ANNUAL REPORT AND
FINANCIAL STATEMENTS 2018
DEVELOPING MINING FOR A BETTER FUTURE
FINANCIAL
STATEMENTS
FINANCIAL PERFORMANCE
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
142
147
148
148
149
150
151
198
OTHER INFORMATION
Five year summary
Production statistics
Ore reserves and mineral
resources estimates
Glossary and definitions
Shareholder information
205
207
208
218
223
STRATEGIC REPORT
OVERVIEW
Purpose and vision
Performance highlights
2018 overview
At a glance
Letter from the Chairman
Letter from the CEO
Developing mining for a
better future
Building the cities of tomorrow
Contributing to clean and affordable
energy
Electric transport gets green light
Strategy in action
Key performance indicators
Risk management framework
Principal risks
Key risks
CREATING SUSTAINABLE
VALUE FOR STAKEHOLDERS
Stakeholder engagement
Employees
Communities
Suppliers
Customers
Safety and health
Environment
Value creation
Total economic contribution
OPERATING PERFORMANCE
Business model
Operating review
Key inputs and cost base
Operating excellence and
innovation
Business units
Growth projects and opportunities
Exploration activities
The copper market
Financial review
Sustainability governance
1
2
3
4
6
8
10
12
14
16
18
20
22
24
25
34
36
38
40
42
44
46
50
51
54
56
58
60
70
73
74
76
82
GOVERNANCE
Applying the Code in 2018
Board Leadership and
Company Purpose
Chairman’s introduction
Senior Independent Director’s
introduction
Group governance overview
Board activities
Stakeholders engagement
Shareholders engagement
Division of Responsibilities
Directors’ biographies
Board balance and skills
Roles in the Boardroom
Executive Committee members’
biographies
Introduction to the Committees
Composition, Succession and
Evaluation
Nomination and Governance
Committee report
Board effectiveness
Audit, Risk and Internal Control
Audit and Risk Committee report
Sustainability and Stakeholder
Management Committee report
Project Committee report
Remuneration
Remuneration and Talent
Management Committee report
Committee Chairman’s
introduction
Remuneration at a glance
2018 Directors’ Remuneration
Report
2018 Executive Remuneration
Report
Summary of 2017 Directors’
Remuneration Policy
Directors’ Report
Statement of Directors’
Responsibilities
86
88
90
92
94
96
97
98
100
101
102
104
105
107
108
114
116
118
119
121
122
125
134
137
139
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.
OUR PURPOSE
DEVELOPING
MINING FOR A
BETTER FUTURE
OUR VISION
TO BE RECOGNISED AS AN
INTERNATIONAL MINING COMPANY BASED IN CHILE,
FOCUSED ON COPPER AND ITS BY-PRODUCTS,
KNOWN FOR ITS OPERATING EFFICIENCY,
CREATION OF SUSTAINABLE VALUE, HIGH PROFITABILITY
AND AS A PREFERRED PARTNER
IN THE GLOBAL MINING INDUSTRY.
antofagasta.co.uk
1
STRATEGIC REPORT PERFORMANCE HIGHLIGHTS
RECORD YEAR
OF PRODUCTION
FATALITIES AND LOST TIME
INJURY FREQUENCY RATE1
COPPER
PRODUCTION2
NET CASH
COSTS3
0
2
.
7
.
1
5
6
.
1
5
.
1
6
.
1
LTIFR
Fatalities
2
16
1
18
0
17
1.6
LTIFR
1
15
14
1
Fatality
+ See page 44 for more information
.
4
9
0
7
.
3
4
0
7
.
3
5
2
7
.
8
4
0
7
.
2
0
3
6
0
5
.
1
3
4
.
1
9
2
.
1
5
2
.
1
0
2
.
1
14
15
16
17
18
14
15
16
17
18
725.3k tonnes
+ See pages 60 to 69 for more information
$1.29/lb
+ See pages 60 to 69 for more information
EBITDA3
7
8
5
2
,
8
2
2
2
,
3
0
1
,
2
6
2
6
,
1
0
1
9
14
15
16
17
18
$2,228m
EARNINGS
PER SHARE
1
.
6
7
5
.
1
5
.
6
6
4
MINERAL
RESOURCES4
.
7
8
1
.
7
8
1
.
7
8
1
.
8
8
1
.
9
7
1
.
5
0
15
1
.
2
1
16
14
17
18
51.5 ¢/share
14
15
16
17
18
18.8bn tonnes
+ See page 76 for more information
+ See page 76 for more information
+ See page 208 for more information
1. Figures restated to include contractors in the transport division.
2. 100% of production at Los Pelambres, Centinela and Antucoya, and 50% of Zaldívar’s production.
3. Non IFRS measure, refer to the alternative performance measures in Note 37 to the financial statements.
4. Mineral resources (including ore reserves) held by the Group’s subsidiaries on a 100% basis and at Zaldívar on a 50% basis.
2
Antofagasta plc Annual Report 2018
2018
OVERVIEW
DURING 2018
SAFETY
Safety is our top priority. Regrettably, after 26 months without a fatality there was a fatal
accident at Los Pelambres
COPPER PRODUCTION2
Record year of copper production – 725,300 tonnes, an increase of 3.0% compared with
2017 with higher production, particularly at Los Pelambres and Centinela
NET CASH COSTS3
Net cash costs $1.29/lb on lower grades at Centinela and higher input costs offset by
higher by-product credits
EBITDA3
EBITDA of $2,228 million and margin of 47.0%, reflecting strong copper sales, lower copper
price, lower grades and higher input costs
EARNINGS PER SHARE
Earnings per share from continuing operations of 51.5 cents per share on lower EBITDA
and higher depreciation and amortisation
DIVIDEND PER SHARE
Total dividend of 43.8 cents per share, equivalent to a 65% pay-out ratio plus $100 million
of net cash proceeds from the sale of non-core assets during the year
PROJECTS
Encuentro Oxides project reached full capacity and Centinela’s molybdenum plant started
operating. Los Pelambres $1.3 billion expansion project approved to produce 60,000 tonnes
per year additional copper over 15 years from late 2021
antofagasta.co.uk
3
STRATEGIC REPORT AT A GLANCE
OUR BUSINESS TODAY
Mining is the Group’s core business, representing over 96% of Group revenue
and EBITDA. The Group operates four copper mines in Chile, two of which
produce significant volumes of by-products. The Group also has a
portfolio of growth opportunities located mainly in Chile.
In addition to mining, the Group has a transport division providing rail and
road cargo services in northern Chile predominantly to mining customers,
which include some of the Group’s own operations.
PRODUCTS
REVENUE
EBITDA1,2
CU
CUCU
AUAU
CU
CU
AU
CU
AG
MO
AG
MO
ANTUCOYA
− 70% owned
− 21-year mine life
− Produces copper cathodes
CENTINELA
− 70% owned
− 49-year mine life
− Produces copper cathodes and copper
concentrates containing gold and silver and
a separate molybdenum concentrate
LOS PELAMBRES
− 60% owned
− 20-year mine life
− Produces copper concentrates containing gold and
silver and a separate molybdenum concentrate
ZALDÍVAR
− 50% owned (and operated)
− 12-year mine life
− Produces copper cathodes
TRANSPORT
− Cargo transport system in the Antofagasta Region of Chile
− 900 km rail network
4%
COPPER PRODUCTION (TONNES) AND NET CASH COSTS1 ($/LB)
2018
72,200
$1.99/lb
2019 FORECAST
GROWTH POTENTIAL
75-80,000
$2.00/lb
MINE LIFE EXTENSION
− Potential to process third parties’
satellite ore bodies
248,000
$1.51/lb
260-280,000
$1.35/lb
CENTINELA EXPANSION
− Building a second concentrator
10%
6%
34%
29%
53%
64%
357,800
$0.91/lb
360-370,000
$1.05/lb
LOS PELAMBRES INCREMENTAL
EXPANSION
− Phase 1 will increase throughput capacity to
190ktpd. Project was approved during 2018
− Phase 2 will further increase
throughput capacity to 205ktpd
and extend the life of mine
4%
3%
47,300
$1.94/lb
55-60,000
$1.75/lb
MINE LIFE EXTENSION
− Assessing viability of primary
sulphide leaching
6.1m tonnes
HAULAGE CAPACITY INCREASE
− Programme to increase the fleet’s
haulage capacity
GROUP
$4,733.1m
$2,228.3m
725,300
$1.29/lb
750-790,000
$1.30/lb
KEY
CATHODES
CONCENTRATE
ROAD
RAIL
1. Non-IFRS measure. Refer to the alternative performance measure in Note 37 to the financial statements.
2. Add to more than 100% as exclude $159 million of corporate costs and explorations and evaluations. See note 2 to the financial statements.
4
Antofagasta plc Annual Report 2018
STRATEGY
1. THE EXISTING
CORE BUSINESS
The first pillar of the
strategy is to optimise
and enhance the existing
core business: Los
Pelambres, Centinela,
Antucoya, Zaldívar and
the transport division.
2. ORGANIC AND
SUSTAINABLE
GROWTH OF THE
CORE BUSINESS
The second pillar of
the strategy is to
achieve sustainable,
organic growth by
further developing
the areas around the
Group’s existing asset
base in Chile.
3. GROWTH BEYOND
THE CORE BUSINESS
The third pillar of the
strategy is to seek
growth beyond the
Group’s existing
operations, in Chile
or internationally,
through the acquisition
of high-quality operating
assets and/or high-
potential early-stage
developments.
ANTUCOYA
CENTINELA
ZALDÍVAR
LOS PELAMBRES
SANTIAGO
COPPER PRODUCTION (TONNES) AND NET CASH COSTS1 ($/LB)
2018
72,200
$1.99/lb
2019 FORECAST
GROWTH POTENTIAL
75-80,000
$2.00/lb
MINE LIFE EXTENSION
− Potential to process third parties’
satellite ore bodies
248,000
$1.51/lb
260-280,000
$1.35/lb
CENTINELA EXPANSION
− Building a second concentrator
357,800
$0.91/lb
360-370,000
$1.05/lb
LOS PELAMBRES INCREMENTAL
EXPANSION
− Phase 1 will increase throughput capacity to
190ktpd. Project was approved during 2018
− Phase 2 will further increase
throughput capacity to 205ktpd
and extend the life of mine
47,300
$1.94/lb
55-60,000
$1.75/lb
MINE LIFE EXTENSION
− Assessing viability of primary
sulphide leaching
6.1m tonnes
HAULAGE CAPACITY INCREASE
− Programme to increase the fleet’s
haulage capacity
$4,733.1m
$2,228.3m
725,300
$1.29/lb
750-790,000
$1.30/lb
antofagasta.co.uk
5
PRODUCTS
REVENUE
EBITDA1,2
ANTUCOYA
− 70% owned
− 21-year mine life
− Produces copper cathodes
CENTINELA
− 70% owned
− 49-year mine life
− Produces copper cathodes and copper
concentrates containing gold and silver and
a separate molybdenum concentrate
LOS PELAMBRES
− 60% owned
− 20-year mine life
− Produces copper concentrates containing gold and
silver and a separate molybdenum concentrate
ZALDÍVAR
− 50% owned (and operated)
− 12-year mine life
− Produces copper cathodes
TRANSPORT
− 900 km rail network
GROUP
− Cargo transport system in the Antofagasta Region of Chile
STRATEGIC REPORT
LETTER FROM THE CHAIRMAN
CONSIDERED GROWTH
“I am proud to report record production of
725,300 tonnes which is due to the hard
work of the operations teams, particularly
at Centinela and Los Pelambres.”
Jean-Paul Luksic
Chairman
DEAR SHAREHOLDERS,
It is now 40 years since the Luksic family acquired a stake in
Antofagasta and began the process of creating one of the world’s
leading copper mining companies. During the years in which I have
been at the helm of the Company, as CEO of the mining division
from 1998 and subsequently as Chairman of the Board, it has been
fascinating to see the huge changes which have taken place, both
in the industry and in Antofagasta.
We have grown from being a regional railway business to becoming
a company focused on copper mining, developing and operating
large-scale open pit mines at Los Pelambres, Centinela and
Antucoya, as well as acquiring a 50% stake and operatorship of
Zaldívar in 2015. I am proud to be able to report that this year we
have had record production of 725,300 tonnes which is due to the
hard work of the operations teams, particularly at Centinela and
Los Pelambres.
CONSIDERED GROWTH
While our production hit record levels during 2018, global trade
tensions led to a fall in the copper price in the second half of the year,
highlighting once again how the fundamentals of our industry are so
often shaped by geopolitical circumstances. The cyclical nature of the
copper industry has fundamentally shaped the way we think about the
future, focusing our attention on those elements that we can control:
the pace of our developments, costs, ensuring safe and reliable
operations and maintaining good community and employee relations.
6
Antofagasta plc Annual Report 2018
We are fortunate to have substantial mineral resources and we know
that these resources will all one day be developed. The judgement
we have to make is when. We think of this as ‘considered growth’.
Evidence of our conviction to growing and developing our resource
base over time has been our commitment to investing through the
cycle. It is in line with this that we completed the acquisition of our
shareholding in Zaldívar in 2015 and the construction of Antucoya
with first production in the same year. We continually review and
assess our portfolio of opportunities and expansion plans. And as
part of this process the Board recently approved the expansion of
Los Pelambres after the project had been fully reviewed and all
risks and uncertainties minimised to acceptable levels. Construction
is now under way and the first phase of the expansion is expected
to add an average of 60,000 tonnes of copper production per year
between 2021 and 2036. The project also includes a desalination
plant to improve the water security of the whole mine and ensure
that the expansion will not need to rely on local supplies.
We are also considering expanding our production at Centinela
and having evaluated two development alternatives, have decided
to advance one of these alternatives, the construction of a second
concentrator, to the next stage of evaluation.
