(loss) for the year from continuing operations
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
Capital expenditure
Segment assets and liabilities
Segment assets
Deferred tax assets
Investment in associates and Joint Ventures
(923.8)
(195.7)
(0.2)
(241.0)
484.9
0.4
(126.6)
(126.2)
15.7
(6.5)
(2.7)
365.2
(117.4)
247.8
–
247.8
(97.9)
149.9
921.0
(775.5)
(299.4)
(17.1)
–
246.0
–
–
–
5.3
(32.0)
(5.4)
213.9
(73.3)
140.6
–
140.6
(32.8)
107.8
562.5
277.9
(213.0)
(62.7)
–
(215.6)
(213.4)
–
–
–
0.6
(30.5)
(5.0)
(248.3)
94.3
(154.0)
–
(154.0)
74.3
(79.7)
64.9
316.6
617.4
27.4
3,606.2
5,008.0
1,740.5
–
–
–
–
–
–
–
–
–
–
–
–
29.5
–
29.5
–
–
–
29.5
–
29.5
–
29.5
–
29.5
85.1
–
–
–
983.6
–
Mining
$m
3,461.5
–
(56.5)
(2,013.1)
(5.2)
(0.6)
–
(62.3)
(11.2)
(8.1)
(19.3)
4.7
(14.6)
3.0
(563.0)
(17.9)
(456.6)
410.9
18.7
(134.7)
(116.0)
26.3
(83.6)
(10.1)
(88.5)
227.5
5.3
(83.2)
38.3
(44.9)
0.1
(44.8)
(91.1)
136.4
38.3
174.7
(56.3)
118.4
(50.8)
1,538.4
Railway
and other
transport services
$m
160.2
(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
Total
$m
3,621.7
(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
–
(44.3)
–
–
–
(44.3)
–
–
–
–
–
–
(44.3)
–
(44.3)
–
(44.3)
–
(44.3)
(44.3)
–
31.0
992.4
16.9
1,009.3
9.5
–
–
(4.5)
1,867.2
12,231.4
323.0
12,554.4
78.6
25.2
78.6
1,008.8
4.2
77.8
(638.3)
(5,075.6)
(138.5)
82.8
1,086.6
(5,214.1)
Segment liabilities
(1,368.2)
(1,979.3)
(1,085.3)
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 (Note 37B).
2. Operating cash outflow in the exploration and evaluation segment was $22.1 million.
antofagasta.co.uk
147
147
antofagasta.co.ukFINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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 $0.3 million (year ended 31 December 2016 – $1.2 million).
(ii) Revenue includes provisionally priced sales of copper and molybdenum concentrates and copper cathodes. Further details of such adjustments
are given in Note 6.
(iii) 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.
(iv) 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.
(v) The assets of the Railway and transport services segment include $60.1 million (31 December 2016 – $71.3 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 $5.3 million (31 December 2016 – $6.5 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 2016 – $22.0 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 $0.2 million (31 December 2016 – $3.2 million) relating to the Group´s 50.1% interest in the Energia Andina joint venture. Further
details of these investments are set out in Note 17.
2017
$m
2016
$m
2,149.0
1,037.0
378.6
508.6
68.7
209.7
1,627.0
778.7
278.1
277.9
78.5
261.2
168.5
94.0
37.7
20.5
4,578.3
171.1
4,749.4
46.1
20.0
3,461.5
160.2
3,621.7
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
Railway and transport services
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Antofagasta Annual Report 2017
Antofagasta plc Annual Report 2017
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
2017
$m
46.6
835.1
163.5
139.4
114.2
206.9
125.2
2016
$m
–
217.7
115.6
38.5
157.3
105.2
126.4
207.4
49.5
1,698.2
1,483.5
484.8
728.1
771.9
556.1
4,749.4
3,621.7
Information about major customers
In the year ended 31 December 2017 the Group’s mining revenue included $823.4 million related to one large customer that individually accounted for more
than 10% of the Group’s revenue (year ended 31 December 2016 – one large customer representing $694.7 million).
Non-current assets by location of assets
Chile
USA
Other
2017
$m
10,250.2
215.4
0.1
2016
$m
9,996.3
204.4
0.1
10,465.7
10,200.8
The above non-current assets disclosed by location of assets exclude financial instruments, available-for-sale investments and deferred tax assets.
antofagasta.co.uk
149
149
antofagasta.co.ukFINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
REVENUE
6
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
2017
$m
4,607.6
141.8
4,749.4
26.0
23.8
2016
$m
3,486.8
134.9
3,621.7
20.2
26.9
4,799.2
3,668.8
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 four 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 24.
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 2017
Provisionally invoiced gross sales
2,138.9
1,031.1
385.9
502.7
70.4
209.6
173.6
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
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
(28.0)
53.3
(15.3)
37.6
25.3
22.3
Settlement of sales invoiced in the current year
110.2
Mark-to-market adjustments at the end of
the current year
Total effect of adjustments to
current year invoices
Total pricing adjustments
Realised losses on commodity derivatives
Revenue before deducting tolling charges
Tolling charges
54.1
164.3
189.6
–
2,328.5
(179.5)
61.7
20.1
81.8
104.1
–
1,135.2
(98.2)
0.4
–
0.4
3.9
1.7
0.6
0.7
1.3
5.7
2.7
5.6
6.0
(13.3)
378.6
–
8.4
9.7
(3.8)
508.6
–
Revenue net of tolling charges
2,149.0
1,037.0
378.6
508.6
–
(0.9)
1.3
(2.2)
(0.9)
(0.9)
(0.6)
–
(0.6)
(1.5)
–
68.9
(0.2)
68.7
1.5
0.2
1.7
0.8
–
210.4
(0.8)
209.6
0.7
2.0
2.7
3.2
4.7
7.9
10.6
–
184.2
(15.7)
168.5
150
150
Antofagasta Annual Report 2017
Antofagasta plc Annual Report 2017
For the year ended 31 December 2016
Provisionally invoiced gross sales
1,715.1
845.2
276.8
274.2
78.9
263.9
105.5
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
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
14.5
(18.9)
(4.4)
80.5
28.0
6.2
(0.2)
(7.8)
(1.6)
–
(0.2)
–
–
–
28.7
15.3
4.1
(0.4)
4.3
(0.6)
108.5
44.0
3.7
104.1
–
1,819.2
(192.2)
1,627.0
42.4
–
887.6
(108.9)
778.7
3.7
3.7
–
3.5
(2.2)
278.1
277.9
–
–
278.1
277.9
–
(0.1)
(0.1)
(0.1)
–
(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
(I) Copper concentrate
The typical period for which sales of copper concentrate remain open until settlement occurs is a range of approximately three to four months from
shipment date.
Sales
Average mark-to-market price
Average provisional invoice price
2017
2016
Tonnes
160,900
199,900
$/lb
$/lb
3.28
3.07
2.51
2.41
(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
2017
Tonnes
14,700
$/lb
$/lb
3.27
3.14
2016
13,200
2.51
2.54
antofagasta.co.uk
151
151
antofagasta.co.ukFINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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
Ounces
$/oz
$/oz
Tonnes
$/lb
$/lb
2017
7,100
1,300
1,268
2017
2,400
9.4
8.5
2016
36,400
1,167
1,203
2016
1,300
6.6
6.9
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
Effect on debtors of year end mark-to-
market adjustments
2017
$m
54.1
4.7
20.1
0.2
1.7
2.7
83.5
2016
$m
28.0
(0.7)
15.3
(1.3)
(0.4)
(0.6)
40.3
PROFIT BEFORE TAX
7
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
2017
$m
2016
$m
4,749.4
3,621.7
(2,356.4)
(2,102.6)
2,393.0
(414.1)
–
26.0
(163.8)
1,841.1
59.7
–
59.7
1,900.8
1,519.1
(479.1)
(456.6)
20.2
(136.6)
467.0
23.4
(134.7)
(111.3)
355.7
Other operating expenses mainly comprise $39.8 million of costs relating to the decommissioning and restoration provisions (2016 – $9.3 million),
$68.8 million of exploration and evaluation expenditure (2016 – $44.3 million) and $55.2 million of other expenses (2016 – $83.0 million).
152
152
Antofagasta Annual Report 2017
Antofagasta plc Annual Report 2017
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 of property, plant and equipment
Exceptional provision against carrying value of property, plant and equipment (Note 4)
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
– Corporate finance services not covered above
– Other non-audit services
2017
$m
17.1
0.7
(553.5)
(27.6)
(8.3)
–
(1,697.0)
(417.8)
(39.8)
(31.9)
(68.8)
(1.8)
2017
$000
1,003
315
268
45
–
46
65
118
2016
$m
(2.9)
4.5
(552.6)
(25.8)
(19.7)
(215.6)
(1,520.8)
(368.2)
(9.3)
(15.5)
(44.3)
(1.6)
2016
$000
977
255
249
32
20
90
0
17
1,860
1,640
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
auditor’s independence and objectivity was safeguarded are set out in the Audit Committee report on page 93. No services were provided pursuant to
contingent fee arrangements.
antofagasta.co.uk
153
153
antofagasta.co.ukFINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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
2017
Number
900
2,044
5
737
49
447
5
4
4,191
1,219
5,410
2016
Number
901
1,986
35
726
53
379
6
4
4,090
1,337
5,427
(i)
(ii)
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.
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
2017
$m
(396.5)
(21.3)
(417.8)
2016
$m
(346.4)
(32.8)
(379.2)
During 2016 $11.0 million was capitalised relating to Minera Antucoya on wages, salaries and social security cost.
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 those responsible 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
2017
$m
(18.7)
(18.7)
2016
$m
(15.1)
(15.1)
Disclosures on Directors’ remuneration required by Schedule 8 of the Large and Medium-sized Companies and Group (Financial Statement) Regulations
2008 including those specified for audit by that Schedule are included in the Remuneration report on page 102.
154
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Antofagasta Annual Report 2017
Antofagasta plc Annual Report 2017
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 options
Unwinding of discount on provisions
Foreign exchange
Net finance expense
2017
$m
9.2
14.6
23.8
(91.4)
(0.1)
(91.5)
(7.8)
(11.6)
17.1
(2.3)
(70.0)
2016
$m
20.4
6.5
26.9
(86.0)
(0.1)
(86.1)
1.0
(10.0)
(2.9)
(11.9)
(71.1)
During 2017, amounts capitalised and consequently not included within the above table were as follows: Antucoya nil (year ended 31 December 2016 –
$9.2 million), $8.8 million at Centinela (year ended 31 December 2016 – $2.3 million) and $1.3 million at Los Pelambres (year ended 31 December 2016 –
$0.5 million).
The fair value through profit or loss line represents the fair value gains relating to liquid investments.
antofagasta.co.uk
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155
antofagasta.co.ukFINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
INCOME TAX EXPENSE
10
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
2017
$m
2016
$m
(376.6)
(69.1)
(64.8)
0.7
(222.1)
(35.3)
(3.8)
–
(509.8)
(261.2)
(114.6)
–
(9.2)
–
(123.8)
(633.6)
(27.5)
204.9
(24.8)
–
152.6
(108.6)
The rate of first category (i.e. corporate) tax in Chile is 25.5% (2016 – 24.0%).
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.
The Group’s mining operations are also subject to a mining tax (royalty). In 2017 production from Los Pelambres and Centinela (Tesoro Central and Mirador
pit) were subject to a rate of 4% of taxable operating profit and Centinela concentrates of 5%, and production from Antucoya, Encuentro (oxides), El Tesoro
North East pit and the run-of-mine processing at Centinela cathodes is subject to a rate of between 5–14%, depending on the level of operating profit margin.
From 2018 onwards the production from Los Pelambres will be subject to a rate of between 5–14%, depending on the level of operating profit margin, and
the Tesoro Central and Mirador pits at Centinela will be subject to a rate of 5%.
Profit before tax
Tax at the Chilean corporate tax rate of 25.5% (2016 – 24%)
Provision against carrying value of assets (exceptional items)
Effect of increase in future first category tax rates on deferred tax
balances
Adjustment in respect of prior years
Items not deductible from first category tax
Deduction of mining royalty as an allowable expense in
determination of first category tax
Carry-back tax losses resulting in credits at historic tax rates
Credit of tax losses absorbed from dividends of the year
Mining tax (royalty)
Withholding taxes
Withholding taxes – adjustment to previous year
Tax effect of share of results of associates and joint ventures
Reversal of previously unrecognised tax losses
Net other items
Tax expense and effective tax rate for the year
$m
1,830.8
(466.9)
–
(0.6)
(35.4)
(26.7)
2017
%
25.5
–
–
1.9
1.5
17.4
(1.0)
–
(4.3)
(78.3)
(64.8)
–
15.2
9.9
0.9
(633.6)
–
0.2
4.3
3.5
–
(0.8)
(0.5)
–
34.6
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
The effective tax rate varied from the statutory rate principally due to the mining royalty tax (impact of $78.3 million / 4.3%), the withholding tax due on
remittances of profits from Chile (impact of $64.8 million / 3.5%), adjustments in respect of prior years, which relate to adjustments made during the year in
the deferred tax asset base (impact of $35.4 million / 1.9%) and items not deductible for Chilean corporate tax purposes, principally the funding of expenses
outside of Chile (impact of $26.7 million / 1.5%), partly offset by the deduction of the mining royalty tax which is an allowable expense when determining the
Chilean corporate tax charge (impact of $17.4 million / 1.0%) and the impact of the recognition of the Group’s share of profit from associates and joint
ventures, which are included in the Group’s profit before tax net of their respective tax charges (impact of $15.2 million / 0.8%).
156
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Antofagasta Annual Report 2017
Antofagasta plc Annual Report 2017
11 DISCONTINUED OPERATIONS
(I) Profit for the period from discontinued operations
At 31 December, 2017, the Group had commenced a process to dispose of Centinela Transmission, the electricity transmission line supplying Centinela and
other external parties. Accordingly, the net results of Centinela Transmission are shown as a discontinued operation in the income statement. The net results
reflect the following elements:
Revenue
Total operating costs
Net finance(expense)/income
Profit/(Loss) before tax
Attributable tax expense
Profit/(Loss) of discontinued operations
Profit on disposal of discontinued operations
Attributable tax expense
Net Profit attributable to discontinued operations (attributable to owners of the
Company)
Centinela
Transmission
$m
Year ended
31 December 2017
$m
3.4
(2.8)
–
0.6
(0.1)
0.5
–
–
0.5
3.4
(2.8)
–
0.6
(0.1)
0.5
–
–
0.5
Michilla
$m
3.8
(10.2)
(1.4)
(7.8)
4.4
(3.4)
42.9
(1.2)
38.3
Year ended
31 December
2016
$m
3.8
(10.2)
(1.4)
(7.8)
4.4
(3.4)
42.9
(1.2)
38.3
During 2017 Centinela Transmission contributed $2.2 million (2016 – nil) to the Group´s net cash flow from operating activities, nil (2016 – nil) in respect
to net cash used in investing activities and paid nil (2016 – nil) in net cash provided in financing activities.