PROCESS ENSURES SAFETY
After more than two years without a fatality at one of our mines,
it is with great sadness that I have to report that a contractor
suffered a fatal accident at Los Pelambres in October. My
condolences go to the family of Jorge Pérez Barraza. We have
undertaken a full investigation of the incident and have implemented
the recommendations with direct oversight by senior management.
Safety remains the Group’s top priority and this tragic incident
provides a salutary reminder that we must always remain alert.
It is the duty of all of us – including those with the most experience
– to follow the rigorous procedures and processes that we have in
place to maintain a safe working environment and to ensure that
those working around us are doing the same. After many years
in the industry I know that people can become lulled into a false
sense of security through familiarity with the mining environment.
We all have to guard against that and the complacency it
sometimes breeds.
GOVERNANCE: TALENT ESSENTIAL FOR THE FUTURE
We announced in November that Francisca Castro, who has
served as an independent Non-Executive Director since 2016, has
been appointed as chair of Antofagasta’s Remuneration and Talent
Management Committee, with the appointment effective in May 2019.
Ms Castro is replacing Tim Baker as chair and I would like to thank
them both, and indeed all of our committee members, for their hard
work over the course of the year.
The role of the Remuneration and Talent Management Committee
is vital to ensuring that Antofagasta performs at its full potential.
Partly this is about ensuring that we maintain strong and
transparent relations with our employees and the communities in
which we work. I am proud that we have maintained such strong
employee and union relations, successfully completing a number of
major wage negotiations this year and recording yet another year
without strikes – an unbroken record.
We engage constantly with our workforce, not only in the years
when there are negotiations, but every year as this open dialogue
is key to maintaining good relations and develops the trust that has
built up between the Company and its employees.
FAREWELL TO BILL HAYES
At this year’s AGM Bill Hayes will not put himself forward for
re-election as a director. Bill has been a Non-Executive Director
for 12 years, of which five were as the Senior Independent Director.
I would like to thank Bill for all the work he has done for us and
his contribution to the success of the Company.
CREATING A DIVERSE WORKFORCE
Diversity is another big issue being tackled by the Board and I
challenge everyone in the business to see how we can improve the
level of diversity across our workforce. To my mind ensuring that the
most talented people are drawn to Antofagasta and want to stay here
is not just the right thing to do – it is good business. While we still have
much to do, I was enormously proud that three women at Antofagasta
were honoured by Women In Mining as being identified as some of
the 100 most inspirational women in mining today.
OUTLOOK
It is our view that the copper market continues to look tight, with the
outlook for 2019 and beyond positive for copper prices. The growing
demand for copper as a critical element in renewable energy and
electromobility is here to stay and represents strong new sources
of demand, which we believe will help offset the worst excesses
of continued global trade disputes. With growing production, new
developments under way and an attractive portfolio of future projects,
Antofagasta is well positioned to meet this demand with its next phase
of considered growth.
As I said at the beginning of this letter, we have experienced many ups
and downs over the past 40 years, and I have no doubt that the future
will bring many new opportunities and challenges. What I have learnt
though is that by focusing on what we do best – maintaining our costs,
running safe and efficient operations, and managing our development
programmes – we can ensure that Antofagasta will still be here in
another 40 years.
I would like to finish by thanking all of our employees and contractors
without whose hard work none of this would be possible and our
shareholders for their continued support.
Jean-Paul Luksic
Chairman
TAILINGS FACILITIES
The Group has four tailings storage facilities,
two at Los Pelambres in central Chile and two
in northern Chile. The active tailings dam at
Los Pelambres is monitored continuously and
carefully managed. All of the Group’s facilities are
built using the downstream method, are managed
by dedicated teams and are reviewed twice a year
by an independent tailings board comprised of
highly qualified independent experts.
The Company supports recent proposals to
introduce an international independent developed
standard and classification system that monitors the
safety risk of tailings storage facilities and will work
with the International Council on Mining and Metals
(ICMM) and other bodies to ensure its success.
+ See page 47 for more information
antofagasta.co.uk
7
STRATEGIC REPORT LETTER FROM THE CEO
A YEAR OF
TWO HALVES
“By focusing on what we do well –
producing profitable tonnes throughout
the cycle – the Group was able to
successfully navigate significant volatility
in the global commodity markets.”
Iván Arriagada
Chief Executive Officer
DEAR SHAREHOLDERS,
I am pleased to share with you the significant progress we have made
during the year in many important areas. This progress demonstrates the
transformational changes under way in the Group that underpin a set of
solid results in 2018.
As part of our annual strategy review with the Board, during the
year we devoted time to discussing how best to describe the ultimate
purpose of what we do as an organisation. This is what motivates
all of us who work at Antofagasta, beyond the immediate tasks that
everyone is expected to accomplish in her or his specific role. This
is very important as ultimately, as a business organisation, we work
to be a cause for good in wider society, placing the common good at
the centre of what we do. We concluded that the description which
best reflects our purpose can be summarised as: Developing Mining
for a Better Future. We will be sharing our strategy during 2019
with a clear reference to our organisational purpose.
RESULTS – SAFETY, PRODUCTION AND COSTS
Although we achieved our planned results and a record production in
2018, very regrettably I must report that in October, after more than
two years without a fatality, a contractor suffered a fatal accident at
Los Pelambres. I am convinced that a fatality free environment is possible,
as demonstrated by the prior 26 months without a fatal accident, and is
an absolute imperative in how we conduct our operations. The safety of
our workforce remains our number one priority and we will continue to
work without compromise to this end.
On production, 2018 was a record year for Antofagasta, albeit one with
two distinct halves. We started the year with lower ore grades at all of
our operations, with a consequential reduction in copper production.
However, in line with our mine plans ore grades recovered steadily
during the year.
8
Antofagasta plc Annual Report 2018
As a result, I am pleased to say that 2018 saw record production, with
Antofagasta producing 725,300 tonnes of copper.
On costs, we worked very hard to maintain tight control, with full year net
cash costs coming in at $1.29/lb, below our guidance. Indeed, our cost
performance improved during the year with the Group recording net
cash costs of $0.99/lb in the fourth quarter, the lowest since 2012. This
result for the year is due not only to the increased production and higher
by-product prices but also to our successful Cost and Competitiveness
Programme which yielded 10c/lb of cost savings. That is equivalent to
$184 million over the whole of 2018 and we are now targeting a further
$100 million in 2019.
By focusing on what we do well – producing profitable tonnes throughout
the cycle – the Group was able to successfully navigate significant
volatility in the global commodity markets. This translated into EBITDA
for the full year of $2,228 million representing a margin of 47%. I am
confident that the Group is now well positioned for further production
growth in 2019 and a further strong performance on costs, which will
support strong cash flow generation and returns.
The Group’s operations have achieved an improved level of operating
stability and we go into 2019 with real momentum for what we expect
to be another record-setting year, with production increasing by up to
9% to 750-790,000 tonnes at net cash costs of $1.30/lb.
INNOVATION FOR THE FUTURE
Much of the progress we have made in recent years reflects not only
our focus on costs but also the culture of continuous innovation that
Antofagasta is building. At the heart of this culture is the development
of three initiatives to drive innovation: seeking new ideas from our
employees and contractors, investing in large scale ‘strategic’ change
and accelerating the adoption of digital solutions across our organisation.
Our workforce has been a continual source of ideas for running our
operation more efficiently, maximising uptime and improving reliability.
Since 2017 we’ve received more than 200 ideas from employees and
external parties of which 49 progressed to become innovation proposals
and 16 are either being implemented or assessed in detail.
We have also introduced a number of larger scale innovations during the
year. We are improving copper recoveries at Zaldívar, developing a new
approach to leaching primary sulphides and investigating new large-
volume material moving technologies.
The increased use of data and technology – the digitalisation of
operations – is where we see the future of mining. As a company
we are investing significantly into this area and have an implementation
budget of $40 million to strengthen our technological platform,
including critical operating systems and connectivity, as a key enabler
to progressing with our digital transformation. We have applied advanced
data analytics to our processing plants to better understand and improve
their performance and we are now working on the design of a Remote
Centre that will allow integrated operations management at Centinela.
It’s not just at the operating level that we’re seeing the benefits of
improved data. At Los Pelambres we constantly monitor the tailings
deposits and as part of the Programa Tranque project we expect to
start releasing the monitoring results online early next year. This will
provide the community with real time information, helping to build
trust between ourselves and our neighbours.
EFFICIENT CAPITAL ALLOCATION
We are also taking a more innovative approach to the way we allocate
capital as an organisation. Over the past couple of years we have worked
to sell down non-core assets, reallocating capital either to shareholders
or back into our core copper business where we believe we are best
placed to maximise returns. As part of this process in July 2018 we
sold our electricity transmission lines at Centinela for $117 million. This
was followed in August with the sale of our holding in the El Arrayan
wind farm, which provides Los Pelambres with renewable energy, for
$28 million. Both sales follow a number of exits in 2017, most significant
of which was the disposal of our interest in the Alto Maipo hydro
power project.
At the same time we are investing in our core business and in November
announced the Board’s approval of the expansion of Los Pelambres.
With work starting at the beginning of 2019 the project is expected to
add an average of 60,000 tonnes per annum of copper production over
15 years, beginning in the second half of 2021. At a cost of $1.3 billion,
the project includes a $500 million desalination plant and will increase
plant throughput from 175,000 tonnes of ore per day to 190,000 tonnes.
We have taken a different approach to this expansion project in two
key areas. First of all, we have taken advantage during the period of
market downturn to advance further the project’s detailed engineering
and develop a detailed project execution plan securing the best
possible terms from our suppliers and contractors. In so doing we
have significantly mitigated key risk areas around timing and cost
control. Second, instead of financing the project from our cash flow
we will debt finance 100% of the project, benefiting from the strength
of our balance sheet to secure very attractive rates and maximise
project returns.
REDUCING OUR ENVIRONMENTAL IMPACT
Copper mining is a key component in the move to a more sustainable
world, with multiple applications in zero emission transportation and
renewable power generation technologies. However, mining undoubtedly
has a big impact on the environment, and we are improving the way
we operate to reduce the impact we make on the environment and also
on neighbouring communities, while at the same time explaining what
we are doing and why we are doing it and listening to community
members’ concerns.
During 2018 we took some big steps towards realising our ambition
to reduce the environmental impact we make. In June Zaldívar signed
a renewable energy contract which, from 2020, will see the mine being
powered 100% by renewable energy – a first in the Chilean mining
industry. Not only will this remove the equivalent of 350,000 tonnes of
greenhouse gases per year, it will also significantly reduce Zaldívar’s
power costs.
We are also improving the energy efficiency of our plants and working
to safeguard wildlands and forests in the Los Pelambres region.
BUILDING A WORKFORCE FOR THE 21ST CENTURY
Our operating achievements in 2018 are a real testament to the
dedication, hard work and expertise of our workforce and I would like
to thank them for everything that they have achieved. It also reflects
Antofagasta’s continued strong labour relations and I am proud that we
have maintained our unbroken record with another year without a strike.
One of my current focuses is on improving diversity across our
workforce and as part of this commitment we joined the 30% Club,
an international organisation that promotes gender balance. I want
to make sure that everybody – no matter what their gender, race or
background – can thrive at Antofagasta. In driving this effort I have
been struck by the huge contribution that individuals can make
in changing our culture. For instance, three of Antofagasta’s
employees – Cecilia Arrue, Angie Caro and Laura Cristoffanini –
were recognised by Women In Mining as among the “100 Global
Inspirational Women In Mining” in 2018. This is a huge accolade and
their work, alongside many other women at Antofagasta, has been
critical to our successful development.
COPPER MARKET
Although the copper price performed well in the first half of 2018
uncertainty was the dominant theme in the second half of the year
and the price weakened. Markets suffered from persistent volatility as
international trade negotiations failed to reach a conclusive agreement.
However, the fundamentals remain positive with a supply deficit in 2018
that is expected to grow in 2019. With the year starting with progress
in the trade negotiations the copper price has strengthened and if
the negotiations are concluded successfully we expect the price
will strengthen further. In line with the market, we believe the mid to
longer-term outlook is favourable with continued new uses of copper
and limited opportunities for supply growth.
As I said at the beginning of this letter, 2018 really was a year of two
halves not just in respect of our production performance but also for
the market. However, I am delighted that the Company and our people
rose to the occasion and delivered a record level of production
establishing real momentum as we go into 2019.
Iván Arriagada
Chief Executive Officer
antofagasta.co.uk
9
STRATEGIC REPORT DEVELOPING MINING
FOR A BETTER FUTURE
Future demand for copper will be driven by continued urbanisation
and rapidly rising adoption of renewable energy and electric vehicles.
MARKET TRENDS
12
BUILDING
THE CITIES
OF TOMORROW
Copper is a vital
building block for
urbanisation and
greener, healthier
buildings.
14
50,000
45,000
CONTRIBUTING
TO CLEAN AND
AFFORDABLE ENERGY
Electricity generated
from solar and wind
will power copper
demand growth in
energy markets in
coming years.
16
ELECTRIC
TRANSPORT
GETS GREEN LIGHT
Electrification of
transport is expected
to take off in the next
decade providing a
significant boost to
copper demand.
10
Antofagasta plc Annual Report 2018
40,000
REFINED CONSUMPTION BY REGION
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
2015
2020
2025
2030
China
Other Asia
North America
Europe
Rest of
World
Source: Wood Mackenzie, Copper Outlook December 2018
REFINED CONSUMPTION BY REGION 2000-2040The most important market is China, which accounted for approximately 48% of global copper consumption in 2018, significantly more than Europe and North America combined, which consumed 16% and 10% respectively. An estimated 15-25% of Chinese consumption is re-exported as manufactured products. However, longer-term growth over the next 20 years is expected to come predominantly from the rest of Asia.INCREASING MARKET DEMAND FOR COPPERCopper is essential to modern society and a greener future. It can play a vital role in addressing some of the world’s major challenges such as the availability of affordable and clean energy, air and noise pollution and sustainable urban development.The metal is corrosion resistant, extremely malleable and an exceptional conductor of heat and electricity, making it a key input for efficient energy use and green technologies. For centuries, it has held a central role in humankind’s development due to its unique combination of properties.Today copper is a key component of everyday life from mobile telephones to the roofs, heating and electric wiring in people’s homes. It is needed for power generation and transmission, motor vehicles, domestic appliances – such as air conditioning and televisions – and industrial machinery.Since early this century, demand for the industrial metal has been driven by urbanisation, propelled by China where 58% of the population now lives in a city compared to only 39% in 2002. Urbanisation and industrialisation in India and Southeast Asian countries are expected to dominate copper consumption growth beyond 2020 as the rate of Chinese demand growth slows. A growing middle class in emerging economies is also boosting sales of copper-rich consumer goods such as electronic devices and cars. Going forward, copper demand growth will also be fuelled by renewable energy and electric vehicles pushed by the falling costs of these environmentally-friendly technologies and the world’s need to find cleaner solutions for modern life. The fact that copper is 100% recyclable only enhances its credentials as a metal able to contribute to the United Nation’s Sustainable Development Goals. I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
2017
29.1mt
Total consumption
2040
CONSTRUCTION
28%
22%
− Power cables
− Building wire
− Transformers
− Non-electrical2
ELECTRICAL NETWORK
− Power grid
− Power generation
43.8mt
Total consumption
18%
23%
9%
1. Including direct use of scrap.
2. Non-electrical includes heating ventilation and
air conditioning (HVAC), hardware water/gas.
INDUSTRIAL
MACHINERY
Source: Wood Mackenzie, Copper Outlook December 2018
− Industrial motors
CONSUMER AND GENERAL
− Home air conditioners
− Refrigerators
− Washing machines
− Televisions
− Mobiles
− Computers
TRANSPORT
− Auto/Trains/Ships
− Infrastructure
− Electric vehicles
− EV charging facilities
antofagasta.co.uk
11
GLOBAL COPPER CONSUMPTION BY MARKET SECTOR1Growth in total consumption from 2017 to 2040 is estimated to be 1.8% per year and will reach 43.8mt, underpinned by electrification in transportation, buildings and manufacturing. In addition, governments continue to establish targets for renewable energy, which results in higher copper demand.10%30%24%11%25%
BUILDING THE CITIES
OF TOMORROW
COPPER IS A VITAL BUILDING BLOCK FOR URBANISATION
AND GREENER, HEALTHIER BUILDINGS.
Today 55% of the world’s population live in cities,
up from just under 47% in 2000. This global trend is
expected to rise to 64.5% by 2040 driven by India,
China and Nigeria, according to the United Nations.
Rising urbanisation and industrialisation is a major
stimulus for sustained and strong copper demand.
The metal is a key component of the wiring, plumbing,
heating and cooling, lighting and roofing of homes,
as well as the commercial services, transport, power
and telecommunications systems needed for vibrant,
modern cities.
Growing wealth will also boost copper intensity in
homes and offices. Greater spending on electrical
goods will lead to higher electricity consumption
and a larger number of power sockets, all of which
consume copper.
Copper demand will also be pushed by an increasingly
digital economy. Society’s need for high-speed internet
services is expected to sharply increase demand for
higher quality copper telecommunications cables in
residential and business properties.
Meanwhile, tougher housing regulations are gradually
imposing higher energy efficiency standards and lower
emission rates on new buildings to reduce negative
impacts on the climate and the environment. Copper’s
superior thermal and electrical conductivity will make
it indispensable for the greener buildings of the future.
Copper stands to benefit from urbanisation but also
contribute to smarter and cleaner cities.
WORLD URBANISATION PROSPECTS
AS A PERCENTAGE POPULATION (%)
2015
2030
54%
82%
56%
47%
33%
WORLD
INDIA
SOUTHEAST ASIA
CHINA
NORTH AMERICA
Source: United Nations Population Division. 2018 Revision of World Urbanisation Prospects.
12
Antofagasta plc Annual Report 2018
60%71%40%56%85% 30%
of copper is consumed
by the construction sector
7.3m tonnes
per annum consumed
by the construction sector
URBANISATION
IN CHINA
AS A PERCENTAGE (%)
58% – 2017
60% – 20201
REQUIRES ABOUT
12 MILLION PEOPLE
A YEAR TO MOVE
TO CITIES
1. The 13th Five-Year Plan For Economic
And Social Development Of The People’s
Republic Of China.
antofagasta.co.uk
13
STRATEGIC REPORT CONTRIBUTING TO CLEAN
AND AFFORDABLE ENERGY
ELECTRICITY GENERATED FROM SOLAR AND WIND
WILL POWER COPPER DEMAND GROWTH
IN ENERGY MARKETS IN COMING YEARS.
The next few decades will witness a shake-up of the
energy sector. Electrification will charge ahead, led
by India, dominated by new wind and solar projects
and the globalisation of natural gas markets.
Under current and planned government policies,
global energy demand is set to grow by more than
25% to 2040, with renewable energy representing
40% of installed capacity, up from 25% today1.
Solar photovoltaic and wind energy are now
economically competitive with traditional power
sources due to falling costs. This is driving the
uptake of these green technologies over fossil fuels
in advanced and developing economies alike.
The expansion of renewable energy sources also
forms part of governments’ efforts to tackle global
warming by reducing carbon dioxide emissions,
together with energy-related air pollution which
causes millions of premature deaths each year.
Many countries have established decarbonisation
goals under the Paris Agreement.
This will not only benefit the environment but also
copper. Growing electrification and especially new
solar and wind projects will be key drivers behind
copper demand growth.
Copper is used for high-voltage power distribution
conductors, transformers and earthing in energy
infrastructure as well as in coil windings in the stator
and rotor of wind generators and the cell ribbons and
cabling of solar photovoltaic systems. Solar and wind
technologies need four to six times as much copper
as conventional energy mainly owing to the need to
connect larger numbers of smaller units to the grid.
Copper’s outstanding ability to conduct electricity
means it will be a crucial element in the supply of
affordable and clean energy for generations to come.
GLOBAL ELECTRICITY GENERATION
BY TECHNOLOGY 2015-20401
35,000
30,000
25,000
20,000
15,000
10,000
5,000
SOLAR PV
WIND
HYDRO
NUCLEAR
OIL
NATURAL GAS
COAL
2015
2020
2020
2025
2030
1. Source: International Energy Agency
www.iea.org/weo/ – see Electricity Generation by Technology in World with New Policies Scenario.
14
Antofagasta plc Annual Report 2018
24%
Power infrastructure
and generation accounts for
about 24% of annual copper
consumption, or the equivalent
of 6.9 million tonnes.
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
4.5 tonnes
per MW
Solar photovoltaic and wind farms
use an average of 4.5 tonnes
of copper per MW. Offshore wind
farms are more copper intensive.
antofagasta.co.uk
15
ELECTRIC TRANSPORT
GETS GREEN LIGHT
ELECTRIFICATION OF TRANSPORT IS EXPECTED
TO TAKE OFF IN THE NEXT DECADE PROVIDING
A SIGNIFICANT BOOST TO COPPER DEMAND.
Electric vehicles have made rapid gains in recent years.
Their sales have surged in China, the US and Europe
and the question now is not if but when they will
outnumber conventional petrol and diesel cars.
Cheaper and better batteries have made electric
vehicles more affordable and increased the distance
they can be driven before being recharged. Running
costs are already attractive in countries with low
electricity prices compared to fuel. Simpler engines
mean less maintenance.
Faster than expected uptake of electric vehicles is also
being driven by stricter environmental standards to
restrict CO2 emissions and combat harmful air pollution
in cities. Governments are increasingly setting targets
to phase out or ban the sale of conventional cars and
giving incentives to car buyers to go green. Electric bus
fleets are being pioneered in China.
This is good news for copper. Electric vehicles contain
up to almost four times the amount of copper as
conventional ones owing to its use in batteries,
high-voltage wiring, windings and rotors. Charging
stations will also boost demand.
The number of electric vehicles on the road is
expected to soar from three million in 2017 to 27 million
by 2027, according to the International Copper
Association. This will raise copper demand in electric
vehicles from 185,000 tonnes to 1.74 million tonnes per
year over the same period.
The all-out advent of electric vehicles is now inevitable.
Near-term progress may be hampered by insufficient
fast-charging stations and lack of product choice but
cleaner, quieter cities are on the horizon.
ELECTRIC VEHICLE FORECAST (1,000 UNITS)
Car BEV
Car HEV
Car PHEV
Ebus BEV
30,000
25,000
20,000
15,000
10,000
5,000
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
3m
2017
27m
2027
Source: International Copper Association, Electric Vehicle Market Factsheet, June 2017.
BEV: Battery electric vehicle
HEV: Hybrid electric vehicle
PHEV: Plug-in hybrid electric vehicle
16
Antofagasta plc Annual Report 2018
11%
Transport currently accounts for about
11% of annual copper consumption, or
the equivalent of 6.9 million tonnes. This
share is expected to rise to 18% by 2040
due to the electrification of transport.
20%
Electric vehicle battery costs
fell by an average of 20% per
annum between 2010 and 2017.
They are expected to halve by
2025 making the unit cost of
electric cars competitive with
conventional vehicles.
NORWAY:
THE POSTER CHILD
Around 50% of Norway’s new
car sales were electric or hybrids
in 2018, driven by government
policy. Electric cars are exempt
from import taxes, VAT and road
taxes, pay lower road tolls and
city parking fees, and can cross
fjords by ferry for free. Another
incentive is the relatively low
cost of electricity in Norway
due to cheap hydropower making
electric vehicles some of the
least polluting in the world.
antofagasta.co.uk
17
STRATEGIC REPORT STRATEGY IN ACTION
STRATEGY
OUR VISION
To be recognised as a Chilean-based international mining company, focused on
copper and its by-products, known for its operating efficiency, creation of sustainable
value, high profitability and as a preferred partner in the global mining industry.
1. THE EXISTING CORE BUSINESS
The first pillar of the strategy is to optimise and enhance the existing
core business: Los Pelambres, Centinela, Antucoya, Zaldívar and the
transport division.
CURRENT STRATEGIC FOCUS:
− Further embed the Safety Model
across all operations to achieve annual
target of 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
− Promote a culture that 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
2018 IN REVIEW
− Regrettably the Group had one fatal
accident at Los Pelambres
OBJECTIVES FOR 2019
− Achieve zero fatalities by continuing
to embed the Safety Model
− Copper production of 725,300 tonnes,
a 3.0% increase compared to 2017
− Increase copper production to
750-790,000 tonnes
− Group net cash costs of $1.29/lb, 6c/lb
lower than guidance for the year and
4c/lb higher than in 2017
− Group cash costs before by-product
credits of $1.70/lb and net cash costs
of $1.30/lb
− CCP achieved $184 million of savings,
outperforming targeted savings by
$84 million
− Labour agreements successfully
reached at Los Pelambres
− Make a further $100 million of
savings as part of the CCP, mainly
through productivity improvements
leveraged on the Group’s operating
excellence methodology
− Continue improving operating
efficiency by increasing plant
availability and operating consistently
to release spare capacity at the
Group’s operations
− Maintain good relationships with
communities and local stakeholders
18
Antofagasta plc Annual Report 2018
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:
− Advance the Los Pelambres
Expansion project
2018 IN REVIEW
− Encuentro Oxides achieved
design capacity
− Continue the expansion of Centinela
− Molybdenum plant started production
− Improve copper recoveries at Zaldívar
− Los Pelambres Expansion Phase 1
Environmental Impact Assessment
(EIA) was approved by the
environmental authorities
− Execution of the Los Pelambres
Expansion project was approved
− Reviewed Centinela expansion
alternatives and selected the second
concentrator as the preferred option
OBJECTIVES FOR 2019
− Start construction of Los Pelambres
Expansion Phase 1
− Advance the Centinela second
concentrator feasibility study
− Advance innovation programme to
assess value-capturing technologies
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
2018 IN REVIEW
− Increased exploration activity,
particularly in Chile
OBJECTIVES FOR 2019
− Continue monitoring the market for
potential acquisition opportunities
− Divested non-core assets of
− Advance exploration programmes in
Centinela electricity transmission lines
and El Arrayan wind farm
the Americas
− Complete Twin Metals Mine Plan
− Continued preparation of Twin Metals
of Operations
Mine Plan of Operations
antofagasta.co.uk
19
STRATEGIC 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 KPIs:
FINANCIAL KPIs
EBITDA2
WHY IT IS IMPORTANT
This is a measure of the Group’s
underlying profitability.
PERFORMANCE IN 2018
EBITDA was $2,228 million, 13.9% lower than
the previous year as unit costs increased due to
grade declines and higher input costs.
EARNINGS PER SHARE
WHY IT IS IMPORTANT
This is a measure of the profit attributable
to shareholders.
PERFORMANCE IN 2018
Earnings per share from continuing operations
of 51.5 cents per share, a 32.2% decrease on
2017, because of lower EBITDA and higher
depreciation and amortisation.
NET DEBT1
WHY IT IS IMPORTANT
This is a measure that reflects liquidity of
the Group.
PERFORMANCE IN 2018
Net debt increased by $140 in 2018 to
$596 million.
7
8
5
2
,
8
2
2
2
,
3
0
1
,
2
6
2
6
,
1
0
1
9
14
15
16
17
18
$2,228m
1
.
6
7
5
.
1
5
.
6
6
4
.
5
0
15
14
1
.
2
1
16
17
18
51.5 ¢/share
2
7
0
,
1
4
2
0
,
1
6
9
6 5
5
4
2
14
15
16
17
18
$596m
+ See page 76 for more information
+ See page 79 for more information
+ See page 81 for more information
Remuneration performance criteria. See page 129 for more information
1. Non-IFRS measures refers to the alternative performance measures in Note 37 to the financial statements.
2. 100% of 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. Figures restated to include contractors in the transport division.