(II) Disposal of Centinela Transmission
The individual assets and liabilities of Centinela Transmission have been reclassified into a disposal group on the balance sheet. The individual assets and
liabilities contained within this disposal group are as follows:
Assets of disposal group classified as held for sale:
Property, plant and equipment
Trade receivables and other receivables
Cash and cash equivalents
Long-term provision
Deferred tax assets
Total
Liabilities of disposal group classified as held for sale:
Trade and other payables
Current tax liabilities
Total carrying amount disposed
At 31 December 2017
$m
33.2
2.2
2.2
–
0.2
37.8
(0.1)
(0.3)
(0.4)
A recent change in the law in Chile resulted in companies with their own electricity supply infrastructure starting to charge third parties where applicable
for the use of that infrastructure. This resulted in Centinela transferring its electricity supply infrastructure to the newly created Centinela Transmission
group entity during 2017, which recognises this new revenue stream. Hence, there are no comparative amounts for Centinela Transmission in 2016.
antofagasta.co.uk
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157
antofagasta.co.ukFINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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)
2017
$m
750.6
2017
Number
2016
$m
158.0
2016
Number
985,856,695 985,856,695
2017
US cents
2016
US cents
76.1
0.1
76.2
76.2
12.1
3.9
16.0
38.6
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
Profit 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
2017
750.6
(0.5)
750.1
2016
158.0
(38.3)
119.7
Number 985,856,695 985,856,695
US cent
76.1
12.1
2017
$m
2016
$m
2017
cents
per share
2016
cents
per share
150.8
–
15.3
101.5
252.3
30.6
30.6
10.3
25.6
–
3.1
3.1
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
2017
$m
400.3
400.3
2016
$m
151.0
151.0
2017
cents
per share
40.6
40.6
2016
cents
per share
15.3
15.3
This gives total dividends proposed in relation to 2017 (including the interim dividend) of 50.9 cents per share or $501.8 million (2016 – 18.4 cents per share
or $181.6 million).
In accordance with IAS 32, preference dividends have been included within interest expense (see Note 9) and amounted to $0.1 million (2016 –$0.1 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 +44 370 702 0159.
Further details relating to dividends for each year are given in the Directors’ Report on page 123.
158
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Antofagasta Annual Report 2017
Antofagasta plc Annual Report 2017
14
INTANGIBLE ASSETS
Cost
At 1 January 2016
Additions
Disposals
Foreign currency exchange difference
At 31 December 2016
Additions
Disposals
Foreign currency exchange difference
At 31 December 2017
$m
150.1
–
–
–
150.1
–
–
–
150.1
The $150.1 million intangible asset reflects the value of Twin Metals’ mining licences assets showed as part of corporate segment. These items will
be transferred to the mining properties category within property, plant and equipment when construction of the Twin Metals project commences.
antofagasta.co.uk
159
159
antofagasta.co.ukFINANCIAL STATEMENTS
Mining
properties
$m
Stripping
Cost
$m
Buildings and
infrastructure
$m
Railway
track
$m
Wagons
and rolling stock
$m
Machinery,
equipment and
others
$m
Assets under
construction
$m
Total
$m
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
15 PROPERTY, PLANT AND EQUIPMENT
Cost
At 1 January 2016
Restatement
Restated Balances
Additions
Additions – depreciation capitalised
Adjustment to capitalised decommissioning provisions
Capitalisation of interest
Reclassifications
Disposal of subsidiary
Asset disposals
At 31 December 2016
Additions
Additions – depreciation capitalised
Adjustment to capitalised decommissioning provisions
Capitalisation of interest
Critical spare part capitalisation
Reclassifications
Asset disposals
Assets transferred to disposal group classified as held
for sale
Land
$m
38.2
15.2
53.4
–
–
–
–
–
–
–
53.4
1.5
–
–
–
–
–
–
–
1,479.6
294.5
(832.4)
647.2
6.4
–
–
–
–
(12.9)
(0.6)
640.1
2.3
–
–
–
–
–
(0.2)
–
–
294.5
319.5
64.8
–
–
–
–
(36.3)
642.5
370.6
58.6
–
–
–
–
–
–
4,310.2
157.4
4,467.6
0.2
–
16.9
–
398.6
(68.0)
(4.5)
78.4
(6.5)
71.9
–
–
–
–
4.6
–
(1.3)
4,810.8
75.2
–
–
(3.7)
–
0.9
111.6
–
(14.5)
–
–
–
–
–
1.1
–
–
At 31 December 2017
54.9
642.2
1,071.7
4,905.1
76.3
Accumulated depreciation and impairment
At 1 January 2016
Restatement
Restated Balances
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
Charge for the year
Depreciation capitalised in inventories
Depreciation capitalised in property, plant and equipment
Reclassification Impairment
Asset disposals
Assets transferred to disposal group classified as held
for sale
At 31 December 2017
Net book value
At 31 December 2017
At 31 December 2016
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(860.7)
(126.7)
(1,319.8)
(22.0)
484.5
(376.2)
(20.6)
–
–
–
12.9
(4.6)
–
(388.5)
(42.9)
–
–
(10.6)
–
–
–
(126.7)
(51.9)
–
–
–
–
–
19.4
(159.2)
(45.7)
–
–
–
–
–
(212.3)
(0.9)
(1,532.1)
(22.9)
(185.4)
(2.6)
–
–
–
68.0
(3.9)
4.5
–
–
–
–
–
0.5
(1,648.9)
(25.0)
(195.0)
(2.8)
–
–
(83.4)
–
12.1
–
–
–
–
–
(442.0)
(204.9)
(1,915.2)
(27.8)
54.9
53.4
200.2
251.6
866.8
251.6
2,989.9
3,161.9
48.5
50.2
Assets under finance leases included in the totals above
Net book value
At 31 December 2017
At 31 December 2016
–
–
–
–
–
–
25.4
26.6
–
–
160
160
Antofagasta Annual Report 2017
131.5
(20.5)
111.0
1.5
–
–
–
10.4
–
(2.8)
120.1
–
–
–
–
–
0.6
(0.2)
–
120.5
(77.4)
13.1
(64.3)
(8.4)
–
–
–
–
–
2.1
(70.6)
(8.1)
–
–
–
0.3
–
(78.4)
42.1
49.5
–
–
5,663.4
416.3
6,079.7
56.7
22.8
–
2.9
507.4
(298.7)
(9.9)
6,360.9
52.7
–
–
10.2
9.2
135.6
(10.5)
(39.4)
6,518.7
(2,033.6)
(69.4)
(2,103.0)
(309.5)
8.4
(87.6)
(215.6)
298.7
(438.5)
12.6
(2,834.5)
(287.4)
(1.4)
(58.6)
94.0
3.1
8.6
(3,076.2)
3,442.5
3,526.4
1,493.1
13,488.9
55.5
(215.0)
1,548.6
13,273.9
537.4
921.7
–
–
–
(920.8)
87.6
16.9
2.9
0.2
–
(379.6)
(4.0)
(59.4)
1,161.2
13,864.2
515.8
942.9
–
–
–
–
(248.9)
58.6
(3.7)
10.2
10.1
–
(8.7)
(19.6)
–
(53.9)
1,419.4
14,808.8
(447.6)
(4,887.8)
–
215.0
(447.6)
(4,672.8)
–
–
–
–
–
447.6
–
–
–
–
–
–
–
–
–
(578.4)
8.4
(87.6)
(215.6)
379.6
0.6
39.1
(5,126.7)
(581.9)
(1.4)
(58.6)
–
3.4
20.7
(5,744.5)
1,419.4
9,064.3
1,161.2
8,737.5
87.0
83.1
–
–
112.4
109.7
Antofagasta plc Annual Report 2017
The Group has pledged assets with a carrying value of $1,650.0 million (2016 – $1,086.4 million) as security against bank loans provided to the Group.
At 31 December 2017 the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to $174.5 million
(2016 – $196.1 million) of which $20.9 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 nil in 2017
(2016 – $2.3 million).
The average interest rate for the amounts capitalised was 1.9% (2016 – 1.1%).
At 31 December 2017, assets capitalised relating to the decommissioning provision were $146.5 million (at 31 December 2016 – $147.2 million).
Depreciation capitalised in property, plant and equipment of $58.6 million related to stripping cost depreciation at Centinela, Los Pelambres and Antucoya. In
2016 $64.8 million related to stripping cost depreciation at Los Pelambres and Centinela, and $22.8 million related to Antucoya depreciation capitalized during
the commissioning period.
The restatement of the opening cost and accumulated depreciation balances as at 1 January 2016 represents reclassifications between asset categories
and also an adjustment in respect of fully depreciated asset balances.
antofagasta.co.uk
161
161
antofagasta.co.ukFINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
INVESTMENTS IN SUBSIDIARIES
16
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 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
Minera Encuentro SCM
Antofagasta Minerals SA
Alfa Estates Limited
Centinela Transmision SA
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
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
Lamborn Land Co
Anaconda South America Inc
Country of
incorporation
UK
UK
UK
Bermuda
Chile
Chile
Chile
Chile
Chile
Jersey
Chile
Jersey
UK
USA
Canada
UK
USA
USA
USA
USA
USA
USA
USA
Jersey
Jersey
UK
Jersey
Australia
Australia
Australia
Peru
Jersey
Jersey
USA
USA
Chile
UK
Chile
Bermuda
Chile
Chile
Chile
Chile
Chile
Jersey
Chile
Jersey
UK
USA
Canada
UK
USA
USA
USA
USA
USA
USA
USA
Jersey
Jersey
UK
Jersey
Australia
Australia
Australia
Peru
Jersey
Jersey
Chile
USA
El Tesoro (SPV Bermuda) Limited
Bermuda
Bermuda
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
BVI
Canada
Jersey
USA
BVI
Bolivia
Chile
Chile
Chile
BVI
Canada
Jersey
USA
BVI
Bolivia
Chile
Chile
Chile
162
162
Antofagasta Annual Report 2017
1
1
1
4
2
2
2
2
2
3
2
3
1
5
7
1
6
6
13
14
13
13
13
3
3
1
3
9
9
9
10
3
3
5
15
9
8
9
3
5
8
11
2
2
2
Railway
Investment
Investment
Insurance
Mining
Mining
Mining
Mining
Mining
Investment
Energy
Investment
Investment
Investment
Investment
Investment
Investment
Mining
Investment
Investment
Investment
Investment
Investment
Investment
Mining
Group services
Investment
Mining
Mining
Mining
Mining
Investment
Investment
Investment
Investment
Investment
Investment
Mining
Investment
Investment
Investment
Investment
Investment
Investment
Mining
100%
100%
100%
100%
60%
70%
70%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
75.5%
Antofagasta plc Annual Report 2017
Minera Penacho Blanco SA
Michilla Costa SpA
Minera Mulpun Limitada
Fundación Minera Los Pelambres
Inversiones Punta de Rieles Limitada
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
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
2
2
2
2
12
12
12
12
12
12
12
12
12
12
12
Mining
Logistics
Mining
Community
development
Investment
Railway
Investment
Investment
Forestry
Road transport
Investment
Transport
Transport
Transport
Transport
66.6%
99.9%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
1
2
3
4
5
6
7
8
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
1209 Orange Street, Wilmington, DE 19801, USA
6040 Earle Brown Drive, 480 Brooklyn Center, MN 55430,USA
161 Bay Street, Suite 4320, Toronto, Ontario, M5J 2S1, Canada
PO Box 958, Road Town, Tortola VG1110, British Virgin Islands
Riparian Plaza, Level 28, 71 Eagle Street, Brisbane, Qld 4001, Australia
9
10 Av. Paseo de la Republica Nº 3245 Piso 3, Lima, Peru
11 Avenida 16 de Julio N° 1440, piso 19 oficina 1905, La Paz, Bolivia
12 Simon Bolivar 255, Antofagasta, Chile
13 6041 Earle Brown Drive, 480 Brooklyn Center, MN 55430, USA
14
15 2711 Centerville Rd, Suite 400, Wilmington, DE 19808, USA
1010 Dale Street N, St Paul, MN 55117-5603 USA
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.
antofagasta.co.uk
163
163
antofagasta.co.ukFINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
17
INVESTMENT IN ASSOCIATES AND JOINT VENTURES
Balance at the beginning of the year
Obligations on behalf of JV
Capital contribution
Capital decrease and others
Adjustment to purchase price
Disposal
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
Share of income/(loss) after tax
Net share of results from associates and joint ventures
Inversiones
Hornitos
2017
$m
71.3
–
–
–
–
–
14.3
(3.7)
10.6
(21.8)
60.1
–
10.6
10.6
ATI
2017
$m
6.5
–
–
–
–
–
(1.5)
0.3
(1.2)
–
5.3
–
(1.2)
(1.2)
El Arrayan
2017
$m
22.0
–
–
–
–
–
0.1
(0.1)
–
–
22.0
–
–
–
Balance at the beginning of the year
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
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
Inversiones
Hornitos
2016
$m
75.1
–
–
–
–
–
–
8.9
(2.5)
6.4
(10.2)
71.3
–
ATI
2016
$m
8.2
–
–
–
–
–
–
(1.9)
0.2
(1.7)
–
6.5
–
El Arrayan
2016
$m
23.2
–
–
(0.9)
–
0.3
–
(1.0)
0.4
(0.6)
–
22.0
–
Alto
Maipo
2016
$m
33.5
–
36.0
–
–
4.1
(74.0)
0.4
–
0.4
–
–
–
Minera
Zaldívar
2017
$m
983.6
–
–
–
–
–
77.5
(19.0)
58.5
(60.0)
982.1
–
58.5
58.5
Minera
Zaldívar
2016
$m
998.8
–
–
0.3
(45.0)
–
–
41.9
(12.4)
29.5
–
983.6
–
Energía
Andina
2017
$m
Tethyan
Copper
2017
$m
Total
2017
$m
3.2
–
0.1
–
–
(3.1)
–
–
–
–
0.2
–
–
1,086.6
(3.1)
9.3
–
–
–
(8.2)
–
(8.2)
–
–
(3.1)
9.4
–
–
(3.1)
82.2
(22.5)
59.7
(81.8)
1,069.7
(2.0)
(2.0)
–
–
(8.2)
(8.2)
59.7
59.7
Energía
Andina
2016
$m
10.3
–
1.0
–
–
–
(8.1)
–
–
–
–
3.2
–
Tethyan
Copper
2016
$m
Total
2016
$m
–
1,149.1
(2.5)
10.0
–
–
–
–
(10.6)
–
(10.6)
–
–
(2.5)
47.0
(0.6)
(45.0)
4.4
(82.1)
36.4
(13.0)
23.4
(10.2)
1,086.6
(3.1)
(3.1)
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)
164
164
Antofagasta Annual Report 2017
Antofagasta plc Annual Report 2017
The investments which are included in the $1,067.7 million balances at 31 December 2017 are set out below:
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.