6. Relates to the mining division only.
20
Antofagasta plc Annual Report 2018
OPERATING KPIs
COPPER PRODUCTION2
WHY IT IS IMPORTANT
Copper is the Group’s main product and its
production is a key operating parameter.
PERFORMANCE IN 2018
The Group achieved record production for the
year of 725,300 tonnes, a 3.0% increase on
2017, on higher production at Los Pelambres
and Centinela.
NET CASH COSTS1
WHY IT IS IMPORTANT
This is a key indicator of operating efficiency
and profitability.
PERFORMANCE IN 2018
Net cash costs of $1.29/lb, 3.2% higher than
in 2017 as average grades declined and cost
pressure from rising input prices.
MINERAL RESOURCES3
WHY IT IS IMPORTANT
Expansion of the Group’s mineral resources
base supports its strong organic growth pipeline.
PERFORMANCE IN 2018
Mineral resources at Zaldívar increased during
the year increasing Group mineral resources
to 18.8 billion tonnes.
.
4
9
0
7
.
3
4
0
7
.
3
5
2
7
.
8
4
0
7
.
3
0
3
6
0
5
.
1
3
4
.
1
9
2
.
1
5
2
.
1
0
2
.
1
.
7
8
1
.
7
8
1
.
7
8
1
.
8
8
1
.
9
7
1
14
15
16
17
18
725.3k tonnes
14
15
16
17
18
$1.29/lb
14
15
16
17
18
18.8bn
+ See page 60 for more information
+ See page 60 for more information
+ See page 208 for more information
SUSTAINABILITY KPIs
FATALITIES AND LOST TIME
INJURY FREQUENCY RATE
(LTIFR)5
WHY IT IS IMPORTANT
Safety is the top priority for the Group with
fatalities and the LTIFR being two of the
principal measures of performance.
PERFORMANCE IN 2018
There was a fatal accident at Los Pelambres
involving a contractor during the year. The
Group LTIFR increased to 1.6 accidents with
lost time per million hours worked.
0
2
.
7
.
1
5
6
.
1
6
5 1
.
1
.
LTIFR
Fatalities
2
16
1
15
14
1
Fatality
1
18
0
17
1.6
LTIFR
WATER CONSUMPTION
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 2018
The Group’s consumption of continental water
increased by 0.7% mainly due to an increase in
material processed. The Group’s consumption
of sea water increased by 4.2% as Encuentro
Oxides achieved design capacity.
CO2 EMISSIONS INTENSITY6
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 2018
Carbon emission intensity decreased by 14%
compared to 2017 as the two electricity grids
in Chile were combined into one resulting in an
overall cleaner energy mix.
.
6
9
2
.
8
6
2
.
7
4
2
.
5
6
6 2
0
2
.
.
6
0
2
7
8
3
.
7
6
3
.
3
3
3
.
4
2
3
.
8
9
2
.
.
9
6
3
.
5
6
3
.
2
9
2
.
4
0
3
Continental
water
Sea water
14
15
16
17
18
67.2 million of m3
14
15
16
17
18
3.33 tCO2e
per tCu produced
+ See page 44 for more information
+ See page 46 for more information
+ See page 48 for more information
antofagasta.co.uk
21
STRATEGIC REPORT RISK MANAGEMENT
FRAMEWORK
Effective risk management is an essential part of the Group’s culture and strategy.
Accurate and timely identification, assessment and management of key
risks allows for a clear understanding of the actions required throughout
the organisation in order to achieve the Group’s objectives.
KEY ELEMENTS OF INTEGRATED RISK MANAGEMENT
AREAS OF FOCUS AND DEVELOPMENT DURING 2018
VIABILITY STATEMENT
To address the requirements of provision C.2.2 of the 2016 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. This analysis has
focused on the existing asset base of the Group, without factoring
in potential development projects, which is considered appropriate
for an assessment of the Group’s ability to manage the impact of a
depressed economic environment. The stress tests 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.
22
Antofagasta plc Annual Report 2018
An independent review of the Group’s risk management maturity level was concluded in 2018 and showed significant progress since the last review in 2012. Its focus was to strengthen the risk management system by further embedding risk management in the Group’s culture and improving the overall maturity level. The main activities were as follows: −The Board reviewed, defined and approved the Group’s risk appetite for all key risks and updated the risk management policy −Risk methodology was reviewed, strengthened and aligned with the risk appetite −A risk assessment was carried out at all of the Group’s operating companies, projects, exploration activities and support areas. Risks that represented a threat to the Group’s strategic goals were identified as “key” and presented to the Audit and Risk Committee and the Board for their review −Critical controls and key risk indicator dashboards were defined for each key risk and action plans to keep the exposure within the acceptable limits were prepared −Timely and comprehensive risk analysis was embedded into each relevant decision-making process, including for all matters presented to the Board for approval −Risks status and the applicability and efficacy of critical on-site controls were included in the performance reviews of the members of the Executive Committee and Risk and Compliance teamRECOGNISE THAT RISKS ARE INHERENT TO THE BUSINESSOnly through adequate risk management can the Group effectively support internal stakeholders in key strategic decisions and implement the Group’s strategyEXPOSURE TO RISKS MUST BE CONSISTENT WITH THE GROUP’S RISK APPETITEThe Board defines and regularly reviews the Group’s acceptable level of exposure to key risks. Risks are aligned with the Group’s risk appetite, taking into consideration the balance between threats and opportunitiesALL MEMBERS OF THE GROUP ARE RESPONSIBLE FOR MANAGING RISKSEach business activity carries out risk evaluations to ensure the sound identification, management, monitoring and reporting of risks which could impact the achievement of the Group’s goalsRISK IS ANALYSED THROUGH A CONSISTENT FRAMEWORKThe Group’s risk management methodology is applied to all operating companies, projects, exploration activities and support areas, so that the Group has a comprehensive view of uncertainties that could affect its strategic goalsTHE GROUP IS COMMITTED TO CONTINUOUS IMPROVEMENTLessons learned and best practices are proactively incorporated into the Group’s procedures to protect and unlock value sustainably
GOVERNANCE
The Board determines the nature and extent
of the significant risks that the Group will
accept to achieve its strategic objectives, and
maintains sound risk management systems.
The Board receives detailed analysis of
key matters for consideration in advance
of Board meetings. This includes reports on
the Group’s operating performance, including
safety and health, financial, environmental,
legal and social matters, key developments
in the Group’s exploration, project and
business development activities, information
on the commodity markets, updates
on talent management and analysis of
financial investments.
The provision of this information allows
the early identification of potential issues and
the assessment of any necessary preventive
and mitigating actions.
The Audit and Risk Committee assists the
Board by reviewing the effectiveness of the
risk management process and monitoring key
risks, preventive and mitigation procedures
and action plans. The Chairman of the
Committee reports to the Board following
each Committee meeting and, if necessary,
the Board discusses the matters raised in
more detail.
These processes allow the Board to monitor
effectively the Group’s major risks and the
preventive and mitigating procedures, and
to assess whether the actual exposure is
consistent with the defined risk appetite. If
a gap is identified, additional action plans are
prepared and analysed. Risk management
reports are sent to the Board quarterly.
The Risk and Compliance Management
Department is responsible for risk
management systems across the Group.
It promotes the risk management policy,
vision and purpose, ensuring a strong risk
management culture exists at all levels of
the organisation. The department supports
business areas in analysing their risks,
identifying existing preventive and mitigating
controls, and defining further action plans.
It maintains and regularly updates the
Group’s risk register.
The department reports quarterly to the
Audit and Risk Committee on the overall
risk management process, with detailed
updates 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 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 as 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 Group promotes a consistent risk
management process across the different
business units, ensuring risk is considered
at all levels of the organisation. Adequate risk
information flows from the business units to
the centre and from the Board back to the
business units.
+ Further information on the Board and its
Committees is given in the Governance
section on pages 104 to 120
BOARD
OF
DIRECTORS
BOARD
COMMITTEES
EXECUTIVE
COMMITTEE
− Overall responsibility for risk management
and its alignment with the Group’s strategy
− Approves Risk Management Policy
− Defines risk appetite
− Reviews, challenges and monitors key risks
− Support the Board in monitoring key risks and
exposure relative to the Group’s risk appetite
− Provide recommendations to the Board on the
risk management system
− Review the effectiveness and implementation
of the risk management system
− Assesses risks and potential impacts on
the achievement of strategic goals
− Promotes the Group’s risk management
culture in each of the business areas
− Owners of key risks
FIRST LINE
OF DEFENCE
SECOND LINE
OF DEFENCE
THIRD LINE
OF DEFENCE
Each person in the Group is
responsible for identifying,
preventing and mitigating risks
in their business area, and
escalating it to the appropriate
level, if required.
The Risk and Compliance
Department is accountable for
monitoring the Group’s overall risk
profile and risk management
performance, registering risk and
issuing alerts if any deviation is
defected.
The Internal Audit Department
provides assurance on the
risk management process,
including the effectiveness of
the performance of the first
and second lines of defence.
antofagasta.co.uk
23
STRATEGIC REPORT
PRINCIPAL RISKS
The Group maintains a risk register through a robust assessment
of the potential key risks that could affect the organisation’s performance.
This register is used to ensure key risks are identified in a comprehensive
and systematic way and that the agreed definitions of risk are used.
RISK MANAGEMENT
The Group is aware that not all risks can be completely eliminated and the exposure to some risks is necessary in pursuit of its
corporate objectives.
The Group identifies, assesses and manages the risks critical to its success. Overseeing these risks benefits the Group and protects
its business, people and reputation. It uses the risk management process to provide reasonable assurance that the risks it faces are
recognised and controlled. This approach to the risk management system enables the organisation to achieve its strategic objectives
and create value.
The risk map represents the position at a specific point in time as an example and that, by their very nature, risks change and evolve and are
therefore periodically updated.
RISK HEAT MAP
The Board has carried out a robust assessment of its principal risks,
which are set out below, together with the related preventive and
mitigation measures.
RISK MATRIX
Risk
Risk
appetite
Level
of risk
2
3
7
8
5
6
1
10 13
4
9
12
11
14
T
C
A
P
M
I
e
r
e
v
e
S
t
n
a
c
i
f
i
n
g
S
i
e
t
a
r
e
d
o
M
w
o
L
w
o
l
y
r
e
V
People
1. Talent management and labour relations
Sustainability
2. Safety and health
3. Environmental management
4. Community relations
5. Political, legal and regulatory
6. Corruption
Competitiveness
7. Operations
8. Strategic resources
9. Cyber security
10. Liquidity
11. Commodity prices and exchange rates
Innovation
12. Innovation
Growth
13. Growth of mineral resource base
Very
unlikely
Unlikely
Possible
Likely
PROBABILITY
Almost
certain
and opportunities
14. Project execution
HOW RISK MANAGEMENT RELATES TO OUR STRATEGY
KEY
Low Medium High Very high
Risk appetite
Risk level
The
existing
core
business
Organic and
sustainable
growth of the
core business
Growth
beyond the
core business
24
Antofagasta plc Annual Report 2018
KEY RISKS
The Board has carried out a robust assessment of its principal risks,
which are set out below, together with the related preventive and
mitigation measures. There has not been a significant change in the
assessment of the potential impact of these risks to the Group during the year.
In 2018, the Board assessed and approved the risk appetite for the Group. Risk appetite is a key element in embedding the risk management
system into the Group’s organisational culture. The risk appetite statement helps to translate the Group’s strategy into the business units’
objectives, clarifying which risk levels are, or are not, acceptable. It promotes consistent risk decision-making, aligned to the strategic focus
and risk/reward balance approved by the Board.
The Group maintains a risk register through a robust assessment of the potential key risks that could affect the organisation’s performance.
This is used to ensure that key risks are identified in a comprehensive and systematic way and that the agreed definitions of risk are used.
The key risks, together with the related mitigation techniques have been presented to the Board and are in line with the organisation’s priorities
of Talent Management, Safety and Sustainability, Operations and Growth. In addition, these four pillars are supported by the Group’s corporate
governance structures. The key risks are outlined opposite and in more detail below.
PEOPLE
RISK
APPETITE
RISK
LEVEL
1. TALENT MANAGEMENT AND LABOUR RELATIONS
The Group’s highly skilled workforce and experienced management team are critical for maintaining current
operations, implementing development projects, achieving long-term growth and pursuing current operations
without major disruption. Managing talent and maintaining a high-quality labour force, in a changing technological
and cultural environment, is a key priority for the Group. Any failures in this respect could have a negative impact
on the performance of the existing operations and future growth.
PREVENTIVE AND MITIGATION MEASURES
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, diversity and inclusion and compliance
with Chile’s strict labour regulations.
There are long-term labour agreements in place with all 19 unions at the Group’s operations, helping to ensure
labour stability.
The Group seeks to identify and address labour issues that may arise throughout the period covered by the
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 to build long-term mutually
beneficial relationships.
The Group maintains constructive relationships with its employees and their unions 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 career development, invests in initiatives to widen
the talent pool and is committed to its diversity and inclusion policy. Through these actions the Group aims to increase
the number of women, people with disabilities and employees with international experience in the workplace.
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.
antofagasta.co.uk
25
STRATEGIC REPORT KEY RISKS CONTINUED
SUSTAINABILITY
RISK
APPETITE
RISK
LEVEL
RISK
APPETITE
RISK
LEVEL
2. 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 and is part of the Group’s core values.
A poor safety record or serious accidents could have a long-term impact on the Group’s morale, reputation
and production.
PREVENTIVE AND MITIGATION MEASURES
The Group seeks continuous improvement of its safety and health risk management procedures, with particular focus on
the early identification of risks and the prevention of 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 serious accidents and fatalities and minimising the number of accidents requires all contractors
to comply with its Occupational Safety and Health Plan. This plan is monitored through monthly audits and is supported
by regular training and awareness campaigns for employees, contractors, employees’ families and local communities,
particularly with regard to road safety. The Group requires all staff in defined safety-critical roles to satisfy at least the
minimum qualifications and experience defined for their role and complete any required training prior to commencing
their work activities.
Critical controls and verification tools are regularly strengthened through the verification programme and regular audits
of critical controls for potentially high-risk activities.
The Group continuously seeks to incorporate technology and innovation to reduce workers’ exposure to safety
and health risks.
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 largely agricultural Choapa Valley, and the Atacama
Desert, where water scarcity is a key issue.
PREVENTIVE AND MITIGATION MEASURES
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, providing training to promote operating excellence. The potential
environmental impacts of a project are key considerations when assessing its viability, and the integration of innovative
technology in the project design to mitigate such impacts is encouraged.
The Group prioritises the efficient use of natural renewable resources by pioneering the use of sea water, increasing
renewable-based power supply, achieving higher rates of reuse and recovery through thickened tailings technology and
reducing greenhouse gas emissions through energy efficiency and other measures.
The Group recognises that environmental sustainability is key to its licence to operate and performs regular risk
assessments to identify potential impacts and develop preventive and mitigating strategies.
Each site maintains an updated environmental emergency preparedness plan and a detailed closure plan with
appropriate financial provisions to ensure physical and chemical stability once operations have ceased.
26
Antofagasta plc Annual Report 2018
4. 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.
RISK
APPETITE
RISK
LEVEL
PREVENTIVE AND MITIGATION MEASURES
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 its 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, starting with an
assessment of the existing situation and the specific needs of surrounding communities, while looking to develop
long-term, sustainable relations and evaluating the impact of its contributions. The Group is focused on developing
the potential of members of local communities through education, training and employment.
The Group works 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.
RISK
APPETITE
RISK
LEVEL
RISK
APPETITE
RISK
LEVEL
5. 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.
PREVENTIVE AND MITIGATION MEASURES
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, particularly in Chile, and belongs to
several associations that engage with governments on these changes. This helps to improve the Group’s internal
processes and better prepares it to meet any new regulatory requirements.
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 discussions continue.
6. CORRUPTION
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.
PREVENTIVE AND MITIGATION MEASURES
The Group has a “zero tolerance” regime for any activity that would result in breaking any anti-bribery and corruption
legislation. A robust governance regime, including an Ethics Committee, opens channels of communication, training and
multiple layers of controls that are maintained across all operations, exploration activities and third-party relationships.
The Group’s compliance model seeks to prevent any activity which may involve directly or indirectly the Group in any
irregular situation, to detect any potential risk in good time and to act accordingly. There are control procedures in place
that help to prevent corruption, covering such issues as conflicts of interest, suitability of suppliers, the receiving and
giving of gifts and hospitality, and facilitation payments.
All employees in the Group receive training on the Group’s Compliance Model, which is subject to external certification.
antofagasta.co.uk
27
STRATEGIC REPORT KEY RISKS CONTINUED
COMPETITIVENESS
7. OPERATIONS
The Group’s operations are subject to a number of circumstances not wholly within its 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.
PREVENTIVE AND MITIGATION MEASURES
Key risks relating to each operation are identified as part of the regular risk review process undertaken by the individual
operations. This process also identifies appropriate mitigation techniques for such risks. Monthly reports to the Board
provide variance analysis of operating and financial performance, allowing potential issues to be identified in good time
and any necessary monitoring or control activities to be implemented, preventing unplanned downtime.
The Group’s focus is on maximising the availability of equipment and infrastructure and ensuring effective utilisation
of the Group’s assets, in line with the nameplate design and technical limits. The Group keeps the variation of
the processes within defined tolerance limits. In the case of the Group’s tailings storage facilities these are
monitored constantly and reviewed twice a year by a team of independent experts to ensure compliance with
international standards.
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.
8. STRATEGIC RESOURCES
Disruption to the supply of any of the Group’s key strategic inputs such as electricity, water, fuel, sulphuric acid or
mining equipment could have a negative impact on production. Longer term, restrictions on the availability of key
strategic resources such as water and electricity could affect the Group’s growth opportunities.
A significant portion of the Group’s input costs are influenced by external market factors.
PREVENTIVE AND MITIGATION MEASURES
In order to achieve the Group’s security of supply, 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.
To achieve cost competitiveness, the Group endeavours to buy the highest possible proportion of its key inputs such as
fuel and tyres, on as variable a price basis as possible, and to link costs to underlying commodity indices where this
option exists.
The Group is committed to incorporating sustainable technological and innovative solutions, such as using sea water
and renewable power when economically viable, to mitigate exposure to potentially scarce resources.
The Group maintains a rigorous, risk-based supplier management framework to ensure that it only engages with
reputable product and service providers, and keeps in place the necessary controls to ensure the traceability of all
supplies (including avoiding any conduct related to modern slavery).
9. CYBER SECURITY
Breaches in, or failures of, the Group’s information security management could adversely impact its business activities.
PREVENTIVE AND MITIGATION MEASURES
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.
The Group’s IT systems were audited in 2018 to identify any potential threat to the operations and additional systems
have been put in place to protect the Group’s assets and data.
RISK
APPETITE
RISK
LEVEL
RISK
APPETITE
RISK
LEVEL
RISK
APPETITE
RISK
LEVEL
28
Antofagasta plc Annual Report 2018
RISK
APPETITE
RISK
LEVEL
RISK
APPETITE
RISK
LEVEL
10. LIQUIDITY
Restrictions in financing sources for future growth could prevent the Group from taking advantage of growth or other
opportunities available in the market.
PREVENTIVE AND MITIGATION MEASURES
Security, liquidity and return represent the order of priorities for the Group’s investment strategy. The Group maintains
a strong and flexible balance sheet, consistently returning capital to shareholders while leaving the Group with sufficient
funds to progress its short, medium and long-term growth plans and maintain financial flexibility to take advantage of
opportunities as they may arise.
The Group has a risk-averse investment strategy, managing its liquidity by maintaining adequate cash reserves
and financing facilities through the periodic review of forecast and actual cash flows. It chooses to hold surplus cash
in demand or term deposits or highly liquid investments.
11. COMMODITY PRICES AND EXCHANGE RATES
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.
The Group’s sales are mainly denominated in US dollars, although some of the Group’s operating costs are in Chilean
pesos. As a result, the strengthening of the Chilean peso may negatively affect the Group’s financial results.
PREVENTIVE AND MITIGATION MEASURES
The Group considers exposure to commodity price fluctuations to be an integral part of its 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 commodity price scenarios and develops contingency plans
as required.
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 it and on
occasion implements a focused currency-hedging programme to reduce short-term exposure to fluctuations in the
US dollar against the Chilean peso.
INNOVATION
RISK
APPETITE
RISK
LEVEL
12. INNOVATION
The Group’s ability to deliver on its strategy and performance targets may be undermined by missed opportunities
or delays in adopting new technologies and its ability to innovate.
PREVENTIVE AND MITIGATION MEASURES
The Group seeks value-capturing innovations that realise cost savings, improving the efficiency, reliability and safety
of its processes and supporting its corporate strategic pillars. It evaluates the potential of all ideas using its stage-gate
approval process and Innovation Board.
The Group maintains partnerships with academic institutions and companies specialising in technology and engineering
companies, including peers, where there is no competitive barrier to doing so, in order to maximise the potential for
improvements in its processes and systems. A dedicated team monitors, identifies and analyses external innovation
trends with potential application to the Group’s business, including in non-operational areas such as product sales and
purchasing, and maintains and manages a portfolio of ongoing projects.
The Group has a recognition and incentives programme to encourage all staff to suggest innovations to its day-to-day
operating systems. It also dedicates resources to test and, if successful, escalate promising innovations with potential
positive impact on the business and growth options.
antofagasta.co.uk
29
STRATEGIC REPORT KEY RISKS CONTINUED
GROWTH
RISK
APPETITE
RISK
LEVEL
13. GROWTH OF MINERAL RESOURCE BASE AND OPPORTUNITIES
The Group needs to identify new mineral resources to ensure continued future growth and does so through exploration
and acquisition.
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.
Regarding exploration activity, there is a risk that the Group may not identify sufficient viable mineral resources.
PREVENTIVE AND MITIGATION MEASURES
The Group’s exploration and investment strategy prioritises exploration and investment mostly in the Americas.
The Group focuses on growth opportunities in stable and secure countries in order to reduce risk exposure.
A rigorous assessment process evaluates and determines the risks associated with all potential business acquisitions
and strategic exploration alliances, including conducting stress-test scenarios for sensitivity analysis. Each assessment
includes country risk analysis (including corruption) and analysis of the Group’s ability to operate in a new jurisdiction.
At the very least, all joint ventures must operate in line with, or to an equivalent of, the Group’s policies
and technical standards.
The Group’s Business Development Committee reviews potential growth opportunities and transactions, and approves
or recommends them within authority levels set by the Board.
14. PROJECT EXECUTION
Failure to effectively manage the Group’s development projects could result in delays in the start of production
and cost overruns.
RISK
APPETITE
RISK
LEVEL
PREVENTIVE AND MITIGATION MEASURES
The Group has a project management system to apply the best practices at each phase of a project’s development.
The project management system provides a common language and standards to support the decision-making process
by balancing risk with benefit to increase. In addition, all geometallurgical models are reviewed by independent experts.
During the project development 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 completed feasibility study to assess the technical and
commercial viability of the project and how it can be safely developed, including any relevant risk or opportunity that
could potentially impact the schedule, cost or future performance.
Detailed progress reports on ongoing projects are regularly reviewed and include assessments of progress against key
project milestones and performance against budget.
Project robustness is stress-tested against a range of copper price scenarios. Joint project/operation teams are
established early in the development project in order to assure smooth transition of the project into operating mode
once construction is completed.
30
Antofagasta plc Annual Report 2018
COMPLIANCE AND INTERNAL CONTROL FRAMEWORK
The way in which the Group achieves its objectives is crucial to the long-term
sustainable development of Antofagasta plc. The Group has zero tolerance for
bribery and corruption and is committed to working with integrity and transparency.
It complies with all applicable anti-corruption and anti-bribery legislation and
ensures the necessary controls are in place to prevent unethical behaviour.
AREAS OF FOCUS AND DEVELOPMENT
DURING 2018
− In-depth training and communication in ethics and compliance,
including presentations to the Group’s main suppliers, training in
the most exposed areas and company-wide communications.
− A Compliance Day was held for the Group’s executives in August,
as a refresher on the Group’s Compliance Model, and to discuss
examples of ethical dilemmas and reinforce the role of the
leadership team in preventing irregular situations.
− Each new employee is trained on the Compliance Model as part
of their induction programme.
− Supply area controls were reinforced and additional controls
implemented to strengthen the supply chain due diligence process,
particularly concerning working conditions and modern slavery.
COMPLIANCE MODEL
The Group’s Compliance Model applies to both employees and
contractors. It is clearly defined and communicated regularly through
internal channels as well as 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 Group actively promotes open communication with all
employees, contractors and local communities to support the
achievement of the Group’s objectives and the creation of value
in an ethical and honest way.
CODE OF ETHICS
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. It is the basis for the Compliance Model
and supports the implementation of all other related activities.
The Compliance Model is reviewed regularly, both internally and by
third parties, and on matters relating to corruption it is certified under
Chilean anti-corruption legislation.
COMPLIANCE MODEL
PREVENTION
DETECTION
ACTION
FULL MANAGEMENT OF RISKS
PREVENTION:
The main focus of the Compliance Model is to prevent any irregular
situation arising. The Group provides a series of tools and training
opportunities to all employees and contractors to support appropriate
behaviour through:
− Internal procedures
− Anti-trust guidelines (Politically Exposed Persons, facilitation
fees, etc)
− Due diligence, and reviews of conflicts of interest and potential
business partners
− Inclusion of anti-corruption clauses in contracts
− Training and communication
DETECTION:
The Group has several tools with which to detect any potentially
irregular situations, including:
− Whistleblowing channels
− Data analysis
− Updating due diligence
− Internal controls
− Internal audit
ACTION:
If an irregular situation is detected it is investigated according to the
Group’s allegation investigation procedures. Each operating company
has an internal Ethics Committee which reviews the conclusions of
investigations and suggests action plans to the corporate Ethics
Committee. The performance of the compliance programme is
reported quarterly to the Audit and Risk Committee and every six
months to the Board. The security and confidentiality of employees
using whistleblowing channels is guaranteed, safeguarding individuals
and achieving greater transparency.
The Group’s Crime Prevention Model ensures compliance with the
anti-bribery and anti-corruption laws in the United Kingdom and Chile
and it is certified by an external entity.
antofagasta.co.uk
31
STRATEGIC REPORT CREATING SUSTAINABLE
VALUE FOR STAKEHOLDERS
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.
IN THIS SECTION
How we engage with
our stakeholders
Employees
Communities
Suppliers
Customers
Safety and health
Environment
Value creation
Total economic contribution
34
36
38
40
42
44
46
50
51
32
Antofagasta plc Annual Report 2018
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.