Investment in joint ventures
(iv) The Group’s 50% interest in Minera Zaldívar SpA (“Zaldívar”), an open-pit, heap-leach copper mine located in Northern Chile, which produces
approximately 100,000 tonnes of copper cathodes annually.
(v) The Group’s 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 Energia Andina’s interest in the Javiera solar power plant was agreed. The terms of the sale agreement indicated a
recoverable value for the interest in Javiera which was $8.1 million below the carrying value, and accordingly an impairment provision for this amount
was recognised in the 2016 year-end results. The disposal completed in May 2017 with no further gain or loss arising.
(vi) 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
Other comprehensive income
Total comprehensive income/(expense)
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
Total comprehensive income/(expense)
Inversiones Hornitos
2016
$m
16.0
37.7
294.0
(25.7)
(163.0)
136.2
16.0
–
–
16.0
Inversiones
Hornitos
2017
$m
12.6
37.1
283.5
(37.2)
(161.3)
164.7
26.5
–
26.5
ATI
2016
$m
0.4
13.5
138.5
(28.7)
(104.3)
46.1
(5.4)
–
–
(5.4)
ATI
2017
$m
0.8
11.7
127.6
(31.5)
(92.6)
41.8
(3.9)
–
(3.9)
El Arrayan
2016
$m
3.1
14.0
248.7
(13.3)
(191.3)
29.1
(2.0)
–
–
(2.0)
El Arrayan
2017
$m
6.0
9.0
244.0
(12.0)
(182.0)
33.0
0.1
–
0.1
Alto
Maipo
2016
$m
38.9
56.4
1,149.1
(115.5)
(1,070.2)
–
(0.7)
–
10.3
9.6
Total
2017
$m
19.4
57.8
655.1
(80.7)
(435.9)
239.5
24.1
–
24.1
Total
2016
$m
58.4
121.6
1,830.3
(183.2)
(1,528.8)
211.4
7.9
–
10.3
18.2
antofagasta.co.uk
165
165
antofagasta.co.ukFINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
INVESTMENT IN ASSOCIATES AND JOINT VENTURES CONTINUED
17
Summarised financial information for the joint ventures is as follows:
Cash and cash equivalent
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Revenue
Profit/(loss) after tax from continuing and discontinued operations
Other comprehensive income
Total comprehensive income/(expense)
Cash and cash equivalent
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Revenue
Profit/(loss) after tax from continuing and discontinued operations
Other comprehensive income
Total comprehensive income/(expense)
Minera
Zaldívar
2017
$m
75.6
574.3
1,569.7
(109.5)
(114.6)
654.7
116.9
–
116.9
Minera
Zaldívar
2016
$m
101.7
493.7
1,592.0
(107.6)
(112.8)
517.7
59.0
–
59.0
Energía Andina
2017
$m
Tethyan Copper
2017
$m
0.7
0.1
26.9
(0.6)
(26.9)
–
(0.5)
–
(0.5)
3.2
–
0.2
(7.1)
(0.1)
–
(16.3)
–
(16.3)
Energía Andina
2016
$m
Tethyan Copper
2016
$m
0.3
–
11.4
–
–
–
(10.8)
–
(10.8)
1.6
0.1
0.2
(7.8)
(0.2)
–
(21.1)
–
(21.1)
Total
2017
$m
75.9
572.7
1,570.9
(116.2)
(140.7)
649.0
98.6
–
98.6
Total
2016
$m
103.6
493.8
1,603.6
(115.4)
(113.0)
517.7
27.1
–
27.1
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.
18 AVAILABLE-FOR-SALE INVESTMENTS
Balance at the beginning of the year
Movement in fair value
Foreign currency exchange differences
Balance at the end of the year
2017
$m
4.6
1.4
0.5
6.5
2016
$m
2.7
1.7
0.2
4.6
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.
166
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Antofagasta Annual Report 2017
Antofagasta plc Annual Report 2017
19
INVENTORIES
Current:
Raw materials and consumables
Work in progress
Finished goods
Non-current:
Work in progress
Total
2017
$m
198.3
218.7
66.6
483.6
111.1
111.1
594.7
2016
$m
189.4
141.9
62.1
393.4
157.3
157.3
550.7
No adjustment of Net Realisable Value (NRV) has been recognised at 31 December 2017 (2016 – nil).
Non-current work in progress represents inventory expected to be processed more than 12 months after the balance sheet date.
20 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
Due in one year
Due after one year
2017
$m
588.8
150.4
739.2
2016
$m
606.1
129.4
735.5
2017
$m
–
67.0
67.0
2016
$m
–
66.7
66.7
2017
$m
588.8
217.4
806.2
Total
2016
$m
606.1
196.1
802.2
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 45 days (2016 – 60 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 and VAT receivable. The other debtors due after one year are mainly related to employee loans.
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 and other receivables balance is as follows:
2017
$m
(1.1)
(1.1)
–
–
–
(0.1)
(2.3)
2017
2016
Neither
past due
nor impaired
$m
780.2
749.1
Past due but not impaired
Up to
3 months
past due
$m
17.4
39.4
3-6 months
past due
$m
0.4
–
More than
6 months
past due
$m
8.2
13.7
2016
$m
(1.0)
(0.1)
–
–
–
–
(1.1)
Total
$m
806.2
802.2
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.
antofagasta.co.uk
167
167
antofagasta.co.ukFINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21 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 2017 and 2016 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
Sterling
Other
The credit quality of cash, cash equivalents and liquid investments are as follow:
Current account bank deposits and cash at bank
AAA
AA+
AA
AA-
A+
A
Total
Cash at Bank1
Total cash, cash equivalents and liquid investments
1. Cash at bank is held with investment grade financial institutions.
2017
$m
1,083.6
1,168.7
2,252.3
2016
$m
716.3
1,332.2
2,048.5
2017
$m
2,095.4
153.1
0.8
3.0
2016
$m
1,939.0
95.8
1.2
12.5
2,252.3
2,048.5
2017
$m
2016
$m
1,260.6
1,230.3
8.2
34.4
47.0
108.8
10.5
1,469.5
782.8
2,252.3
–
18.2
149.1
262.8
168.0
1,828.4
220.1
2,048.5
168
168
Antofagasta Annual Report 2017
Antofagasta plc Annual Report 2017
22 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
2017
$m
2016
$m
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
(xii)
(xiii)
(xiv)
–
(242.0)
(44.9)
(596.2)
(194.2)
(200.0)
(423.9)
(347.5)
(30.0)
(42.6)
(497.4)
(26.6)
(59.6)
(0.8)
(3.0)
(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)
(2,708.7)
(3,120.2)
(i)
(ii)
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
a margin of between 0.16% – 0.17%.
Finance leases at Los Pelambres are US dollar denominated, with an interest of LIBOR six-month rate plus 1.7% with a remaining duration of 5 years.
(iii) Senior debt at Centinela represents US dollar denominated syndicated loans. These loans are for a remaining term of 2.7 years and have an interest rate of LIBOR six-month
rate plus 1.0%. 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 some of the floating rate interest for fixed rate interest. At 31 December 2017 the current notional amount hedged was $35.0 million.
(iv) The long-term subordinated debt is US dollar denominated, provided to Centinela by Marubeni Corporation with a duration of 5 years and a weighted average interest rate
of LIBOR six-month rate plus 4.25%. Long-term subordinated debt provided by Group companies to Centinela has been eliminated on consolidation.
(v)
The short-term loan (PAE) is US dollar denominated, comprising a range of working capital loans for an average period of 1 year and with an interest rate of LIBOR six-month
rate plus 0.19%.
(vi) Senior debt at Antucoya represents US dollar denominated syndicated loans. These loans are for a remaining term of 7.5 years and have an interest rate of LIBOR six-month
rate plus 2.49%.
(vii) The long-term subordinated debt is US dollar denominated, provided to Antucoya by Marubeni Corporate with a duration of 8 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.
(viii) 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 0.19%.
(ix) 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 six-month
rate plus 1.41%.
(x)
The long-term loan at Corporate (Antofagasta plc) of $500.0 million has an interest rate of LIBOR six-month rate plus 1.5%, and has a duration of 5 years.
(xi) 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 years and are
at fixed rates with an average interest rate of 5.29%.
(xii) Long-term loans at Railway and other transport services are US dollar denominated, with a duration of 2 years and 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 2017 the current notional amount hedged was $60.0 million.
(xiii) Finance leases 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 5.9%.
(xiv) The preference shares are sterling-denominated and issued by Antofagasta plc. There were 2 million shares of £1 each authorised, issued and fully paid at 31 December 2017.
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
169
169
antofagasta.co.ukFINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
22 BORROWINGS CONTINUED
B) Analysis of borrowings by currency
The exposure of the Group’s borrowings to currency risk is as follows:
At 31 December 2017
Corporate loans
Other loans (including short-term loans)
Finance leases
Preference shares
At 31 December 2016
Corporate loans
Other loans (including short-term loans)
Finance leases
Preference shares
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 2017
Corporate loans
Other loans (including short-term loans)
Finance leases
Preference shares
At 31 December 2016
Corporate loans
Other loans (including short-term loans)
Finance leases
Preference shares
Chilean
Pesos
$m
–
–
(27.4)
–
(27.4)
Chilean
Pesos
$m
–
–
(26.8)
–
(26.8)
Sterling
$m
Other
$m
–
–
–
(3.0)
(3.0)
Sterling
$m
–
–
–
(2.5)
(2.5)
–
–
–
–
–
Other
$m
–
–
–
–
–
Fixed
$m
–
–
(27.4)
(3.0)
(30.4)
Fixed
$m
–
–
(29.1)
(2.5)
(31.6)
US dollars
$m
(1,577.1)
(1,013.7)
(87.5)
–
2017
Total
$m
(1,577.1)
(1,013.7)
(114.9)
(3.0)
(2,678.3)
(2,708.7)
US dollars
$m
(1,956.6)
(1,056.0)
(78.3)
–
2016
Total
$m
(1,956.6)
(1,056.0)
(105.1)
(2.5)
(3,090.9)
(3,120.2)
Floating
$m
(1,577.1)
(1,013.7)
(87.5)
–
2017
Total
$m
(1,577.1)
(1,013.7)
(114.9)
(3.0)
(2,678.3)
(2,708.7)
Floating
$m
(1,956.6)
(1,056.0)
(76.0)
–
2016
Total
$m
(1,956.6)
(1,056.0)
(105.1)
(2.5)
(3,088.6)
(3,120.2)
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 2017 the current notional amount
hedged of the senior debt at Centinela was $35.0 million (2016 – $70.0 million) and the current notional amount hedged of the long-term loans at the Railway
and other transport services segment was $60.0 million (2016 – $90.0 million).
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D) Maturity profile
The maturity profile of the Group’s borrowings is as follows:
At 31 December 2017
Corporate loans
Other loans
Finance leases
Preference shares
At 31 December 2016
Corporate loans
Other loans
Finance leases
Preference shares
Within
1 year
$m
(260.2)
(472.0)
(21.4)
–
(753.6)
Within
1 year
$m
(242.4)
(542.0)
(22.7)
–
Between
1-2 years
$m
(230.9)
–
(26.9)
–
(257.8)
Between
1-2 years
$m
(252.6)
–
(18.7)
–
Between
2-5 years
$m
(471.6)
–
(45.4)
–
After
5 years
$m
(614.4)
(541.7)
(21.2)
(3.0)
2017
Total
$m
(1,577.1)
(1,013.7)
(114.9)
(3.0)
(517.0)
(1,180.3)
(2,708.7)
Between
2-5 years
$m
(711.5)
–
(32.7)
–
After
5 years
$m
(750.1)
(514.0)
(31.0)
(2.5)
2016
Total
$m
(1,956.6)
(1,056.0)
(105.1)
(2.5)
(836.8)
(271.2)
(744.3)
(1,267.9)
(3,120.2)
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
All leases are on a fixed payment basis and no arrangements have been entered into for contingent rental payments.
2017
$m
(24.7)
(30.0)
(50.6)
(23.4)
(128.7)
13.8
(114.9)
2016
$m
(28.9)
(20.1)
(39.8)
(33.6)
(122.4)
17.3
(105.1)
antofagasta.co.uk
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antofagasta.co.ukFINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
23 TRADE AND OTHER PAYABLES
Trade creditors
Other creditors and accruals
Due in one year
Due after one year
2017
$m
(515.1)
(93.9)
(609.0)
2016
$m
(422.7)
(172.5)
(595.2)
2017
$m
–
(7.4)
(7.4)
2016
$m
–
(7.9)
(7.9)
2017
$m
(515.1)
(101.3)
(616.4)
Total
2016
$m
(422.7)
(180.4)
(603.1)
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 30 days (2016 – 28 days).
At 31 December 2017, the other creditors include $9.1 million (2016 – $0.6 million) relating to prepayments.
24 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:
2017
$m
0.3
6.5
2016
$m
2.4
4.6
1,806.3
1,252.2
1,475.2
1,375.5
(7.1)
(2.5)
(3,325.1)
(3,720.3)
–
(266.9)
(3.0)
(868.1)
– 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-option derivatives, and option pricing models for option derivatives.
The fair value of each category of financial asset and liability is not materially different from the carrying values presented for either 2017 or 2016.
Financial assets and liabilities measured at 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).
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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
–
6.5
–
1,168.7
–
–
1,175.2
Level 2
$m
0.3
–
83.5
–
(7.1)
–
76.7
Level 3
$m
–
–
–
–
–
–
–
Total
2017
$m
0.3
6.5
83.5
Total
2016
$m
2.4
4.6
43.3
1,168.7
1,332.2
(7.1)
–
(2.5)
(3.0)
1,251.9
1,377.0
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 normally range from one to four 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 2017, sales of copper and molybdenum concentrate
and copper cathodes represented 89.3% of Group revenue and therefore revenues and earnings depend significantly on LME and realised copper prices.
The Group uses futures and min-max 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 24(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
$16.8 million (2016 – increase by $21.0 million) and hedging reserves in equity would have increased by nil (2016 – decrease less than $0.1 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
$16.9 million (2016 – decrease by $20.5 million) and hedging reserves in equity would have decreased by nil (2016 – 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 $67.0 million (2016 – $69.4 million) and earnings per
share by 6.8 cents (2016 – 7.0 cents), based on production volumes in 2017, 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 $9.8 million
(2016 – $6.7 million), and earnings per share by 1.0 cents (2016 – 0.7 cents), based on production volumes in 2017, 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
$9.4 million (2016 – $12.2 million), and earnings per share by 1.0 cents (2016 – 1.2 cents), based on production volumes in 2017, 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
173
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antofagasta.co.ukFINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
24 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 24.d.
The currency exposure of the Group’s cash, cash equivalents and liquid investments is given in Note 21, and the currency exposure of the Group’s
borrowings is given in Note 22.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 134.
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 $9.2 million (2016 – decrease of $1.3 million). 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 $11.4 million (2016 – increase of $3.2 million).