REPORTING AND TRANSPARENCY
The Group is part of sustainability indexes such as
FTSE4Good, the STOXX Global ESG Leaders, and the ECPI
Global Developed ESG Best in Class. Also, Antofagasta is member
of the International Council on Mining and Metals (ICMM), and
engages with the Carbon Disclosure Project (CDP) with the
objective to improve its sustainability performance and share
good practices within the mining industry.
antofagasta.co.uk
33
ANTOFAGASTA DURING 2018SAFETY AND HEALTH −Visible leadership: regular onsite safety and health reviews by senior management to verify critical controls in the mining and transport divisions. −Mining safety and health controls applied to the transport division.EMPLOYEES −Diversity and Inclusion Strategy rolled out to all operations: “Somos inclusión, elegimos la diversidad” (We are inclusion, we choose diversity). −Labour negotiations successfully concluded at Los Pelambres.SUPPLIERS −Mining division joined the mining cluster in the city of Antofagasta, an alliance that seeks to strengthen employability and innovation in northern Chile. −Transport division obtained the ProPyme hallmark to guarantee better conditions for SMEs. −61% of the Group’s purchases on goods and services was from companies that use local employees, infrastructure and resources. −No lawsuits or fines arising from incidents in the supply chain.COMMUNITIES −Somos Choapa (We are Choapa) community engagement model at Los Pelambres replicated successfully as “Dialogues for Development” at the Group’s operations in northern Chile. −Launched new Social Management Model in both mining and transport divisions.ENVIRONMENT −Set first carbon reduction target to reduce forecast carbon dioxide emissions over the period 2018 to 2022 by 300,000 tonnes. −Transport division adopted the mining division’s Environmental Management System. −Started pilot of public-private programme to develop an online system to monitor the physical and chemical stability of tailings deposits.SUSTAINABLE GOVERNANCE −Implemented a new Compliance Model. −Company published its third Payment to Governments report in June.STRATEGIC REPORT STAKEHOLDER ENGAGEMENT
HOW WE ENGAGE WITH
OUR STAKEHOLDERS
Successful relationships with stakeholders are essential to the long-term success
of the Group, which has a network of arrangements in place to ensure that
the views and interests of stakeholders are represented.
EMPLOYEES
The Group has a workforce of approximately 21,500 people (employees and contractor workers) at its
operations, projects, exploration programmes and corporate offices. Most of the workforce is based in
Chile and 54% comes from communities where the Group’s operations are located. Contractors account
for approximately 70% of the workforce across the Group’s operations.
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.
Contractors are essential to mining operations.
Operational continuity requires all contractors to
adhere to the same standards expected of
Antofagasta’s own employees, particularly in the
areas of safety and health.
HOW WE ENGAGE
− Site visits
− Quarterly on-site CEO updates
− Engagement surveys
− On-site reviews
− Regular meetings with unions and contract
managers
− Safety and health, and other meetings
COMMUNITIES
The Group coexists with diverse communities in Chile, located in the Antofagasta and Coquimbo Regions.
It is a priority for Antofagasta to strengthen engagement with communities in order to grow together and
contribute to the long-term development of the areas around its operations. Group’s activities also naturally
affect local communities and Antofagasta strives to prevent, mitigate and compensate for any adverse impact
that these activities may have.
WHY WE ENGAGE
The wellbeing of local communities is directly
related to Antofagasta’s business success and
the Group is convinced that mining activities
bring unique opportunities for national and
local development.
HOW WE ENGAGE
Ongoing communication through the local engagement
frameworks Somos Choapa and Dialogues for
Development, which include: participatory dialogue, mine
site visits, grievance mechanisms and citizen-participation
processes and diverse communication channels.
SUSTAINABILITY
FORWARD
THINKING
CORE
Regular reporting of dialogue with local communities
to the Sustainability and Stakeholder Management
Committee and the Board.
EXCELLENCE
SUPPLIERS
The Group works with over 4,800 suppliers, of which 93% are based in Chile. 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 sustainably, safely and efficiently and
therefore we ensure that they comply with the
Group’s standards and guidelines on
sustainability matters.
The Group pays special attention to the top
suppliers in each category to ensure the most
cost-effective, efficient, and sustainable solutions
across all operations.
HOW WE ENGAGE
The procurement team maintains close relationships
and regularly meets with suppliers.
The Group encourages suppliers to raise any issues or
concerns they have about their relationship with the
Company, their contracts or the workforce.
Antofagasta works together with local communities to
foster local employment capabilities through offering job
opportunities and training and/or by providing services
to the mining industry.
34
Antofagasta plc Annual Report 2018
IN FOCUS
ALLIANCES AND WORKING TOGETHER FOR SUSTAINABLE MINING
Antofagasta believes that working in partnership is the best way to ensure that Chile develops its remaining copper resources – some 22% of global reserves
– in a sustainable way 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 a major mining group in Chile, Antofagasta plays a leading role in the public-private institutions Alianza Valor Minero (Mining Value Alliance)
and Programa Nacional de Minería Alta Ley (National High-Grade Mining Programme), with the aim of building a strategic agenda for Chilean mining. The Group
also sits on the Executive Committee of the Consejo Minero (Mining Council), which represents Chile’s large mining companies, and participates in the Sociedad
Nacional de Minería (National Mining Society, Sonami) as well as the UN Global Compact network in Chile, among other activities.
At the international level, Antofagasta’s mining division is a member of the International Council on Mining and Metals (ICMM), the International Copper Association
(ICA), for which Antofagasta’s CEO Iván Arriagada was elected chairman of the Board in 2018, the International Molybdenum Association (IMOA), and the Civil
Society and Mining & Metals Working Group of the World Economic Forum (WEF).
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 as equity holders in our
mining operations
− Annual trip to Japan by the Chairman and
several Directors to meet our partners
− Marketing team’s regular meeting with
customers around the world
− Representative marketing office in Shanghai
SHAREHOLDERS
Shareholders are financial institutions and individuals that own shares in the Company. Shareholders are
entitled to receive dividends from the Company and to vote at shareholder meetings to elect the Directors of
the Company, among other matters.
WHY WE ENGAGE
Shareholders, and particularly institutional
investors, are constantly evaluating their
holdings in the Company as part of their
portfolios. Providing insightful information about
the Company’s strategy, projects and performance
is crucial for their assessment of the Company.
The Group pays special attention to maintaining
fluent and transparent dialogue with shareholders,
in order to ensure that every shareholder is
treated and informed equally.
HOW WE ENGAGE
The Company regularly meets with institutional
investors and banks’ analysts at industry conferences
and face-to-face meetings and on roadshows.
Once a year the Board attend the Company’s
Annual General Meeting where they are available
to answer questions.
The Company also provides regular production
and financial reports.
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
Antofagasta works alongside mining associations
and industry-related state bodies to engage with
governments on public policy, laws, regulations
and procedures that may affect the business.
The relationship with governments and regulators
is strictly subjected to their engagement mechanisms,
which are clearly defined under the Chilean Lobby Law
No. 20,730.
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STRATEGIC REPORT STAKEHOLDER ENGAGEMENT
EMPLOYEES
Antofagasta knows that a wide diversity of talent is required to address the
challenges of mining in the future, and this needs to be combined with a culture
of innovation and values aligned to the Group’s business objectives.
The Group manages and develops talent, seeking to engage employees
through shared values and an attractive offer that enhances their
experience of being part of the Group.
The Group’s People strategy was developed in 2013 and continues
to be built on four pillars: culture, talent management, organisational
effectiveness, and labour relations and engagement. In 2018 efforts
were focused on integrating the new Diversity and Inclusion (D&I)
Strategy with these four pillars.
INCLUSIVE
CULTURE
The D&I Strategy was approved by the Board in 2017 and focuses
on the inclusion of women, people with disabilities and employees
with international experience. In 2018 the strategy was rolled out
through the Group and individual targets were incorporated into the
staff appraisal system at managerial level. Implementation of the D&I
roadmap was included on business scorecards in the mining and
transport divisions.
During 2018 the Group’s Charter of Values was updated to align
it with the D&I Strategy. Antofagasta is now effecting cultural
change, creating an inclusive working environment through raised
awareness and education to update expectations of the behaviour
of the Group’s employees.
Different programmes have been developed to put this into practice.
An example is Promociona Chile, a public-private initiative that
supports leadership development for high-potential women, aiming
to increase their participation in senior management roles and on
boards. Sensitive issues were also addressed with the publication
of the first Sexual Abuse Protocol and the introduction of another
public-private initiative that develops an Early Alert System to
reduce loss and improve retention of female employees. In addition,
the Group supports a new work/life balance protocol, a public-private
initiative to promote female participation in the sector.
In 2017 and 2018 Antofagasta developed a diversity baseline and
monitored the progress and perception of the programmes. In 2018
the percentage of women who were promoted was 21%, and the
participation of women in the talent pool and succession plans for key
managerial roles was reviewed. Among women employed, 9% held
executive positions, 18% were supervisors and 5% worked as
operators, both at mining sites and in the transport division.
DIVERSITY & INCLUSION TARGETS:
Double the percentage of women in the workforce
by 2022, compared to the 2017 baseline.
Go beyond the 1% of disabled workers required by
Chilean legislation.1
DIVERSE AND GLOBAL TALENTS
The Group’s workforce are nearly all based in Chile, where the
operations and corporate office are located, and a small number
are in London, Toronto, Shanghai, Lima, and Minnesota in the US.
In 2018 the Group focused on improving the talent management
system. Changes were introduced to increase the mobility of
diverse and global talents, identifying roles for people with
international experience and conducting an in-depth review of
its female talent pool.
The Group has fostered three initiatives focused on attracting young
talent at different levels of the organisation: a Young Graduates
Programme, which aims to recruit into the talent pipeline young
people with potential to take on key executive roles; an Apprentices
Programme, which offers opportunities to young people from local
communities; and the Eleva Programme, a public-private initiative
that links technical education with the capabilities and skills
required by the mining industry. At the supervisory level, training
and development programmes were updated, aligning them to the
Group’s Operating Model.
Antofagasta invested $4.7 million in training in 2018, providing
an average of 44 hours of training per employee per year, 74%
more than in 2017, including hours of training on Diversity and
Inclusion topics.
21,436
people
30%
employees
70%
contractors
9%
women
71%
unionised employees
1. Chilean Labour Inclusion Law No. 21,015.
36
Antofagasta plc Annual Report 2018
LABOUR RELATIONS
AND ENGAGEMENT
ALIGNING
CONTRACTORS
Antofagasta has 18 unions: ten in the mining division and eight in
the transport division, together representing the 71% of the total
number of employees.
During 2018 union leaders and employees were trained on the
Group’s business strategy, long-term vision and challenges of the
Operating Model.
The Group recognises employees’ rights to union membership
and collective bargaining. In Chile, freedom of association is
legally protected.
Antofagasta has a consultation and complaints system that can
be accessed by workers and unions.
In 2018 labour agreements were successfully negotiated with six
unions, two at Los Pelambres and four in the transport division
concluding another year without a strike for the Group. These binding
agreements cover salaries, shift patterns and employment benefits
and are renegotiated every three years, in accordance with Chilean
legislation. In addition, Chilean law protects basic human rights, such
as decent working conditions and the minimum wage, and prohibits
forced and child labour.
Contractors conduct key tasks in the Group’s business and
represent 70% of the workforce. The Group has established control
mechanisms to make sure contractors meet Antofagasta’s standards
and guidelines on labour, environmental, social and ethical matters,
and to adopt its good practices with regard to safe workplaces and
quality employment. Antofagasta also requires contractors to pay
ethical minimum wages 41% higher than Chile’s legal minimum, and
provide other basic benefits including life and health insurance for
their employees. Contractors must also comply with the UK’s Modern
Slavery Act. Failure to comply can lead to sanctions and even contract
withdrawal. The Group regularly audits its contractors to ensure full
compliance with these standards and in 2018 audits were carried out
that included modern slavery issues.
The mining division establishes performance agreements with
contractors to measure compliance. These include KPIs on safety
and health, labour conflicts, work stoppages, labour demands and
other matters.
A FOCUS ON SUSTAINABILITY
Performance agreements between Antofagasta
Minerals and its contractor companies include key
sustainability issues.
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STRATEGIC REPORT
STAKEHOLDER ENGAGEMENT
COMMUNITIES
Through dialogue and collaboration, Antofagasta has strengthened engagement with
communities in the regions where it operates. The aim is to contribute to long-term
development, building skills through trackable projects and programmes that aspire
to excellence and are developed in a participative and transparent manner.
SOCIAL MANAGEMENT MODEL
In 2018 Antofagasta launched a new Social Management Model that
will be gradually implemented from 2019 in both the mining and
transport divisions. This model enhances social management and
introduces standards for engagement, management of initiatives,
management of socio-territorial risks and impact measurement of
projects and programmes.
The objective of the Social Management Model is to have a single,
integrated way of operating at Group level. This enables the
application of common engagement principles, methodologies and
practices, guarantees excellence in project execution, measures
impacts and has a socio-territorial risk management system that
offers the quantity and quality of information needed to make
evidence-based decisions.
SOCIAL PROJECTS AND PROGRAMMES
Antofagasta’s portfolio of social management projects and
programmes comprises voluntary, mandatory and committed
initiatives that seek to legitimise the Group’s activities, provide
business continuity and contribute to community development in
accordance with their interests and needs. It also strengthens links
with its stakeholders to create a long-term relationship of
understanding and coexistence.
In 2018 the Group agreed strategic and long-term guidelines for its
portfolio of social management projects and programmes. In 2019
the challenge will be to implement these guidelines throughout the
business, with the aim of incorporating and/or modifying elements
in the processes, projects and programmes. This will ultimately
add value to achieve positive results for both the communities
and the Group.
FROM COMPETITION TO COEXISTENCE
In 2014 the mining division developed a new and innovative local
engagement framework called Somos Choapa (We are Choapa).
By 2018 this framework was established throughout most of
Los Pelambres’ area of influence and has been replicated
successfully through the “Dialogues for Development” initiative
at the Group’s operations in northern Chile.
After four years, this innovation has resulted in a redistribution of
power among the different stakeholders, as well as alignment towards
a shared vision of a sustainable future in the areas where we operate.
ECONOMIC SOCIAL CONTRIBUTION $34.3 MILLION1
INCORPORATION OF SUSTAINABLE
DEVELOPMENT GOALS (SDG) INTO SOCIAL
AND ENVIRONMENTAL PROCESSES,
PROJECTS AND PROGRAMMES
In 2018 a gap assessment began with the
aim of achieving specific SDGs for mining in
Los Pelambres’ area of influence. It set out
to address social and environmental issues
in future programmes and projects and to
incorporate processes that contribute to the
achievement of the objectives.