(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 24D.(i)
Interest rate exposure of the Group’s borrowings is given in Note 22.
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 $0.3 million (2016 – increase of $3.8 million) and hedging reserves in equity would have increased by $0.4 million (2016 – increase of
$0.3 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 $0.7 million (2016 – increase
of $0.5 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 or the generation
cost of the supplier. 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 28 to 43.
(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.
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. 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.
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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 (Note 20).
(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, Centinela and Antucoya, repayable over a period of up to one year, project
financing (senior debt) at Centinela, repayable over approximately 2.7 years, project financing (senior debt) at Antucoya repayable over approximately
7.5 years, long-term subordinated debt at Antucoya repayable over approximately 8 years, and a corporate loan at Antofagasta plc repayable over
approximately 5 years.
At the end of the 2017 the Group was in a net debt position (2016 – net debt position), as disclosed in Note 31C. Details of cash, cash equivalents and liquid
investments are given in Note 21, while details of borrowings including the maturity profile are given in Note 22D. Details of undrawn committed borrowing
facilities are also given in Note 22.
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 2017
Corporate loans
Other loans (including short-term loans)
Finance leases
Preference shares*
Trade and other payables
Derivative financial instruments
At 31 December 2016
Corporate loans
Other loans (including short-term loans)
Finance leases
Preference shares
Trade and other payables
Derivative financial instruments
Less than
6 months
$m
(205.8)
(191.5)
(11.2)
–
(606.1)
(1.5)
Between
6 months
to 1 year
$m
(102.6)
(285.4)
(11.2)
–
(2.8)
(5.5)
Between
1-2 years
$m
After
2 years
$m
(274.8)
(1,157.7)
–
(29.8)
(3.0)
(6.1)
(0.1)
(871.3)
(73.8)
–
(1.4)
–
2017
Total
$m
(1,740.9)
(1,348.2)
(126.0)
(3.0)
(616.4)
(7.1)
(1,016.1)
(407.5)
(313.8)
(2,104.2)
(3,841.6)
Less than
6 months
$m
(117.0)
(190.6)
(14.6)
–
(590.8)
(1.0)
(914.0)
Between
6 months
to 1 year
$m
(191.3)
(352.1)
(14.3)
–
(4.1)
(1.5)
Between
1-2 years
$m
After
2 years
$m
(286.8)
(1,510.6)
–
(19.8)
(2.5)
(8.7)
–
(714.6)
(73.5)
–
(0.1)
–
2016
Total
$m
(2,105.7)
(1,257.3)
(122.2)
(2.5)
(603.7)
(2.5)
(563.3)
(317.8)
(2,298.8)
(4,093.9)
* 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 $456.4 million
at 31 December 2017 (2016 – net debt $1,071.7 million), as well as gross cash (defined as cash, cash equivalents and liquid investments) which was $2,252.3
million at 31 December 2017 (2016 – $2,048.5 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 22. 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
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antofagasta.co.ukFINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
24 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 2017
Impact on income statement
Impact on reserves
Fair value recorded on
balance sheet
Losses
resulting from
mark-to-market
adjustments
on hedging instruments
2017
$m
Realised
losses 2017
$m
Gains
resulting from mark-to-
market adjustments
on hedging instruments
2017
$m
Total net loss
2017
$m
Net financial
(liability)/asset
31 December 2017
$m
(13.3)
(3.8)
(0.7)
(0.2)
(18.0)
(4.4)
(3.4)
–
–
(7.8)
(17.7)
(7.2)
(0.7)
(0.2)
(25.8)
–
–
1.0
0.2
1.2
(3.4)
(3.4)
(0.2)
0.2
(6.8)
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
Realised
(losses)/gains
2016
$m
Total net
(loss)/gain
2016
$m
(Losses)/gains resulting from
mark-to-market adjustments
on hedging instruments
2016
$m
Net financial (liability)/asset
31 December 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)
Commodity derivatives
– Centinela
– Antucoya
Interest derivatives
– Centinela
– Railway and other transport services
For the year ended 31 December 2016
Commodity derivatives
– Centinela
Interest derivatives
– Centinela
– Railway and other transport services
The gains/(losses) recognised in reserves are disclosed before non-controlling interests and tax.
At December 2017 the credit risk implicit in the liability is less than $0.1 million (2016 – $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.
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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
2017
$m
0.1
0.2
(7.1)
–
(6.8)
2016
$m
2.2
0.2
(2.0)
(0.5)
(0.1)
(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
Antucoya
At 31 December 2017
For instruments held at 31 December 2017
Copper production
hedged
Average
Min
Average
Max
tonnes
$/lb
$/lb
30,000 2.50
3.60
30,000 2.50
3.60
Weighted average
remaining period from
1 January 2018
Months
6.5
6.5
Covering a period up to:
31.12.2018
31.12.2018
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 2017 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
%
35.0
60.0
3.372
1.634
The actual notional amount hedged depends upon the amount of the related debt currently outstanding.
25 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
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177
antofagasta.co.ukFINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
25 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
2017
$9.20
25.60%
3 years
2.18%
1.19%
2016
$9.20
36.39%
3 years
0.34%
0.44%
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 2017
Granted during the year
Cancelled during the year
Payments during the year
Outstanding at 31 December 2017
Number of awards that have vested
Restricted Awards
Performance
Awards
562,136
1,173,092
242,769
(24,911)
566,458
(82,038)
(127,506)
(218,958)
652,488
1,438,554
325,226
The Group has recorded a liability for $11.4 million at 31 December 2017, of which $5.9 million is due after more than one year (31 December 2016 – $6.8
million of which $3.6 million was due after more than one year) and total expenses of $10.1 million for the year (2016 – expense of $3.4 million).
The intrinsic value is $11.4 million.
26 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 2017 was $0.1 million
(2016 – $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 2017 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 turnover
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 charge to other finance items
Total charge to income statement
2017
4.9%
1.5%
6.5%
2017
$m
(31.9)
(4.5)
(8.1)
(44.5)
2016
4.5%
1.7%
11.8%
2016
$m
(15.5)
(4.4)
(6.2)
(26.1)
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Antofagasta Annual Report 2017
Antofagasta plc Annual Report 2017
Movements 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
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
2017
$m
(92.2)
(31.9)
5.7
–
(4.5)
–
17.0
(8.1)
2016
$m
(86.9)
(15.5)
7.8
(0.5)
(4.4)
1.3
12.2
(6.2)
(114.0)
(92.2)
31 December 2017
4.87%
31 December 2016
4.53%
20–year Chilean Central Bank Bonds 20–year Chilean Central Bank Bonds
Governmental
AA–/AA+
Secondary
Chilean peso
27 November 2017
Bloomberg
Governmental
AA–/AA+
Secondary
Chilean peso
14 September 2016
Bloomberg
The discount rate is the interest rate used to discount the estimated future severance payments to their present value. The table above 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 2017.
Turnover rate
This represents the estimated average level of future employee turnover. This has been based on historical information for the Group for the period from
2013 to 2017.
Sensitivity analysis
Significant actuarial assumptions for the determination of the defined obligation are discount rate, expected salary increase and staff turnover. 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 $7.5 million. If the discount rate is 100 basis points lower
the defined benefit obligation would increase by $8.8 million.
– If the expected salary growth increases by 1% the defined benefit obligation would increase by $7.0 million. If the expected salary growth decreases by
1% the defined benefit obligation would decrease by $6.6 million.
– If the staff turnover increases by 1% the defined benefit obligation would decrease by less than $1.7 million. If the staff turnover decreases by 1% the
defined benefit obligation would increase by less than $1.7 million.
antofagasta.co.uk
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179
antofagasta.co.ukFINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
27 DEFERRED TAX AND LIABILITIES
At 1 January 2016
(Charge)/credit to income
Deferred tax credit relating to
exceptional impairments provisions
Reclassification
Disposal of subsidiary
Charge deferred in equity
At 1 January 2017
(Charge)/credit to income
Charge deferred in equity
Reclassifications
At 31 December 2017
Accelerated
capital
allowances
$m
(1,067.8)
(21.4)
99.4
5.2
–
–
(984.6)
(2.7)
–
–
(987.3)
Temporary
differences
on provisions
$m
133.0
(6.8)
105.5
(5.1)
(3.7)
(2.3)
220.6
(99.1)
(1.8)
(1.8)
117.9
Withholding
tax
$m
(11.4)
–
–
0.1
–
–
(11.3)
–
–
–
(11.3)
Short-term
differences
$m
49.0
4.4
–
2.8
–
0.5
56.7
2.1
0.5
–
59.3
Mining tax
(Royalty)
$m
(55.1)
(24.8)
–
–
–
(0.3)
(80.2)
(24.1)
–
–
Tax losses
$m
0.7
–
–
–
–
–
0.7
–
–
–
Total
$m
(951.6)
(48.6)
204.9
3.0
(3.7)
(2.1)
(798.1)
(123.8)
(1.3)
(1.8)
(104.3)
0.7
(925.0)
The charge to the income statement of $123.8 million (2016 – $48.6 million) includes a credit for foreign exchange differences of $0.1 million (2016 –
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
2017
$m
69.1
(994.1)
(925.0)
2016
$m
82.8
(880.9)
(798.1)
At 31 December 2017, the Group had unused tax losses of $83.5 million (2016 – $7.4 million) available for offset against future profits. The deferred tax asset
by nil has been recognised in respect of these losses in 2017 (2016 – $2.7 million). These losses may be carried forward indefinitely.
At 31 December 2017, the aggregate amount of temporary differences associated with undistributed earnings of subsidiaries for which deferred tax liabilities
have not been recognised was $5,303.4 million (2016 – $4,826.8 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 $925.0 million (2016 – $798.1 million) includes $1,041.2 million (2016 – $878.8 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.
28 DECOMMISSIONING & RESTORATION 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
2017
$m
(392.1)
(39.8)
(7.2)
3.5
0.1
2.6
–
(0.1)
(433.0)
2016
$m
(394.0)
(9.3)
(5.5)
(16.9)
(1.1)
3.7
35.8
(4.8)
(392.1)
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 2063 based on current mine plans.
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Antofagasta plc Annual Report 2017
29 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
2017
Number
2016
Number
2017
$m
2016
$m
1,300,000,000
1,300,000,000
118.9
118.9
2017
Number
2016
Number
2017
$m
2016
$m
985,865,695
985,865,695
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 2016 or 2017. Details of the Company’s preference share capital,
which is included within borrowings in accordance with IAS 32, are given in Note 22A(xiv).
(II) Other reserves and retained earnings
Details of the share premium account, hedging, fair value and translation reserves and retained earnings for both 2017 and 2016 are included within the
consolidated statement of changes in equity on page 134.
Hedging reserves1
At 1 January
Parent and subsidiaries net cash flow hedge fair value (losses)
Parent and subsidiaries net cash flow hedge losses transferred to the income statement
Share of other comprehensive income of equity accounted units, net of tax
Share of other comprehensive gains of equity accounted units, net of tax transferred to the income statement
Reclassification5
Tax on the above
At 31 December
Available-for-sale revaluation reserves2
At 1 January
Gains on available-for-sale investment
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 earnings
At 1 January
Parent and subsidiaries profit for the year
Equity accounted units’ gains/(losses) after tax for the year
Actuarial gains4
Reclassification5
Tax relating to components of other comprehensive income
Total comprehensive income for the year
Dividends paid
At 31 December
2017
$m
(8.8)
(16.8)
18.0
–
–
8.0
(0.8)
(0.4)
(11.2)
1.4
(9.8)
(2.3)
–
(2.3)
(12.5)
6,548.6
690.9
59.7
5.8
(9.6)
(1.1)
7,294.3
(252.4)
7,041.9
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)
6,416.4
269.3
(111.3)
5.1
–
(0.3)
6,579.2
(30.6)
6,548.6
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 24.
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. Actuarial gains or losses relating to long–term employee benefits, as described in Note 26.
5. Mainly compromises an $8.8 million reclassification between the hedging reserve and retained earnings.
antofagasta.co.uk
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181
antofagasta.co.ukFINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
30 NON-CONTROLLING INTERESTS
The non-controlling interests of the Group during 2017 and 2016 are as follows:
Non-Controlling
Interest
%
40.0
30.0
30.0
Non-Controlling
Interest
%
40.0
30.0
0.1
30.0
Country
Chile
Chile
Chile
Country
Chile
Chile
Chile
Chile
Los Pelambres
Centinela
Antucoya
Total
Los Pelambres
Centinela
Michilla
Antucoya
Total
901.1
848.5
(55.2)
1,694.4
At
1 January 2016
$m
1,040.4
814.1
0.1
18.6
1,873.2
At
1 January 2017
$m
Share of profit/
for the financial
year
$m
Share of
dividends
$m
(320.0)
–
–
(320.0)
Disposal
of non-controlling
interest
$m
Hedging and
actuarial
gains/(losses)
$m
At
31 December 2017
$m
–
–
–
–
1.9
0.1
(0.3)
1.7
925.1
942.3
(44.2)
1,823.2
342.1
93.7
11.3
447.1
Share of
profit/(losses)
for the financial year
$m
97.9
32.8
–
(74.3)
56.4
Share of dividends
$m
(260.0)
–
–
–
(260.0)
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
24.9
901.1
848.5
–
(55.2)
1,694.4
The proportion of the voting rights is proportional with the economic interest under the companies listed above.
Summarised financial position and cash flow information for the years ended 2017 and 2016 is set out below:
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
2017
$m
40.0%
241.8
457.4
2,981.7
(584.6)
(827.4)
1,277.0
(272.8)
(908.7)
Los Pelambres
2016
$m
40.0%
143.0
645.5
2,960.7
(638.9)
(729.3)
901.3
907.3
(215.2)
(711.1)
Centinela
2017
$m
30.0%
353.0
809.2
4,770.1
(862.4)
(1,773.1)
68.1
(573.6)
(150.0)
Centinela
2016
$m
30.0%
384.0
890.1
4,117.9
(631.7)
(1,347.6)
848.6
523.6
(555.1)
(150.0)
Antucoya
2017
$m
30.0%
158.9
207.5
1,366.5
(198.5)
(1,686.8)
240.7
(75.7)
(160.5)
Antucoya
2016
$m
30.0%
152.9
334.8
1,405.7
(166.2)
(919.1)
(55.6)
50.6
(9.0)
(36.1)
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 (i.e. 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.
182
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Antofagasta plc Annual Report 2017
31 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
(Increase)/decrease in inventories
Decrease/(increase) in debtors
Increase in creditors
Increase in provisions
2017
$m
1,830.8
0.6
581.1
8.3
–
(0.6)
70.0
(59.7)
(55.0)
5.9
61.6
52.0
2016
$m
284.6
35.1
578.4
19.7
456.6
(35.1)
71.1
111.3
3.9
(124.9)
47.7
8.9
Cash flow from operations from continuing and discontinued operations
2,495.0
1,457.3
B) Analysis of changes in net debt
At
1 January
2017
$m
Re-classification
to disposal
group
$m
Cash
flows
$m
Fair value
gains
$m
New
leases
$m
Amortisation of
finance costs
$m
Capitalisation
of interest
$m
Cash and cash equivalents
Liquid investments
Total cash and cash equivalents
and liquid investments
716.3
361.0
1,332.2
(166.1)
2,048.5
194.9
Borrowings due within one year
(814.2)
267.5
Borrowings due after one year
(2,198.4)
186.0
Finance leases due within one year
(22.5)
1.3
Finance leases due after one year
(82.6)
32.2
Preference shares
Total borrowings
Net (debt)/cash
(2.5)
0.1
(3,120.2)
487.1
(2.2)
–
(2.2)
–
–
–
–
–
–
–
2.6
2.6
–
–
–
–
–
–
–
–
–
–
–
–
(34.1)
–
(34.1)
(1,071.7)
682.0
(2.2)
2.6
(34.1)
–
–
–
–
–
–
–
–
(3.9)
(27.8)
–
–
–
(3.9)
(3.9)
–
–
–
(27.8)
(27.8)
At
1 January
2016
$m
Cash
flows
$m
Reclassification
to disposal
group
$m
Fair value
gains
$m
New
leases
$m
Amortisation
of finance costs
$m
Capitalisation
of interest
$m
Movement
between
maturity
categories
$m
–
–
–
(185.5)
185.5
–
–
–
–
–
Movement
between
maturity
categories
$m
Other
$m
Exchange
$m
At
31 December
2017
$m
–
–
–
–
–
(0.2)
(6.6)
–
(6.8)
(6.8)
8.5
–
1,083.6
1,168.7
8.5
2,252.3
–
–
(0.1)
(2.3)
(0.6)
(3.0)
5.5
(732.2)
(1,858.6)
(21.5)
(93.4)
(3.0)
(2,708.7)
(456.4)
Other
$m
Exchange
$m
11.9
–
At
31 December
2016
$m
716.3
1,332.2
Cash and cash equivalents
Liquid investments
Total cash and cash equivalents
and liquid investments
807.5
(113.1)
924.1
406.9
1,731.6
293.8
Borrowings due within one year
(753.4)
–
Borrowings due after one year
(1,963.3)
(245.7)
Finance leases due within one year
(5.5)
–
Finance leases due after one year
(29.9)
31.2
Preference shares
Total borrowings
Net (debt)/cash
(3.0)
–
(2,755.1)
(214.5)
10.0
–
10.0
–
–
–
–
–
–
–
1.2
1.2
–
–
–
–
–
–
–
–
–
–
–
–
(94.5)
–
(94.5)
–
–
–
–
–
–
–
–
(19.4)
(30.8)
–
–
–
(19.4)
(19.4)
–
–
–
(30.8)
(30.8)
–
–
–
–
–
–
–
–
–
(60.8)
60.8
(17.1)
(4.4)
17.1
–
(4.4)
(4.4)
–
–
–
11.9
2,048.5
–
–
0.1
(2.1)
0.5
(1.5)
10.3
(814.2)
(2,198.4)
(22.5)
(82.6)
(2.5)
(3,120.2)
(1,071.7)
(1,023.5)
79.3
10.0
1.2
(94.5)
antofagasta.co.uk
183
183
antofagasta.co.ukFINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
31 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT CONTINUED
C) Net debt
Cash, cash equivalents and liquid investments
Total borrowings
32 OPERATING LEASE ARRANGEMENTS
Minimum lease payments expense under operating leases recognised for the year
2017
$m
2,252.3
(2,708.7)
(456.4)
2016
$m
2,048.5
(3,120.2)
(1,071.7)
2017
$m
140.6
2016
$m
70.3
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
2017
$m
94.1
78.3
–
172.4
2016
$m
75.1
37.0
–
112.1
Operating lease payments relate mainly to rental of plant and equipment by operating subsidiaries of the Group.
33 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
2017
2016
$1.3535 = £1;
$1 = Ch$614.75
$1.2878 = £1;
$1 = Ch$649.19
$1.2185 = £1;
$1 = Ch$669.47
$1.3593 = £1;
$1 = Ch$676.80
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34 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 and joint ventures 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 no 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 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 $0.6 million (2016 – $0.1 million) during the year on deposits with Banco de Chile SA, a subsidiary of Quiñenco.
Deposit balances at the end of the year were $18.0 million (2016 – $34.5 million);
– the Group earned interest income of $0.4 million (2016 – $0.3 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 $16.5 million (2016 – nil);
– the Group made purchases of fuel from ENEX SA, a subsidiary of Quiñenco, of $185.3 million (2016 – $161.6 million). The balance due to ENEX SA at the
end of the year was nil (2016 – nil).
B) Compañía de Inversiones Adriático SA
In 2017, 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 $0.6 million (2016 – less than $0.6 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 2017 the Group incurred $0.6 million (year ended 31 December 2016 – $1.0 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 2017 the Group contributed $9.3 million (2016 – $10.0 million) to Tethyan.
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. During the year ended 31 December 2017 the Group contributed
$0.1 million to Energía Andina (2016 – $1.0 million).
F) Compañia Minera Zaldívar SpA
The Group has a 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 $5.2 million (2016 – $4.2 million). During 2017 the Group received dividends from Minera Zaldivar of $60.0 million (2016 – nil).
Inversiones Hornitos SA
G)
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 $175.2 million
(year ended 31 December 2016 – $144.0 million) to Inversiones Hornitos in relation to the energy supply contract at Centinela. During 2017 the Group
received dividends from Inversiones Hornitos SA of $21.8 million (2016 – $10.2 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 $39.7 million (year ended 31 December 2016 – $23.2 million) to El Arrayán in relation to the energy supply contract at Los Pelambres.
I) Directors and other key management personnel
Information relating to Directors’ remuneration and interests is given in the Remuneration Report on page 102. Information relating to the remuneration
of key management personnel including the Directors is given in Note 8.
35 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 is given in the Directors’ Report.
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antofagasta.co.ukFINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
36 ANTOFAGASTA PLC – BALANCE SHEET OF THE PARENT COMPANY AND RELATED NOTES
At 31 December 2017
Non-current assets
Investment in subsidiaries
Other receivables
Property, plant and equipment
Current assets
Other receivables
Liquid investments
Cash and cash equivalents
Total assets
Current liabilities
Amounts payable to subsidiaries
Other payables
Non-current liabilities
Medium and long-term borrowings
Total liabilities
Net assets
Equity
Share capital
Share premium
Retained earnings
At 1 January 2017
Profit for the year attributable to the owners
Other changes in retained earnings
Total equity
Note
36D
36D
36E
2017
$m
2016
$m
538.6
500.0
0.3
538.6
500.0
0.4
1,038.9
1,039.0
57.5
378.5
372.1
808.1
52.3
488.4
166.2
706.9
1,847.0
1,745.9
(304.1)
(11.0)
(315.1)
(497.4)
(497.4)
(812.5)
1,034.5
89.8
199.2
651.9
346.0
(252.4)
745.5
1,034.5
(298.9)
(6.4)
(305.3)
(499.7)
(499.7)
(805.0)
940.9
89.8
199.2
678.1
4.4
(30.6)
651.9
940.9
The financial statements on page 186 were approved by the Board of Directors on 12 March 2018 and signed on its behalf by
Jean-Paul Luksic
Chairman
Ollie Oliveira
Senior Independent Director
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Statement of changes in equity of the Parent Company for year ended 31 December 2017
At 1 January 2016
Comprehensive profit for the year
Dividends
At 31 December 2016
Comprehensive profit for the year
Dividends
At 31 December 2017
Share capital
$m
Share premium
$m
Retained earnings
$m
Total equity
$m
89.8
199.2
–
–
–
–
89.8
199.2
–
–
–
–
89.8
199.2
678.1
4.4
(30.6)
651.9
346.0
(252.4)
745.5
967.1
4.4
(30.6)
940.9
346.0
(252.4)
1,034.5
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.
36A 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 an 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 $346.0 million (2016 – $4.4 million).
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antofagasta.co.ukFINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
36 ANTOFAGASTA PLC – BALANCE SHEET OF THE PARENT COMPANY AND RELATED NOTES CONTINUED
A summary of the principal accounting policies is set out below.
36B 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.
Investments in subsidiaries
D)
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 and value in use. As explained in Note 36D, 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.
36C Employee Benefit Expense
A) Average number of employees
The average number of employees was 5 (2016 – 4).
B) Aggregate remuneration
The aggregate remuneration of the employees mentioned above was as follows:
Wages and salaries
Social security costs
Pension contributions
2017
$m
1.3
0.2
0.1
1.6
2016
$m
0.6
0.1
0.1
0.8
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.
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36D Subsidiaries
A)
Investment in subsidiaries
Shares in subsidiaries at cost
Amounts owed by subsidiaries due after more than one year
1 January 2017
New shares in subsidiaries
31 December 2017
2017
$m
60.6
478.0
538.6
Loans
$m
478.0
–
478.0
2016
$m
60.6
478.0
538.6
total
$m
538.6
–
538.6
Shares
$m
60.6
–
60.6
The above amount of $478.0 million (2016 – $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.
B) Trade and other receivables – amounts owed by subsidiaries due after one year
At 31 December 2017, 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 2017, amounts owed by subsidiaries due within one year were $54.2 million (2016 – $50.9 million).
36E 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 2017 and 31 December 2016. As explained in Note 22B, 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 22A (xiv)) at any general meeting.
antofagasta.co.uk
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antofagasta.co.ukFINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
37 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 financial statement. Set out below are definitions of these alternative
performance measures, explanations as to why they are considered to be relevant and useful, and reconciliations to the IFRS figures.
A) UNDERLYING EARNINGS PER SHARE
Underlying earnings per share is earnings per share from continuing operations, excluding exceptional items. This measure is reconciled to earnings per
share from continuing and discontinued operations (including exceptional items) on the face of the income statement. This measure is considered to be
useful as it provides an indication of the earnings generated by the on-going businesses of the Group, excluding the impact of exceptional items which
are non-regular or non-operating in nature.
B) EBITDA
EBITDA refers to Earnings Before Interest, Tax, Depreciation and Amortisation. EBITDA is calculated by adding back depreciation, amortisation, profit or loss
on disposals and impairment charges to operating profit. This comprises 100% of the EBITDA from the Group´s subsidiaries, and the Group´s proportional
share of the EBITDA of its associates and joint ventures.
EBITDA is considered to provide a useful and comparable indication of the current operating earnings performance of the business, excluding the impact
of the historic cost of property, plant and equipment or the particular financing structure adopted by the business.
For the year ended 31 December 2017
Los Pelambres
$m
Centinela
$m
Antucoya
$m
Zaldívar
$m
Exploration and
evaluation
$m
Corporate and
other items
$m
Railway
and other transport
services
$m
Mining
$m
1,217.3
205.2
5.6
1,428.1
–
579.1
276.6
3.7
859.4
–
131.2
76.1
–
207.3
–
–
–
–
–
134.2
(68.8)
(76.6)
1,782.2
–
–
(68.8)
–
6.7
(0.9)
(70.8)
(0.9)
564.6
8.4
2,355.2
133.3
58.9
16.5
(0.1)
75.3
22.8
Total
$m
1,841.1
581.1
8.3
2,430.5
156.1
Operating profit
Depreciation and amortisation
(Loss)/gain on disposals
EBITDA from subsidiaries
Proportional share of the EBITDA
from associates and JV
EBITDA
1,428.1
859.4
207.3
134.2
(68.8)
(71.7)
2,488.5
98.1
2,586.6
Zaldívar
$m
Exploration and
evaluation
$m
Corporate
and other items
$m
Mining
$m
410.9
563.0
17.9
456.6
(44.3)
(62.3)
–
–
–
5.2
0.6
–
(44.3)
(56.5)
1,448.4
–
(44.3)
5.7
(50.8)
90.0
1,538.4
Railway
and other transport
services
$m
56.1
15.4
1.8
–
73.3
14.4
87.7
Total
$m
467.0
578.4
19.7
456.6
1,521.7
104.4
1,626.1
–
–
–
–
–
85.1
85.1
For the year ended 31 December 2016
Operating profit
Depreciation and amortisation
Gain on disposals
Exceptional impairment provision
EBITDA from subsidiaries
Proportional share of the EBITDA
associates and JV
EBITDA
Los Pelambres
$m
Centinela
$m
484.9
195.7
0.2
241.0
921.8
(0.8)
921.0
246.0
299.4
17.1
–
562.5
–
562.5
Antucoya
$m
(213.4)
62.7
–
215.6
64.9
–
64.9
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37 ALTERNATIVE PERFORMANCE MEASURES CONTINUED
C) 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 5)
Less:
Depreciation and amortisation (Note 5)
Loss on disposal (Note 5)
Provision against the carrying value of assets (Note 4)
Elimination of non-mining operations:
Corporate and other items – Total operating cost (Note 5)
Exploration and evaluation – Total operating cost (Note 5)
Railway and other transport services – Total operating cost (Note 5)
Closure provision and other expenses not included within cash costs
Total cost relevant to the mining operations’ cash costs
Copper sales volumes – 2017/2016 (tonnes)1
2017
$m
2016
$M
2,908.3
3,154.7
(581.9)
(8.3)
–
(70.8)
(68.8)
(95.8)
(39.8)
(578.4)
(19.7)
(456.6)
(56.5)
(44.3)
(86.9)
(53.4)
2,042.9
1,858.9
657,700
634,000
Cash costs excluding tolling charges and by-product revenues ($ per tonne)
3,106
2,932
Cash costs excluding tolling charges and by-product revenues ($ per lb)
1.41
1.33
Reconciliation of cash costs before deducting by-products:
Tolling charges – copper – Los Pelambres (Note 6)
Tolling charges – copper – Centinela (Note 6)
Tolling charges – copper – total
Copper sales volumes –2017/2016 (tonnes)1
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)
1. 2016 and 2017 includes Zaldívar, 2016 excluded Antucoya Q1.
179.5
98.2
277.7
192.2
108.9
301.1
657,700
634,000
422
0.19
1.41
0.19
1.60
475
0.22
1.33
0.21
1.54
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FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
Reconciliation of cash costs (net of by-products):
Gold revenue – Los Pelambres (Note 5)
Gold revenue – Centinela (Note 5)
Molybdenum revenue – Los Pelambres (Note 5)
Silver revenue – Los Pelambres (Note 5)
Silver revenue – Centinela (Note 5)
Total by-product revenue
2017
$m
68.7
209.7
168.5
37.7
20.5
505.1
2016
$m
78.5
261.2
94.0
46.1
20.0
499.8
Copper sales volumes –2017/2016 (tonnes)1
657,700
634,000
By-product revenues ($ per tonne)
By-product revenues ($ per lb)
Cash costs before deducting by-products ($ per lb)
By-product revenue ($ per lb)
Cash costs (net of by-products) ($ per lb)
1. 2016 and 2017 includes Zaldivar, 2016 excluded Antucoya Q1.