+ See page 50 for more information
A portfolio of 133 initiatives has been developed, of which 25% are
complete, 40% in execution and the remainder are at the conceptual
or feasibility stage. These initiatives are focused on the economic,
social and environmental development in Los Pelambres’ area
of influence. The following programmes stand out: employment,
productive diversification; education, road safety, city, community,
local identity, health; and waste and water issues.
The measured impacts include:
− Improvements to public spaces (24,000m2 built and more than
185,000m2 planned).
− Construction of green areas (55,000m2, increasing such areas by
0.9m2 per inhabitant).
− Investments and improvements to mitigate water scarcity
(146,000m3 of storage tanks, 180km of improved irrigation canals,
provision of 1,642 l/s of surface water).
CHOAPA I – OPEN INNOVATION
− In 2018 Los Pelambres launched Choapa i, an open innovation
platform developed with university students to address social
challenges. The pilot project is under way in the Choapa Valley,
seeking to create an innovation collaboration space for productive
social challenges in the community.
$33.7m1
Mining division
$0.6m
Transport division
1. Figure for social economic contribution includes, for both mining and transport
division: community investment programmes (We are Choapa, Dialogues for
Development, FCAB social initiatives), social projects and programmes established
as part of our legal commitments, donations and sponsorships, Caimanes
agreement, Foundation Los Pelambres
38
Antofagasta plc Annual Report 2018
ADDRESSING SOCIAL CONCERNS1
Engagement mechanisms: dialogue with local people is crucial for
aligning views on the region, resolving disputes and addressing
concerns. To strengthen such dialogue, Antofagasta uses different
engagement mechanisms: citizen dialogue, round tables, community
meetings, participatory environmental monitoring with the community
and community visits to operations, as well as communications in the
media, on websites and social networks.
Formal complaint mechanisms: each of the Group’s operating
companies has a formal system to monitor its commitments to the
community and to investigate and respond to queries and complaints.
Conflicts: engagement mechanisms based on the Somos Choapa
design have allowed community concerns to be aired, creating
opportunities to resolve possible issues sooner and avoid high
conflict levels. However, there are communities that are not yet
part of Somos Choapa, with whom other dialogue mechanisms
have been used. One example is the Cuncumén community, close
to Los Pelambres, with whom dialogue was established to address the
inconvenience caused by unusual levels of dust from the Los Quillayes
tailings dam. This led to an agreement to strengthen preventative
measures when elevated levels of dust are detected.
Water availability: water scarcity, mainly caused by long periods
of drought, has been a constraint on the development of various
productive activities. This is especially evident in the central region
of Chile, where the majority of agricultural activity is concentrated
and coexists with different activities, such as mining. This is one of
Antofagasta’s greatest challenges, as the Choapa Valley, where Los
Pelambres operates, is in this region. For this reason, operational
measures are in place to protect water quality and efficiency of use.
+ See page 46 for more information
In addition, initiatives designed in conjunction with the community and
public agencies have improved the structure and efficiency of local
irrigation systems. The programmes focused on the needs of small
and medium-sized farmers, as well as the availability and quality of
drinking water for communities. Good examples of this are the
Confluye and APRoxima programmes.
Culture and heritage: communities cherish their identity and cultural
heritage and this has led to the creation of programmes that work
with the communities to recover cultural traditions, public spaces and
places rich with local history.
For example, the transport division has introduced initiatives to
create gardens and clean spaces near or next to its railway lines,
and highlights the history and culture of the area each year with a
popular event called Carnival of Giants.
TRAINING SOCIAL LEADERS
Antofagasta believes that better qualified social
leaders contribute to communities’ progress. In
2018, 118 social leaders participated in a Social
Leaders Training Diploma course that had been
developed/offered as part of the Somos Choapa
framework and was supported and accredited by
the University of Santiago.
Los Pelambres has carried out various activities to contribute to the
recovery and/or improvement of public spaces for the community.
In 2018 the most popular initiatives were the Recreo Programme,
to improve communities’ public spaces and green areas, and the
Gran Mateada initiative encouraging neighbours to drink mate (a
traditional hot drink) together in communal areas.
Protecting natural and cultural heritage is part of the Group’s history.
In 2018 Los Pelambres supported the opening of the Parque Rupestre
de Monte Aranda (Monte Aranda Rock Art Park) in the Choapa Valley,
which protects and displays archaeological pieces from the local
indigenous culture. Meanwhile, the transport division has restored
heritage buildings in the centre of Antofagasta city and built a
railway museum that displays restored railway carriages from the
last century.
Developing local skills and employment prospects: the Group’s
operating companies aim to improve local employment prospects
through hiring initiatives and job-training programmes.
+ See page 40 for more information
Antofagasta is convinced that increasing the skills and opportunities of
young people allows social development to meld with the needs of
mining in the future. The Eleva Programme, a public-private initiative,
promotes relevant and high-quality professional technical training and
job opportunities for the young people on the programme. Likewise,
Los Pelambres supported the construction of a Technical Training
Centre in Los Vilos that opened in 2018. 304 students were trained
there during the year, and the vast majority were studying free
of charge.
1. A strong social performance by the Group’s companies is encouraged among
workers through the Performance Management System with a 5% weighting with
respect to overall performance.
+ See page 129 for more information
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STRATEGIC REPORT STAKEHOLDER ENGAGEMENT
SUPPLIERS
Suppliers play a fundamental role in Antofagasta’s ability to operate safely,
sustainably and efficiently and the Company ensures they comply with the Group’s
standards and guidelines. Suppliers provide a large range of goods and services
from mining equipment and energy to fuel and catering.
RESPONSIBLE SUPPLY
Around 4,750 suppliers of goods and services form part of
Antofagasta’s supply chain. A central corporate purchasing team
defines and consolidates common procurement practices and
procedures, as well as the standards and good practices required
of suppliers.
Compliance: the Group carries out due diligence on all its
potential suppliers prior to awarding a contract. Company
ownership, participation of politically exposed persons
(PEP), antitrust issues, commercial behaviour, legal and
labour cases, conflicts of interest and contract risks are
all reviewed.
Contracts covering the supply of goods include clauses requiring
compliance with Chilean Law 20,393 (Prevention of Crimes) and UK
laws on bribery (UK Bribery Act) and modern slavery (UK Modern
Slavery Act).
In addition, audits of direct suppliers monitor compliance with labour
legislation and the Group’s rigorous safety and health policy. In the
case of contracts with direct suppliers in jurisdictions with different
standards, for example in Asia, on-site audits and due diligence
are carried out to ensure suppliers’ compliance with the Group’s
standards. This was the case for China-based suppliers during 2018.
The identification of economic, environmental, labour and ethical risks
in the supply chain forms part of the Group’s Risk Management Model.
These risks are addressed in contracts with Tier 1 suppliers.
In 2018 nearly 500 suppliers participated in a training session to
reinforce their knowledge of Antofagasta’s policies and practices,
including the Group’s new Compliance Model.
Fair and transparent tender processes: bidding processes are
carried out on an online platform designed to guarantee objective and
auditable evaluation and award procedures.
Communication and complaints: the Company encourages suppliers
to raise any issues or concerns regarding its relationship with the
Company or its contracts through the complaints reporting line as
well as various other channels of communication and engagement.
+ See page 34 for more information
LOCAL
SUPPLIERS
Antofagasta seeks to conduct its business in a thriving local
environment and requires suppliers to have high standards.
To achieve this the Group has focused on developing the skills of
local companies, to help improve their commercial, financial and
human resource capabilities, as well as their productivity and use
of innovation.
Opportunities for local suppliers: most of Antofagasta’s
suppliers have their headquarters in Santiago. However, an
analysis conducted by the Company in 2018 showed that most of
the spending on goods and services by Centinela, Antucoya and
Zaldívar is through regional branches of these companies which
use local employees, infrastructure and resources including
power plants, ports, manufacturers, distribution centres, repair
shops, logistics, and subcontractors.
As part of the local integration strategy, the Group’s companies
favour local suppliers, both for new projects and at its operations.
In 2018, 1,897 local suppliers in the Antofagasta and Coquimbo
regions supplied $1,967 million of goods and services to the
Group, representing 40% of the Group’s suppliers and 61% of
total purchases.
Future projects also incorporate local suppliers; for example, at least
55 companies from Los Vilos and Salamanca have been contracted to
work on the construction of the Los Pelambres Expansion Project.
MEETING HIGH STANDARDS
In 2018 there were no lawsuits or fines for
incidents in the supply chain. This is a considerable
achievement given the Group’s large number of
suppliers of goods and services of around
4,800 companies.
4,750
Suppliers
40%
Of local suppliers
from Coquimbo
Region and
Antofagasta Region
$3,244m
Total payments
to suppliers
61%1
Of local purchases
1. This figure represents total Group purchases through local suppliers from Coquimbo and Antofagasta Regions and has been calculated in accordance with the following
definition: “local supplier is a supplier company that has facilities in any of the communes of a specific region, and may have its parent company or a branch installed in
this region”.
40
Antofagasta plc Annual Report 2018
Supplier development: the Group’s operating companies run
development programmes for local suppliers, many of them within
the framework of State programmes.
Antofagasta’s mining operations in northern Chile continued to use
the local procurement programme (PAL) during the year, and at
Los Pelambres an online suppliers’ portal links local suppliers with
opportunities offered by existing suppliers. The Group paid a total of
$490 million to SMEs in 2018, with average payment times of 25 days.
Collaborative innovation: the mining division is part of the
Expande Project, an open innovation programme that promotes the
development of high-potential solutions from technology companies
and connects them with challenges faced by the mining industry. The
programme seeks to become a fundamental pillar for the development
of technology providers.
Local workforce: the hiring of local people is central to the Group’s
strategy to contribute to local development. This aim is included in
contracts with third party companies through the inclusion of local
employment goals in the contracts’ performance agreements. In
2018 the Group directly employed 3,480 people from the regions
of Antofagasta and Coquimbo, equivalent to 54% of its employees.
Alliances for local development: a co-operation agreement has been
signed between Los Pelambres and the Association of Traders and
Companies of Salamanca. Monthly meetings are held to ensure that
local businesses get the opportunity to supply Los Pelambres and the
Expansion Project.
ANTOFAGASTA MINING CLUSTER
In 2018 Antofagasta joined the mining cluster, an
alliance that seeks to strengthen employability, human
capital and innovation in northern Chile. It is the result
of joint work between various local players and mining
companies operating in the area.
EMPLOYABILITY PROGRAMME
The aim is to develop skills and job qualifications
among local people, through education (training,
certification and qualification, technical training,
internships) and job advice and information
(employment portal, promotion of internships,
working with contractor companies).
In 2018 the results were measured: participants’
insertion in the labour market improved by 18% and
salary levels increased by 35%.
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STRATEGIC REPORT STAKEHOLDER ENGAGEMENT
CUSTOMERS
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 longer-term framework agreements, with sales volumes agreed
for the coming year. Gold and silver is contained in the copper
concentrates and is therefore part of copper concentrates sales.
Most sales are to industrial customers who further process the
copper into more added value products; smelters, in the case of
copper concentrate production, and copper fabricators in the case
of cathode production. The Group builds long-term relationships with
these key 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 be supplied and the main terms for the sale of each payable metal,
with the pricing of the contained copper in line with LME prices.
In the case of concentrates, a deduction is made from LME prices
to reflect TC/RCs, the smelting and refining costs necessary to
process the concentrate into refined copper. These TC/RCs are
typically determined annually in line with market developments and
the parties’ assessments of the copper concentrate market at the time
of the negotiation of the terms.
In the case of copper cathode transactions, a premium, or in some
cases a discount, on the LME price is negotiated to reflect differences
in quality, logistics and financing compared with the metal exchange’s
standard copper contract specifications.
Similarly, the Group’s molybdenum contracts are made under medium
and long-term framework agreements, with pricing usually based
on Platts’ average prices for Technical Molybdenum Oxide with a
deduction to reflect the cost of converting molybdenum sulphide
concentrate into molybdenum oxide.
Across the industry, neither copper producers nor consumers tend
to make annual commitments for 100% of their respective sales or
purchases, and normally retain a portion to be sold or purchased on
the spot market during the year.
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 in the month in which settlement
takes place.
For copper concentrates, the final price remains open until settlement
occurs, on average four months from the shipment month.
Settlement for the gold and silver contained in the copper
concentrates occurs approximately one month after shipment.
Copper cathode sales remain open for an average of one month
from the month of shipment. Settlement for copper in concentrate
sales is later than for copper cathode sales, as copper in concentrate
requires more processing to produce refined copper for sale.
Molybdenum sales generally remain open for two or three months
after the month of shipment.
STRUCTURE OF SALES CONTRACTS
The majority of the Group’s sales are to industrial
customers, who refine or further process the
copper concentrate and cathodes.
Most sales are made under long-term framework
agreements or annual contracts with sales volumes
agreed for the following year.
83%
Of revenue from
copper
65%
Of sales to Asia
Pacific
42
Antofagasta plc Annual Report 2018
TURNOVER BY LOCATION OF CUSTOMER AND PRODUCTS
Europe
24%
North
America
4%
South
America 7%
Copper 83%
Molybdenum 7%
Gold 5%
Transport 4%
Silver 1%
Asia Pacific
65%
antofagasta.co.uk
43
STRATEGIC REPORT
SAFETY AND HEALTH
Antofagasta puts people first and safety is both a top priority and a non-negotiable
focal point. The Group continuously strives to improve its performance in all safety
and health matters that could affect its employees, contractors and neighbours.
SAFETY AND OCCUPATIONAL
HEALTH STRATEGY
In 2018 the Group deepened the implementation of its Safety
and Health Strategy, which is based on four pillars: safety risk
management; health risk management; aligned reporting and
improvement; and leadership. The strategy defines four goals: zero
fatalities, zero occupational illnesses, the development of a resilient
culture, and the automation of hazardous processes. Safety and
health performance targets account for 5% of Antofagasta’s annual
performance bonuses to encourage a culture of accident prevention.