768
0.35
1.60
(0.35)
1.25
788
0.35
1.54
(0.34)
1.20
The totals in the tables above may include some small apparent differences as the specific individual figures have not been rounded.
D) Attributable cash, cash equivalents and liquid investments, borrowings and net debt
Attributable cash, cash equivalents and 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.
Cash, cash equivalents and liquid investments:
Los Pelambres
Centinela
Antucoya
Corporate
Railway and other transport services
Total (Note 24)
Borrowings:
Los Pelambres (Note 22)
Centinela (Note 22)
Antucoya (Note 22)
Corporate (Note 22)
Railway and other transport services (Note 22)
2017
Total
amount
Attributable
share
Attributable
amount
Total
amount
2016
Attributable
share
Attributable
amount
241.8
353.0
158.9
1,441.2
57.4
2,252.3
(286.9)
(990.4)
(844.0)
(527.0)
(60.4)
60%
70%
70%
100%
100%
60%
70%
70%
100%
100%
145.1
247.1
111.2
1,441.2
57.4
143.0
384.0
152.9
1,328.1
40.5
2,002.0
2,048.5
(172.1)
(693.3)
(590.8)
(524.0)
(63.4)
(391.7)
(1,127.4)
(985.3)
(524.8)
(91.0)
60%
70%
70%
100%
100%
60%
70%
70%
100%
100%
85.8
268.8
107.0
1,328.1
40.5
1,830.2
(235.0)
(789.2)
(689.7)
(524.8)
(91.0)
Total (Notes 22 and 31)
(2,708.7)
(2,043.6)
(3,120.2)
(2,329.7)
Net debt
(456.4)
(41.6)
(1,071.7)
(499.5)
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FIVE-YEAR SUMMARY
Consolidated Balance Sheet
Intangible asset
Property plant & equipment
Investment property
Inventories
Investment in associates and joint ventures
Trade and other receivables
Derivative financial instruments
Available for sale investments
Deferred tax assets
Non-current assets
Current assets
Current liabilities
Non current liabilities
Share capital
Share premium
2017
$m
2016
$m
2015
$m
2014
$m
2013
$m
150.1
150.1
150.1
118.6
133.0
9,000.6
8,737.5
8,601.1
8,227.1
7,424.8
3.5
111.1
2.6
157.3
1,069.7
1,086.6
67.0
0.2
6.5
69.1
66.7
0.2
4.6
82.8
2.0
263.9
1,149.1
292.9
–
2.7
124.6
2.6
247.8
198.5
239.5
–
15.6
104.6
3.3
252.7
176.0
180.8
–
16.6
76.9
10,477.8
10,288.4
10,583.9
9,153.9
8,263.3
3,731.9
3,435.4
2,953.2
3,661.2
4,126.3
(1,562.1)
(1,554.0)
(1,438.6)
(1,163.4)
(1,130.6)
(3,506.0)
(3,660.1)
(3,581.7)
(3,617.4)
(2,596.2)
9,141.6
8,509.7
8,519.3
8,034.7
8,663.6
89.8
199.2
89.8
199.2
89.8
199.2
89.8
199.2
89.8
199.2
Reserves (retained earnings and hedging, translation and fair value reserves)
7,029.5
6,526.3
6,357.1
5,884.7
6,435.5
Equity attributable to equity holders of the Company
Non-controlling interests
Consolidated income statement
Group revenue
7,318.5
1,823.1
9,141.6
6,815.3
1,694.4
6,646.1
1,873.2
6,173.7
1,861.0
6,724.5
1,939.1
8,509.7
8,519.3
8,034.7
8,663.6
2017
$m
2016
$m
2015
$m
2014
$m
2013
$m
4,749.4
3,621.7
3,225.7
4,810.2
5,509.2
Total profit from operations and associates
1,900.8
355.7
283.2
1,608.5
2,137.8
Profit before tax
Income tax expense
Profit for the financial year from continuing operations
Profit for the financial year from discontinued operations
Profit for the year
Non-controlling interests
Net earnings (profit attributable to equity holders of the Company)
1,830.8
(633.6)
1,197.2
0.5
1,197.7
(447.0)
750.7
284.6
(108.6)
176.0
38.3
214.3
(56.3)
158.0
242.8
1,558.5
2,076.5
(154.4)
(703.6)
(843.2)
88.4
854.9
1,233.3
613.3
701.7
(4.2)
850.7
6.5
1,239.8
(93.5)
(390.9)
(580.2)
608.2
459.8
659.6
EBITDA
2,586.6
1,626.1
910.1
2,102.9
2,625.8
Earnings per share
Basic and diluted earnings per share
2017
cents
2016
cents
2015
cents
2014
cents
2013
cents
76.2
16.0
61.7
46.6
66.9
antofagasta.co.uk
193
193
antofagasta.co.ukFINANCIAL STATEMENTS
FIVE-YEAR SUMMARY CONTINUED
Dividends per share proposed in relation to the Year
Ordinary dividends (interim and final)
Special dividends
2017
cents
50.9
–
50.9
2016
cents
18.4
–
18.4
2015
cents
2014
cents
3.1
–
3.1
21.5
–
21.5
2013
cents
95.0
–
95.0
Dividends per share paid in the year and deducted from equity
25.6
3.1
12.9
97.8
90.0
Consolidated cash flow Statement
Cash flow from operations
Interest paid
Income tax paid
Net cash from operating activities
2017
$m
2016
$m
2015
$m
2014
$m
2013
$m
2,495.0
1,457.3
858.3
2,507.8
2,659.2
(59.1)
(338.4)
(2,097.5)
(46.3)
(272.6)
1,138.4
(38.6)
(45.4)
(57.2)
(427.1)
(641.5)
(896.5)
392.6
1,820.9
1,705.5
Investing activities
Acquisition and disposal of subsidiaries, joint venture and associates
Dividends from associates
Available-for-sale investments, investing activities and recovery of VAT
Purchases and disposals of intangible assets, property, plant and equipment
Interest received
Net cash used in investing activities
3.1
81.1
113.6
(892.1)
14.3
30.0
10.2
(425.2)
(29.9)
12.1
414.8
–
20.0
372.7
–
–
278.9
(794.6)
(1,046.9)
(1,613.7)
(1,334.2)
14.4
11.0
16.5
14.0
(679.3)
(1,165.2)
(638.9)
(1,204.5)
(1,041.3)
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
(252.3)
(320.1)
(487.0)
(1,059.4)
(30.6)
(127.2)
(964.2)
(260.0)
(80.0)
(412.4)
214.3
(76.3)
452.0
244.8
1,019.4
(357.2)
(1,845.5)
(975.0)
(452.3)
(418.2)
Net (decrease)/increase in cash and cash equivalents
358.8
(103.1)
(1.5)
259.2
(1,181.3)
Consolidated net cash
Cash, cash equivalents and liquid investments
2,252.3
2,048.5
1,731.6
2,374.5
2,685.1
2017
$m
2016
$m
2015
$m
2014
$m
2013
$m
Short-term borrowings
Medium and long-term borrowings
(753.6)
(836.8)
(758.9)
(284.5)
(341.0)
(1,955.1)
(2,283.4)
(1,996.2)
(2,091.6)
(1,032.9)
(2,708.7)
(3,120.2)
(2,755.1)
(2,376.1)
(1,373.9)
Net (debt)/cash at the year-end
(456.4)
(1,071.7)
(1,023.5)
(1.6)
1,311.2
194
194
Antofagasta Annual Report 2017
Antofagasta plc Annual Report 2017
PRODUCTION STATISTICS
Production and sales volumes, realised price and cash cost by mine
Copper
Los Pelambres
Centinela
Antucoya
Michilla
Zaldívar (attributable basis – 50%)
Group total
Group weighted average (net cash cost)
Group weighted average (excluding tolling charges and
before by-products)
Group weighted average (before by-products)
Cash cost at Los Pelambres comprises
Cash cost before by-product credits
By-product credits (principally molybdenum and gold)
Net cash cost
Cash cost at Centinela comprises
Cash cost before by-product credits
By-product credits (principally gold)
Net cash cost
LME average
Gold
Los Pelambres
Centinela Concentrates
Group total
Market average price
Molybdenum
Los Pelambres
Market average price
Production
2017
‘000
tonnes
2016
‘000
tonnes
2017
‘000
tonnes
Sales
2016
‘000
tonnes
343.8
355.3
344.8
351.6
228.3
236.2
232.2
227.6
80.5
66.2
–
–
51.7
51.7
80.8
–
51.3
66.6
0.9
51.7
704.3
709.4
709.1
698.4
Net cash costs
Realised prices
2017
‘000
$/lb
3.06
2.96
2.86
–
–
2016
‘000
$/LB
2.35
2.32
2.30
–
–
3.00
2.33
2017
‘000
$/lb
1.02
1.37
1.68
–
2016
‘000
$/lb
1.06
1.19
1.83
–
1.62
1.55
1.25
1.41
1.20
1.33
1.60
1.54
1.44
1.36
(0.42)
(0.30)
1.02
1.06
1.81
1.75
(0.45)
(0.56)
1.36
1.19
Production
2016
‘000
tonnes
2017
‘000
tonnes
‘000
ounces
55.4
157.0
212.4
55.4
‘000
ounces
57.8
213.0
270.8
57.8
2017
‘000
tonnes
‘000
ounces
54.3
163.9
218.2
54.3
Sales
2016
‘000
tonnes
‘000
ounces
62.8
208.6
271.4
62.8
‘000
tonnes
‘000
tonnes
‘000
tonnes
‘000
tonnes
10.5
7.1
9.6
7.2
Realised prices
2017
‘000
$/lb
2016
‘000
$/LB
2.80
2.21
‘000
$/oz
1.270
1.284
1.280
1.270
1.258
‘000
$/lb
8.7
8.2
‘000
$/oz
1.253
1.257
1.256
1.253
1.248
‘000
$/lb
6.8
6.5
antofagasta.co.uk
195
195
antofagasta.co.ukFINANCIAL STATEMENTS
ORE RESERVES AND MINERAL RESOURCES ESTIMATES
At 31 December 2017
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.
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.
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 204 to 205.
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.
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.
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.
198
196
Antofagasta Annual Report 2017
Antofagasta plc Annual Report 2017
ORE RESERVES ESTIMATES
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 (d))
Proved
Probable
Total
Tonnage
(millions of tonnes)
2017
2016
2017
Copper
(%)
2016
Molybdenum
(%)
Gold
(g/tonne)
Attributable Tonnage
(millions of tonnes)
2017
2016
2017
2016
2017
2016
719.6
473.8
661.9
595.7
1,193.4
1,257.6
36.4
155.1
191.5
38.8
151.1
189.9
573.9
549.8
1,299.5
1,252.6
1,873.4
1,802.3
610.3
588.5
1,454.6
1,403.7
2,064.9
1,992.2
101.5
10.7
112.2
336.9
339.5
676.4
110.0
5.3
115.3
360.1
337.0
697.0
0.62
0.58
0.60
0.63
0.34
0.39
0.48
0.40
0.42
0.49
0.39
0.42
0.54
0.43
0.53
0.36
0.30
0.33
0.63
0.59
0.61
0.021
0.017
0.020
0.023
0.016
0.020
0.05
0.05
0.05
0.05
0.04
0.05
431.8
284.3
716.0
397.1
357.4
754.6
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
–
–
–
–
–
–
–
–
–
–
–
–
25.5
108.6
134.0
27.1
105.8
132.9
0.012
0.012
0.012
0.011
0.012
0.012
0.19
0.12
0.14
0.20
0.13
0.15
401.7
909.6
384.8
876.8
1,311.4
1261.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
427.2
1,018.2
412.0
982.6
1,445.4
1,394.5
101.5
10.7
112.2
235.8
237.6
473.4
110.0
5.3
115.3
252.1
235.9
487.9
–
2,747.1
2,752.4
Total Group Subsidiaries
4,046.8
4,062.2
0.46
0.48
Group Joint Ventures
Zaldívar (see note (n))
Proved
Probable
Total Group Joint Ventures
Tonnage
(millions of tonnes)
2017
2016
2017
265.0
163.5
428.5
285.3
175.5
460.8
0.49
0.54
0.51
Copper
(%)
2016
0.50
0.54
0.51
Total Group
4,475.3
4,523.0
0.47
0.48
Molybdenum
(%)
Gold
(g/tonne)
Attributable Tonnage
(millions of tonnes)
2017
2016
2017
2016
2017
2016
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
132.5
81.8
142.7
87.7
214.2
230.4
2,961.3
2,982.8
antofagasta.co.uk
199
197
antofagasta.co.ukFINANCIAL STATEMENTS
ORE RESERVES AND MINERAL RESOURCES ESTIMATES CONTINUED
At 31 December 2017
MINERAL RESOURCES ESTIMATES (INCLUDING ORE RESERVES)
Group Subsidiaries
2017
2016
2017
Tonnage
(millions of tonnes)
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))
1,190.9
2,163.0
3,353.8
2,670.2
6,024.1
1,190.9
2,163.0
3,353.8
2,670.2
6,024.1
1,095.7
2,260.4
3,356.1
2,728.4
6,084.5
1,095.7
2,260.4
3,356.1
2,728.4
6,084.5
Centinela Cathodes (Oxides)
Measured
Indicated
Measured + Indicated
Inferred
Sub-Total
46.0
242.1
288.1
19.3
307.5
82.9
235.6
318.6
12.1
330.7
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
583.6
1619.3
2,202.9
974.8
3,177.7
629.7
1,861.3
2,491.0
994.1
3,485.2
579.5
1,662.3
2,241.8
1,040.4
3,282.2
662.4
1,897.9
2,560.4
1,052.5
3,612.9
124.7
50.8
175.5
1.0
176.4
407.1
457.8
864.9
76.0
940.9
134.4
43.8
178.1
1.2
179.3
407.7
478.9
886.6
92.5
979.1
531.7
508.7
1,040.4
77.0
1,117.4
542.0
522.7
1,064.7
93.7
1,158.4
200
198
Antofagasta Annual Report 2017
0.59
0.52
0.54
0.46
0.51
0.59
0.52
0.54
0.46
0.51
0.52
0.35
0.38
0.42
0.38
0.47
0.38
0.41
0.31
0.38
0.48
0.38
0.40
0.31
0.38
0.51
0.34
0.46
0.34
0.46
0.53
0.36
0.44
0.33
0.43
0.52
0.36
0.44
0.33
0.44
Copper
(%)
2016
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
Molybdenum
(%)
Gold
(g/tonne)
Attributable Tonnage
(millions of tonnes)
2017
2016
2017
2016
2017
2016
0.021
0.015
0.017
0.015
0.016
0.021
0.015
0.017
0.015
0.016
–
–
–
–
–
0.022
0.015
0.018
0.015
0.016
0.022
0.015
0.018
0.015
0.016
–
–
–
–
–
0.05
0.05
0.05
0.06
0.05
0.05
0.05
0.05
0.06
0.05
–
–
–
–
–
0.05
0.05
0.05
0.06
0.06
0.05
0.05
0.05
0.06
0.06
714.5
1,297.8
2,012.3
1,602.1
3,614.4
714.5
1,297.8
2,012.3
1,602.1
3,614.4
657.4
1,356.2
2,013.7
1,637.0
3,650.7
657.4
1,356.2
2,013.7
1,637.0
3,650.7
–
–
–
–
–
32.2
169.5
201.7
13.5
215.2
58.1
165.0
223.0
8.5
231.5
0.011
0.012
0.012
0.011
0.011
0.011
0.012
0.012
0.011
0.011
0.19
0.12
0.14
0.09
0.12
0.19
408.5
0.12
1,133.5
0.14
1,542.0
0.09
682.4
0.12 2,224.4
405.6
1,163.6
1,569.3
728.3
2,297.5
463.7
1,328.6
1,792.3
736.8
2,529.0
134.4
43.8
178.1
1.2
179.3
407.7
478.9
886.6
92.5
979.1
–
–
–
–
–
–
–
–
–
–
0.21
0.18
0.19
0.15
0.19
440.8
1,302.9
1,743.7
695.9
2,439.6
124.7
50.8
175.5
1.0
176.4
407.1
457.8
864.9
76.0
940.9
–
–
–
–
–
531.7
508.7
1,040.4
77.0
1,117.4
542.0
522.7
1,064.7
93.7
1,158.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.015
0.014
0.015
0.012
0.015
0.015
0.014
0.015
0.012
0.015
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.21
0.13
0.17
0.16
0.17
–
–
–
–
–
Antofagasta plc Annual Report 2017
Group Subsidiaries
2017
2016
2017
Tonnage
(millions of tonnes)
Antucoya (see note (d))
Oxides
Measured
Indicated
Measured + Indicated
Inferred
Total
Antucoya Total
Measured
Indicated
Measured + Indicated
Inferred
Total
Polo Sur (see note (e))
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 (f))
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
378.8
477.6
856.5
435.3
1,291.8
378.8
477.6
856.5
435.3
1,291.8
–
86.8
86.8
38.8
125.6
–
704.1
704.1
684.8
1,388.9
–
790.9
790.9
723.6
1,514.5
–
–
–
18.3
18.3
–
–
–
321.9
321.9
–
–
–
340.2
340.2
412.4
472.8
885.1
410.5
1,295.7
412.4
472.8
885.1
410.5
1,295.7
–
86.8
86.8
38.8
125.6
–
704.1
704.1
684.8
1,388.9
–
790.9
790.9
723.6
1,514.5
–
–
–
18.3
18.3
–
–
–
321.9
321.9
–
–
–
340.2
340.2
0.34
0.29
0.32
0.27
0.30
0.34
0.29
0.32
0.27
0.30
–
0.43
0.43
0.35
0.40
–
0.37
0.37
0.30
0.34
–
0.38
0.38
0.31
0.34
–
–
–
0.29
0.29
–
–
–
0.38
0.38
–
–
–
0.37
0.37
Copper
(%)
2016
0.34
0.30
0.32
0.27
0.30
0.34
0.30
0.32
0.27
0.30
–
0.43
0.43
0.35
0.40
–
0.37
0.37
0.30
0.34
–
0.38
0.38
0.31
0.34
–
–
–
0.29
0.29
–
–
–
0.38
0.38
–
–
–
0.37
0.37
Molybdenum
(%)
Gold
(g/tonne)
Attributable Tonnage
(millions of tonnes)
2017
2016
2017
2016
2017
2016
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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
0.05
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.002
0.002
–
–
–
0.000
0.000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.05
0.05
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.05
0.05
–
–
–
–
–
265.2
334.4
599.5
304.7
904.3
265.2
334.4
599.5
304.7
904.3
–
86.8
86.8
38.8
125.6
–
704.1
704.1
684.8
1,388.9
–
790.9
790.9
723.6
1,514.5
–
–
–
9.3
9.3
–
–
–
164.2
164.2
–
–
–
173.5
173.5
288.6
331.0
619.6
287.4
907.0
288.6
331.0
619.6
287.4
907.0
–
86.8
86.8
38.8
125.6
–
704.1
704.1
684.8
1,388.9
–
790.9
790.9
723.6
1,514.5
–
–
–
9.3
9.3
–
–
–
164.2
164.2
–
–
–
173.5
173.5
antofagasta.co.uk
201
199
antofagasta.co.ukFINANCIAL STATEMENTS
ORE RESERVES AND MINERAL RESOURCES ESTIMATES CONTINUED
At 31 December 2017
MINERAL RESOURCES ESTIMATES (INCLUDING ORE RESERVES) CONTINUED
Group Subsidiaries
Mirador (see note (g))
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 (h))
Oxides
Measured
Indicated
Measured + Indicated
Inferred
Sub-Total
Llano Total
Measured
Indicated
Measured + Indicated
Inferred
Total
Paleocanal (see note (i))
Oxides
Measured
Indicated
Measured + Indicated
Inferred
Sub-Total
Paleocanal Total
Measured
Indicated
Measured + Indicated
Inferred
Total
Tonnage
(millions of tonnes)
2017
2016
2017
7.3
28.6
35.9
9.1
44.9
31.2
16.8
48.0
2.5
50.5
38.5
45.4
83.9
11.5
95.4
29.9
6.5
36.3
6.1
42.4
29.9
6.5
36.3
6.1
42.4
12.4
6.6
19.0
2.8
21.8
12.4
6.6
19.0
2.8
21.8
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
0.64
0.28
0.35
0.27
0.34
0.35
0.28
0.32
0.26
0.32
0.40
0.28
0.34
0.27
0.33
0.50
0.43
0.49
0.32
0.46
0.50
0.43
0.49
0.32
0.46
0.50
0.41
0.47
0.33
0.45
0.50
0.41
0.47
0.33
0.45
Copper
(%)
2016
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
Molybdenum
(%)
Gold
(g/tonne)
Attributable Tonnage
(millions of tonnes)
2017
2016
2017
2016
2017
2016
–
–
–
–
–
–
–
–
–
–
0.006
0.008
0.007
0.008
0.007
0.006
0.005
0.005
0.007
0.006
–
–
–
–
–
0.13
0.08
0.11
0.06
0.11
–
–
–
–
–
0.15
0.13
0.13
0.09
0.11
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5.7
22.3
28.0
7.1
35.1
31.2
16.8
48.0
2.5
50.5
36.9
39.1
76.1
9.5
85.6
21.1
4.6
25.7
4.3
30.0
21.1
4.6
25.7
4.3
30.0
11.0
5.9
17.0
2.5
19.5
11.0
5.9
17.0
2.5
19.5
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
22.6
0.4
23.0
19.8
2.8
22.6
0.4
23.0
10.1
3.9
13.9
1.2
15.1
10.1
3.9
13.9
1.2
15.1
202
200
Antofagasta Annual Report 2017
Antofagasta plc Annual Report 2017
Group Subsidiaries
2017
2016
2017
Tonnage
(millions of tonnes)
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
Brujulina (see note (k))
Oxides
Measured
Indicated
Measured + Indicated
Inferred
Total
Brujulina Total
Measured
Indicated
Measured + Indicated
Inferred
Total
Sierra (see note (l))
Oxides
Measured
Indicated
Measured + Indicated
Inferred
Total
Sierra Total
Measured
Indicated
Measured + Indicated
Inferred
Total
Copper
(%)
2016
–
–
–
0.31
0.31
–
–
–
Molybdenum
(%)
Gold
(g/tonne)
Attributable Tonnage
(millions of tonnes)
2017
2016
2017
2016
2017
2016
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
15.7
15.7
–
–
–
–
–
–
15.5
15.5
–
–
–
–
–
–
–
–
–
30.8
30.8
30.4
30.4
–
–
–
–
–
–
–
–
–
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
0.03
0.03
0.00
0.00
955.4
955.4
955.4
955.4
–
–
–
–
–
–
–
–
–
–
–
–
1,904.2
1,903.8
1,904.2
1,903.8
0.50
0.50
0.50
0.50
–
–
–
87.2
87.2
–
–
–
87.2
87.2
–
–
–
52.0
52.0
–
–
–
52.0
52.0
–
–
–
0.0
0.0
–
–
–
0.0
0.0
–
–
–
0.0
0.0
–
–
–
0.0
0.0
–
–
–
–
–
–
0.49
0.49
0.00
0.00
–
–
–
–
–
–
0.49
0.49
0.00
0.00
–
–
–
–
–
–
0.69
0.69
0.00
0.00
–
–
–
–
–
–
0.69
0.69
0.00
0.00
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
971.1
971.1
970.9
970.9
–
–
–
44.5
44.5
–
–
–
44.5
44.5
–
–
–
52.0
52.0
–
–
–
52.0
52.0
–
–
–
0.0
0.0
–
–
–
0.0
0.0
–
–
–
0.0
0.0
–
–
–
0.0
0.0
antofagasta.co.uk
203
201
antofagasta.co.ukFINANCIAL STATEMENTS
ORE RESERVES AND MINERAL RESOURCES ESTIMATES CONTINUED
At 31 December 2017
MINERAL RESOURCES ESTIMATES (INCLUDING ORE RESERVES) CONTINUED
Group Subsidiaries
2017
2016
2017
Twin Metals (see note (m))
Tonnage
(millions of tonnes)
Maturi
Measured
Indicated
279.5
745.5
279.5
745.5
Measured + Indicated
1,025.0
1,025.0
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
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
217.0
307.4
–
–
–
–
90.4
90.4
217.0
307.4
–
–
–
435.5
435.5
435.5
435.5
279.5
929.1
279.5
929.1
1,208.6
1,208.6
1,163.1
1,163.1
2,371.7
2,371.7
9,880.4
9,956.0
8,467.4
8,457.5
Group Subsidiaries total
18,347.8
18,413.5
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
0.47
0.43
0.45
Copper
(%)
2016
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
0.47
0.42
0.45
Nickel
(%)
2016
TPM
(g/tonne Au+Pt+Pd)
Attributable Tonnage
(millions of tonnes)
2017
2016
2017
2016
2017
0.200
0.200
0.190
0.193
0.160
0.182
–
0.170
0.170
0.150
0.165
–
0.160
0.160
0.150
0.153
–
–
–
0.190
0.193
0.160
0.182
–
0.170
0.170
0.150
0.165
–
0.160
0.160
0.150
0.153
–
–
–
0.160
0.160
0.160
0.160
0.200
0.200
0.185
0.189
0.158
0.173
0.185
0.189
0.158
0.173
–
–
–
–
–
–
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
–
–
–
0.00
0.00
0.57
0.59
0.58
0.34
0.46
–
–
–
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
–
–
–
215.3
712.5
927.7
433.6
215.3
712.5
927.7
433.6
1,361.3
1,361.3
–
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
–
–
–
0.00
0.00
304.8
304.8
304.8
304.8
0.57
0.59
0.58
0.34
215.3
840.9
215.3
840.9
1,056.2
1,056.2
910.8
910.8
0.46
1,967.0
1,967.0
–
–
7,361.8
7,412.4
5,571.6
5,569.4
– 12,933.4
12,981.8
204
202
Antofagasta Annual Report 2017
Antofagasta plc Annual Report 2017
Group Joint Ventures
Zaldívar (see note (n))
Oxides
Measured
Indicated
Measured + Indicated
Inferred
Total
Zaldívar Total
Measured
Indicated
Measured + Indicated
Inferred
Group Joint Ventures total
613.0
629.7
Total Group
Measured + Indicated
Inferred
Total
2017
2016
10,484.6
10,577.6
8,476.2
8,465.6
18,960.8
19,043.2
Tonnage
(millions of tonnes)
2017
2016
2017
432.4
444.2
171.8
604.2
8.8
177.4
621.6
8.1
613.0
629.7
432.4
444.2
171.8
604.2
8.8
177.4
621.6
8.1
0.49
0.45
0.48
0.51
0.48
0.49
0.45
0.48
0.51
0.48
2017
0.47
0.43
0.45
Copper
(%)
2016
0.50
0.45
0.49
0.53
0.49
0.50
0.45
0.49
0.53
0.49
2016
0.47
0.42
0.45
Molybdenum
(%)
Gold
(g/tonne)
Attributable Tonnage
(millions of tonnes)
2017
2016
2017
2016
2017
2016
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
216.2
85.9
302.1
4.4
222.1
88.7
310.8
4.1
306.5
314.9
216.2
85.9
302.1
4.4
222.1
88.7
310.8
4.1
306.5
314.9
2017
2016
2017
2016
2017
2016
–
–
–
–
–
–
–
–
–
–
–
7,663.9
7,723.2
5,576.0
5,573.5
– 13,239.9
13,296.7
antofagasta.co.uk
205
203
antofagasta.co.ukFINANCIAL STATEMENTS
ORE RESERVES AND MINERAL RESOURCES ESTIMATES CONTINUED
At 31 December 2017
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 $3.00/lb
($3.10 in 2016), $9.00/lb molybdenum (unchanged from 2016) and $1,250/oz gold (unchanged from 2016), 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 2016). Mineralisation estimated outside these pit shells is not included in the resource figures.
Group policy on auditing of resource and reserve estimates is that prior to first publication, an independent external audit is done. For 2017, this is the case for the
newly incorporated Brujulina and Sierra resources. External audits are also done on resources and reserves for any material changes (incorporation of a significant
number of drillhole information, for instance) or every three to five years, whichever comes first. In 2017 external audits were carried out on the 2016 ore reserve
estimates at Pelambres, Centinela, Zaldivar and Antucoya (Encuentro Oxides was audited prior to first publication in 2015). All reserve estimates were found to
comply with the JORC Code (2012). All the resource models that support the reserve estimates have been audited as per Group policy.
A) Los Pelambres
Los Pelambres is 60% owned by the Group. The cut-off grade applied to the determination of mineral resources is 0.35% copper, while cut-off grade applied
for mineral reserves is variable over 0.35% copper. For 2017 the mineral resource model has been updated with 195 drill holes for a total of 59,000 metres.
The decrease of 64 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 decreased overall by a net 60 million tonnes, including
depletion. Due to the new drilling to improve the quality of resources within the five-year period 2018-2024; measured resources increased by 95 millon
tonnes and indicated resources decreased by 97 millon tonnes while inferred resources decreased by 58 million tonnes.
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 0.15% 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. Esperanza Sur ore reserves have increased by a net 72 million tonnes due to a change in the cut-off grade criteria,
incorporating molybdenum and silver in the copper equivalent calculation, while mineral resources decreased by a net 114 million tonnes. The decrease is mainly in Esperanza
and Esperanza Sur deposits due to updates to the economic parameters and cost model in the period. The Centinela Cathodes ore reserves are made up of 73.6 million
tonnes at 0.58% copper of heap leach ore and 117.9 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 feed into the Centinela Cathodes operation. Ore Reserves
decrease overall by a net 3 million tonnes due to depletion from start up of operations in 2017. Mineral resources decreased overall by a net 41 million tonnes,
including depletion, due principally to updates to the cost model.
D) 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 40 million tonnes, mineral resources have decreased by 4 million
tonnes mainly due to changes in economic assumptions and an updated pit design.
E) 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 2017 the resource model has not been updated.
F) 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 2017 the resource model has not been updated.
G) 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 2017 the resource model has
been refined without additional drill holes, increasing in 13 million tonnes.
H) Llano
The Llano deposit is covered by AMSA and Centinela mining tenements shared in different proportions, with the Group owning 70.8% of the resource. The
cut-off grade applied to the determination of mineral resources is 0.15% copper. For 2017 mineral resources increased overall by a net 10 million tonnes, due
to updates to the recovery parameters and refinement without additional drill holes.
I) Paleocanal
The Paleocanal deposit is covered by AMSA and Centinela mining tenements shared in different proportions, with the Group owning 89.2% of the resource.
The cut-off grade applied to the determination of mineral resources is 0.15% copper. For 2017 mineral resources increased overall by a net 5 million tonnes,
due to updates to the recovery parameters and refinement without additional drill holes.
206
204
Antofagasta Annual Report 2017
Antofagasta plc Annual Report 2017 ORE RESERVES AND MINERAL RESOURCES ESTIMATES CONTINUED
At 31 December 2017
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 $3.00/lb
($3.10 in 2016), $9.00/lb molybdenum (unchanged from 2016) and $1,250/oz gold (unchanged from 2016), 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 2016). Mineralisation estimated outside these pit shells is not included in the resource figures.
Group policy on auditing of resource and reserve estimates is that prior to first publication, an independent external audit is done. For 2017, this is the case for the
newly incorporated Brujulina and Sierra resources. External audits are also done on resources and reserves for any material changes (incorporation of a significant
number of drillhole information, for instance) or every three to five years, whichever comes first. In 2017 external audits were carried out on the 2016 ore reserve
estimates at Pelambres, Centinela, Zaldivar and Antucoya (Encuentro Oxides was audited prior to first publication in 2015). All reserve estimates were found to
comply with the JORC Code (2012). All the resource models that support the reserve estimates have been audited as per Group policy.
A) Los Pelambres
Los Pelambres is 60% owned by the Group. The cut-off grade applied to the determination of mineral resources is 0.35% copper, while cut-off grade applied
for mineral reserves is variable over 0.35% copper. For 2017 the mineral resource model has been updated with 195 drill holes for a total of 59,000 metres.
The decrease of 64 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 decreased overall by a net 60 million tonnes, including
depletion. Due to the new drilling to improve the quality of resources within the five-year period 2018-2024; measured resources increased by 95 millon
tonnes and indicated resources decreased by 97 millon tonnes while inferred resources decreased by 58 million tonnes.
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 0.15% 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. Esperanza Sur ore reserves have increased by a net 72 million tonnes due to a change in the cut-off grade criteria,
incorporating molybdenum and silver in the copper equivalent calculation, while mineral resources decreased by a net 114 million tonnes. The decrease is mainly in Esperanza
and Esperanza Sur deposits due to updates to the economic parameters and cost model in the period. The Centinela Cathodes ore reserves are made up of 73.6 million
tonnes at 0.58% copper of heap leach ore and 117.9 million tonnes at 0.28% copper of ROM ore.
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 feed into the Centinela Cathodes operation. Ore Reserves
decrease overall by a net 3 million tonnes due to depletion from start up of operations in 2017. Mineral resources decreased overall by a net 41 million tonnes,
including depletion, due principally to updates to the cost model.
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 40 million tonnes, mineral resources have decreased by 4 million
tonnes mainly due to changes in economic assumptions and an updated pit design.
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 2017 the resource model has not been updated.
F) Penacho Blanco
copper. For 2017 the resource model has not been updated.
G) 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 2017 the resource model has
been refined without additional drill holes, increasing in 13 million tonnes.
The Llano deposit is covered by AMSA and Centinela mining tenements shared in different proportions, with the Group owning 70.8% of the resource. The
cut-off grade applied to the determination of mineral resources is 0.15% copper. For 2017 mineral resources increased overall by a net 10 million tonnes, due
to updates to the recovery parameters and refinement without additional drill holes.
The Paleocanal deposit is covered by AMSA and Centinela mining tenements shared in different proportions, with the Group owning 89.2% of the resource.
The cut-off grade applied to the determination of mineral resources is 0.15% copper. For 2017 mineral resources increased overall by a net 5 million tonnes,
due to updates to the recovery parameters and refinement without additional drill holes.
C) Encuentro
D) Antucoya
E) Polo Sur
H) Llano
I) Paleocanal
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 2017
the mineral resource model has not been updated.
K) Brujulina
Brujulina is 51% owned by the Group and was removed from the 2016 ‘Other Mineral Inventory’ section and added to the 2017 Mineral Resource table. The
cut-off grade applied to the determination of mineral resources is 0.30% copper.
L) Sierra
Sierra is 100% owned by the Group; at the end 2016 the Group acquired the Sierra project. In 2017 a new resource model is built and reviewed by an
external auditor. The cut-off grade applied to the determination of mineral resources is 0.30% copper.
M) 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 2016.
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 0.56 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.
On March 8, 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 December 14, 2016, and BLM rejected Twin Metals’ application to renew the leases the next day.
On September 12, 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
and the BLM. Following the USFS withholding of consent and BLM’s denial of renewal, Twin Metals filed an amended complaint on January 3, 2017, adding
the U.S. Department of Agriculture and the USFS as defendants.
On December 22 2017 the Solicitor of the Department of the Interior issued a new legal opinion concluding that the BLM did not have discretion to deny Twin
Metals’ application for renewal of federal mineral leases MNES-1352 and MNES-1353. Immediately after, Twin Metals dismissed its lawsuit filed in the U.S.
District Court in Minnesota against the BLM and USFS, with immediate effect. Currently there is no pending litigation.
It is expected that shortly after the issuing of the new legal opinion, the BLM will reinstate the federal mineral leases MNES-1352 and MNES-1353 and the
renewal process should resume and continue.
N) Zaldívar
Zaldivar is 50% owned by the Group. Cut-off grades are calculated using an economic formula which is equivalent to approximately 0.20% copper. For 2017
the mineral resource model has not been updated. Ore Reserves have decreased by 33 million tonnes mainly due to depletion. Mineral Resources have
decreased by 17 million tonnes, including depletion, due to positive changes in economic assumptions and changes to the geo-metallurgical model.
O) 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:
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%
In the Michilla District
(i)
The Rencoret deposit, owned 100% by the Group.
Mineral Deposit
Rencoret
Total
Tonnes range
(million tonnes)
15
15
25
25
Grade range (% cu)
1.22
1.22
1.00
1.00
Number
drill holes
31
31
Total
metres
8300
8300
Ownership
interest
(%)
100
P) 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 and Brujulina. The remaining approximately 49% of Antomin 2 and Antomin Investors is owned by Mineralinvest
Establishment (“Mineralinvest”), a company controlled by the Luksic family.
Further details are set out in Note 34(c) to the financial statements.
206
Antofagasta Annual Report 2017
antofagasta.co.uk
207
205
antofagasta.co.ukFINANCIAL STATEMENTS
GLOSSARY AND DEFINITIONS
ATI
AMSA
Antucoya
Annual Report
BUSINESS, FINANCIAL AND ACCOUNTING
All Injury Frequency Rate.
AIFR
Alto Maipo SpA is incorporated in Chile and
Alto Maipo
owns the Alto Maipo hydroelectric project in
the upper section of the Maipo River in Chile.
The Group disposed of its 40% interest in Alto
Maipo in 2017.
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, which 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 both Zaldívar and Tethyan.
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.
Australian dollars
Banco de Chile
Capex
Cash costs
Barrick Gold
CDP
CCU
206
Centinela
Centinela Mining
District
CGU
Chilean peso
Comex
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.
Companies Act
2006
Continental water Water that comes from the interior of land
Corporate
Governance Code
Directors
Duluth
EBITDA
EIA
El Arrayán
Encuentro
Energía Andina
EPS
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 (FRC), most recently updated in 2016.
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 deposit in the
Centinela Mining District.
Energía Andina S.A., a 50%-owned joint
venture entity of the Group incorporated
in Chile.
Earnings per share.
Antofagasta plc Annual Report 2017 Esperanza Sur
EU
FCA
FCAB
FTSE All-Share
Index
GAAP
GHG
Government
Hedge accounting
IAS
IASB
ICMM
IFRIC
IFRS
Inversiones
Hornitos
IVA
Copper deposit in the Centinela Mining District.
European Union.
Financial Conduct Authority, a 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.
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.
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).
Key Management
Personnel
KPI
LBMA
LIBOR
LME
Los Pelambres
LSE
LTIFR
LTIP
MARC
Marubeni
Michilla
PEP
Platts
PPA
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 other
senior managers participate.
Maintenance and Repair Contract.
A maintenance contract under which the
service provider commits to a certain level
of availability of the equipment during the term
of the contract.
Marubeni Corporation, the Group’s 30%
partner in Centinela and Antucoya. Marubeni
also holds an effective 8.75% interest in Los
Pelambres.
Minera Michilla S.A., a 99.9%-owned
subsidiary of the Group incorporated in Chile,
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.
207
antofagasta.co.ukFINANCIAL STATEMENTS 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.
GLOSSARY AND DEFINITIONS CONTINUED
Provisional pricing A sales term in several copper and
SAP
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).
Quiñenco S.A., a Chilean financial and
industrial group listed on the Santiago Stock
Exchange controlled by a foundation in which
the Luksic family have interests,.
International treaty for the conservation
and sustainable utilisation of wetlands.
Resolución de Calificación Ambiental,
Environmental Approval Resolution.
Realised prices are determined by comparing
revenue (gross of TC/RCs for concentrate
sales) with sales volumes. Realised copper
prices differ from market prices mainly
because the Group’s sales agreements
generally provide for provisional pricing at the
time of shipment with final pricing based on
the average market price
for future periods. Realised prices also reflect
the impact of realised gains or losses on
commodity derivative instruments.
SERNAGEOMIN
SHFE
SONAMI
Sterling
SVS
Tesoro Central and
Tesoro Noreste
Tethyan
TSR
Twin Metals
Minnesota Project
UK
UKLA
US
US dollar
Zaldívar
Quiñenco
Ramsar
Convention
RCA
Realised prices
208
Antofagasta plc Annual Report 2017
MINING INDUSTRY
Brownfield project A development or exploration project in
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
the vicinity of an existing operation.
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 using
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.
JORC
ktpd
Life-of-Mine
(“LOM”)
The Australasian Joint Ore
Reserves Committee.
Thousand tonnes per day.
The remaining life of a mine expressed in
years, calculated by reference to its current
defined reserves and the rate at which ore
is expected to be extracted.
Mineral resources 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).
Gross cash costs less by-product credits.
Mine working or excavation that is open to
the surface.
Rock from which metal(s) or mineral(s) can
be economically and legally extracted.
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.
Oxide ore occurs on the weathered surface
of ore-rich lodes and normally results in the
production of copper cathodes through a
heap-leaching process.
The proportion or quantity of contained copper
for which payment is received after
metallurgical deduction.
MW
Net cash cost
Open pit
Ore
Ore grade
Ore reserves
Oxide ores
Payable copper
209
antofagasta.co.ukFINANCIAL STATEMENTS GLOSSARY AND DEFINITIONS CONTINUED
Porphyry
Run-of-Mine
(“ROM”)
Stockpile
SX-EW
Sulphide ore
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-products.
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 copper cathodes.
Sulphide ore comes from unweathered parent
ore and normally results in the production of
concentrate through a flotation process which
then requires smelting and refining to produce
copper cathodes.
Tailings dam
TC/RCs
Tolling charges
Tonne
tpd
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.
Underground mine Natural or man-made excavation under
the surface of the ground.
210
Antofagasta plc Annual Report 2017
SHAREHOLDER INFORMATION
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
Pound sterling
Thousand pounds sterling
Million pounds sterling
Pence sterling
Canadian dollar
Million Canadian dollar
Chilean peso
Thousand Chilean pesos
Million Chilean pesos
Australian dollars
Thousand Australian dollar
Million Australian dollars
DEFINITIONS AND CONVERSION
OF WEIGHTS AND MEASURES
Pound
lb
A troy ounce
oz
’000 m3
Thousand cubic metres
Thousand metric tonnes
’000 tonnes
2.2046 pounds
1 kilogramme
2,204.6 pounds or 1,000 kilogrammes
1 tonne
0.6214 miles
1 kilometre
31.1 grammes
1 troy ounce
CHEMICAL SYMBOLS
Cu
Mo
Au
Ag
Copper
Molybdenum
Gold
Silver
DIVIDENDS
Details of dividends proposed in relation to the year are given in
the Directors’ Report on page 123, and in Note 13 to the
Financial Statements.
If approved at the Annual General Meeting, the final dividend of
40.6 cents will be paid on 25 May 2018 to ordinary shareholders
that are on the register at the close of business on 27 April 2018.
Shareholders can elect (on or before 3 May 2018) 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 3 May 2018.
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 23 May 2018. 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 29
to the Financial Statements.
211
antofagasta.co.ukFINANCIAL STATEMENTS
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 CONTINUED
3 May 2018
SHAREHOLDER CALENDAR 2018
25 April 2018
26 April 2018
27 April 2018
30 April 2018
Q1 2018 Production Report
2017 Final Dividend – Ex Dividend date
2017 Final Dividend – Record date
2017 Final Dividend – Final date for receipt
of Currency Elections
2017 Final Dividend – Pound Sterling/
Euro Rate set
Annual General Meeting
2017 Final Dividend – Payment date
Q2 2018 Production Report
HY 2018 Results Announcement
23 May 2018
25 May 2018
27 July 2018
14 August 2018
6 September 2018 2018 Interim Dividend – Ex Dividend date
7 September 2018 2018 Interim Dividend – Record date
10 September 2018 2018 Interim Dividend – Final date for receipt
of Currency Elections
13 September 2018 2018 Interim Dividend – Pound Sterling/
5 October 2018
24 October 2018
23 January 2019
Euro Rate set
2018 Interim Dividend – Payment date
Q3 2018 Production Report
Q4 2018 Production Report
Dates are provisional and subject to change.
212
Antofagasta plc Annual Report 2017 Chairman
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
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
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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is an audited chain of custody from the tree in the well-managed
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ISO 14001 – A pattern of control for an environmental
management system against which an organisation can
be credited by a third party.
For up-to-date investor information including our past financial
results, visit:
+ Group website:
www.antofagasta.co.uk
+ Investors:
www.antofagasta.co.uk/investors
Antofagasta plc
Cleveland House
33 King Street
London
SW1Y 6RJ
United Kingdom
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