SAFETY RISK MANAGEMENT
Antofagasta has defined Fatal Risk Standards, of which 15 are
applicable across the whole business and seven cover specific tasks
in each operation. The latter were developed in 2018. Based on these
standards, the Group’s operating companies implemented critical
controls – both preventative and mitigating – that must be checked
prior to any activity. In 2018 progress was made on ensuring
compliance with all safety critical controls by conducting a review
covering 98% of the Group’s accident history. The challenge in 2019
will be to establish performance measures for each of these controls.
HEALTH RISK MANAGEMENT
Antofagasta has defined ten Occupational Health Standards through
which it can identify and control potential occupational health risks,
with a goal of minimising exposure to hazardous agents or risk
factors. Medical Surveillance Programmes identify early symptoms
that can indicate incipient occupational diseases. During 2018, existing
surveillance programmes were standardised and an occupational
health baseline was developed for the entire Group. In 2019 the
Company will focus on implementing engineering controls on potential
occupational health risks.
REPORTING
The preventative culture that Antofagasta is working to establish
is based on the reporting, follow-up and control of potential accidents.
In 2018 the standardisation of reporting was reinforced, aligning
processes of analysis, warnings, improvement projects and corrective
actions raised by investigations. In 2019 the focus will be to improve
organisational learnings from events and reduce repetition of
high-potential incidents.
Regrettably, after 26 months without a fatality, a
contractor suffered a fatal accident at Los Pelambres
in October 2018 while working on the wall of the Mauro
tailings dam. The tragic loss led to important organisational
lessons which have been incorporated into the Safety and
Health Strategy.
“The first priority for everyone is to take care of the safety
and health of all who work for Antofagasta. Huge progress
has been made but the tragic fatality shows we must
continue working to establish a resilient safety culture that
ensures fatalities in all the Group’s companies are
completely eradicated.”
Iván Arriagada
CEO
VISIBLE LEADERSHIP
Antofagasta understands that leadership is a key driver for eliminating
fatalities, severe injuries and occupational illnesses. The Executive
Committee conducts regular on-site safety and health reviews to
verify that critical controls are correctly applied. Senior management
review and challenge the investigation of high-potential events and
recognise 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.
AWARENESS AND COMMITMENT
Raising awareness of the importance of a preventive culture among
employees and contractor workers is key to achieving their
commitment to safety and health. The Group carries out a variety
of actions including training, induction courses, discussions on the
causes of accidents, safety meetings and recognition of employees
committed to safety, as well as participation in joint safety and
health committees.
Contractors apply the Group’s standards and report on their own
and their sub-contractors’ performance. The Corporate Guidelines
on Safety and Health for Contractors are essential in ensuring their
commitment and providing orientation, training and support, while
compliance is closely monitored through on-site audits.
3.2
TRIFR 2018
29%
TRIFR decreased
compare to 2017
44
Antofagasta plc Annual Report 2018
PERFORMANCE
In 2018 Antofagasta did not achieve its zero fatalities goal with a
fatal accident at Los Pelambres involving a contractor.
The Lost Time Injury Frequency Rate (LTIFR) remained steady
at 1.6 and near-miss reporting increased by 56%. Compliance
with Safety and Health standards is audited twice a year at each
site, and 12 on-site visits were made by the Executive Committee.
In 2017 the Group began measuring the Total Recordable Injury
Frequency Rate (TRIFR) which includes Lost Time Injury incidents
and those requiring medical treatment. In 2018, the TRIFR was 3.2,
29% lower than the previous year.
During the year six workers with occupational diseases were
identified, one from Centinela, two from Zaldívar and three from
FCAB. Of these cases, five are related to hypoacusis.
LOST TIME INJURY FREQUENCY RATE (LTIFR)1
Chilean mining industry
Mining division
Transport division
Group
2018
1.2
1.1
6.7
1.6
2017
1.8
1.0
7.24
1.5
ALL INJURY FREQUENCY RATE (AIFR)2
Chilean mining industry
Mining division
Transport division
Group
2018
N/A3
5.2
15.7
6.1
2017
N/A3
7.4
22.0
8.3
2016
1.8
1.2
5.44
1.6
2016
N/A3
6.9
13.3
7.3
2015
2.0
1.2
10.9
2.0
2015
N/A3
6.9
17.8
7.9
2014
2.5
1.1
10.3
1.7
2014
N/A3
5.0
22.2
6.1
NUMBER OF FATALITIES
Chilean mining industry
Mining division
Transport division
Group
2018
16
1
0
1
2017
14
0
0
0
2016
18
1
1
2
2015
16
1
0
1
2014
27
5
0
5
1. The Lost Time Injury Frequency Rate is the number 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.
3. N/A denotes that information is not available.
4. Figures restated to include contractors in the transport division.
SAFE TRANSPORT
The transport division is aware of the potential accident risks arising
from cargo transport and has developed a strategy based on action
plans focused on improving safety on the railways. This includes the
construction and improvement of pedestrian and vehicle crossings,
the conducting of emergency drills, and the training and certification
of personnel on safety issues. The incorporation of new technologies
has also assisted accident prevention; for example, existing railway
locomotives were replaced by nine state-of-the-art locomotives with
remote monitoring systems and higher safety standards.
antofagasta.co.uk
45
STRATEGIC REPORT
ENVIRONMENT
Antofagasta seeks to prevent, mitigate and control the impact of all its
activities on the environment. The Group remains committed to achieving the
sustainable and efficient use of natural resources throughout the business cycle.
ENVIRONMENTAL MANAGEMENT
Antofagasta continued to implement its Environmental Management
Model, approved by the Board in 2017, which seeks to ensure strict
compliance with environmental requirements and having no incidents
that have impact on the environment. The model is focused on four
areas: leadership, incident reporting, operating risk management and
regulatory risk management.
Environmental performance is reported monthly to the Executive
Committee and biannually to the Sustainability and Stakeholder
Management Committee, as well as being one of the Group’s annual
performance bonus targets.
In 2018 significant progress was made in implementing visible
leadership, with on-site visits by the Executive Committee and each
operation’s senior leadership teams. During the year, 182 audits
were carried out to verify compliance with corrective action
completions and environmental requirements.
During the year, the reporting of low-potential incidents increased by
91% owing to training and the dissemination and standardisation of
reporting criteria. This tool creates a preventive and vigilant culture.
ENVIRONMENTAL COMPLIANCE
In Chile, large-scale projects are subject to strict environmental and
social impact assessments by the environmental authority (SEA1),
which evaluates all project impacts, including those to water, air, soil
and biodiversity, and to energy and water consumption. SEA project
approval includes legally binding commitments set out in RCAs2
that cover prevention, mitigation and compensation measures and
compliance with these are regularly reviewed by the Environmental
Superintendency (SMA3). Non-compliance can result in severe fines
and the revocation of operating permits.
Antofagasta has a total of 66 RCAs listing 7,683 environmental
commitments and it monitors its compliance with an environmental
management system adopted in 2017.
The Los Pelambres Expansion Project was approved in 2018,
generating a new RCA and environmental commitments. Construction
is expected to commence in 2019.
WATER AND
MINING
Antofagasta Minerals adopted ICMM’s Water Stewardship Framework
to reinforce its management of water resources,4 introducing the
framework at its operations during 2018.
In 2018, 45% of Antofagasta’s total water consumption came from
the sea, significantly higher than 9% a decade ago, when only Michilla
used sea water. The main loss of water is through evaporation
and no water is discharged into waterways. Water reuse rates are
considered in the original design and subsequent modification of the
operations, and reuse rates have been consistently high, varying
between 80% and 96%. Antofagasta’s operations are zero discharge,
with some residual water remaining inside the tailings dams. In 2018
Antofagasta consumed 36.9 million m3 of continental water.
Los Pelambres mainly uses continental water from the Choapa River
in the Choapa Valley, which is a water-stressed zone. The Company
is an active member of the Río Choapa Monitoring Committee, which
seeks long-term solutions to local water shortages and permanently
monitors water quality and quantity in the surrounding area.
The Los Pelambres Expansion Project includes the construction of
a desalination plant in the port area at Punta Chungo that will produce
up to 400 l/s of desalinated water for industrial use.
Sea water will be collected some 730 metres from offshore and will
pass to the desalination plant in a tunnel 20 metres below the seabed,
without the need for pumping, reducing the environmental impacts on
marine ecosystems.
GLACIER
BLANKETS
In 2018 Antofagasta’s Innovation Board approved a
proposal to test covering glaciers with a reflective
blanket to help mitigate the accelerated melting of the
glacier caused by climate change. The pilot project will
start in 2019.
ENVIRONMENTAL INCIDENTS
The Group had no significant environmental incidents or
fines in 2018.
1. Servicio de Evaluación Ambiental (Environmental Assessment Service).
2. Resolucións de Calificación Ambiental (Environmental Qualification Resolutions).
3. Superintendencia del Medio Ambiente.
4. Further information on Antofagasta’s water report can be found at Carbon
Disclosure Project – Water www.cdp.net/en/responses/820.
46
Antofagasta plc Annual Report 2018
MINING
WASTE
WATER CONSUMPTION SOURCE IN 2018
(MILLIONS OF M3)
The Group has four Tailings Storage Facilities (TSFs), two at Los
Pelambres, one at Centinela and one at Zaldívar. All of the TSFs
use the downstream method of construction, the safest form of
construction. Three of the TSFs are active and one, at Los Pelambres,
is inactive.
The Mauro tailings dam at Los Pelambres is designed for extreme
weather and severe earthquakes and has early warning and
evacuation procedures in place and its physical and chemical
monitoring system provides real-time information to the mine, local
communities and the authorities. In 2015 the dam withstood an 8.3°
earthquake 100 km away without any negative impact to the integrity
of the dam.
In addition, Antofagasta has pioneered the use of ‘thickened tailings’
technology at Centinela, one of its four mines. This innovation reduces
the moisture content of the tailings and makes them more stable, both
during the operation of the mine and after it has closed, reducing the
environmental impacts and risks associated with tailings dams.
PROGRAMA TRANQUE – TAILINGS DAM
MONITORING AND ALERT SYSTEM
Antofagasta Minerals, together with other mining
companies and inspection bodies in Chile, is pioneering
an online system to monitor the physical and chemical
stability of tailings deposits. The first pilot on an industrial
scale began in 2018 at Los Pelambres’ El Mauro tailings
dam, with the participation of the local community. If the
pilot is successful, it is expected the system will be
incorporated into Chilean regulations.
Source
Surface water
Underground water
Third party suppliers
Sea water
Total
2018
16,5
19,4
0 ,9
30,4
67,2
2017
18,2
17,2
1,2
29,2
65,8
2016
14,2
13,5
1,2
26,5
55,4
CLIMATE CHANGE,
ADAPTION AND MITIGATION
The effects of climate change are increasingly evident in Chile,
with rising temperatures in the centre of the country affecting snow
accumulation and snow and ice melt in the mountains. This affects
Los Pelambres and Antofagasta is promoting measures to mitigate
the effects of and adapt to climate change.
Following Board approval of a climate change standard in 2016,
Antofagasta set its first carbon reduction target in early 2018 to
reduce forecast carbon dioxide emissions over the period 2018 to
2022 by 300,000 tonnes. The mining division is making significant
progress in pursuit of this target, increasing its use of renewable
energy and achieving energy savings and efficiency gains as well as
reducing GHG emissions.
antofagasta.co.uk
47
STRATEGIC REPORT
ENVIRONMENT CONTINUED
− The portfolio of Operating Excellence projects was analysed to
determine the projects’ contribution to reducing energy
consumption and GHG emissions.
− KPIs to measure new projects.
− In 2019 the tasks will be to:
− Develop the Group’s electromobility roadmap.
− Create an outline corporate energy portal.
− Strengthen the governance structure through the use of the
Operating Model and highlight energy as an important variable to
be considered in decision-making.
− Develop and promote standards that incorporate energy
efficiency into project designs.
In 2018 Antucoya renegotiated its electricity contract. Together with
new contracts coming into force at Los Pelambres and Zaldívar,
Antofagasta Minerals’ energy consumption from renewable sources
will increase from 21% in 2018 to 58% by 2022 under assumed
consumption rates.
ENVIRONMENTAL REMEDIATION TO CAPTURE GHG
The conservation and remediation of 11,000 ha of forest
will capture an estimated 25,000 tonnes of CO2 equivalent
per year.
ENERGY
MANAGEMENT
Energy represents approximately 21% of the mining division’s total
production costs, made up of 14% electricity and 7% fuel.
During 2018 the governance and structure of the Energy Management
System was reformulated. This involved updating and adapting ISO
50001 to the Group’s own management structures, with the objective
of standardising energy management, maximising operational
productivity and streamlining cost controls.
Work focused on establishing the foundations of the system:
− The Executive Committee approved the structure of the system
before its dissemination to the Company’s main stakeholders.
− Consumption profiles were prepared by each of the
Group’s operations.
CO2 EMISSIONS IN 2018 (TONNES OF CO2 EQUIVALENT)1
Scope 1 Direct emissions
Scope 2 Indirect emissions
Total emissions
Corporate offices
Los Pelambres
Centinela
Zaldívar
Antucoya
Transport division
Total
2018
1
262,355
453,898
141,475
168,490
99,400
1,125,619
2017
212
195,362
334,019
147,985
177,051
95,304
949,933
2018
1,189
523,942
563,101
180,109
123,353
1,224
1,392,919
2017
1,306
500,040
969,598
357,932
243,060
2,068
2,071,936
2018
1,191
786,297
1,016,999
321,584
291,843
100,624
2,518,538
2017
1,518
695,402
1,303,617
505,917
420,111
97,372
3,023,937
CO2 emissions intensity
tCO2e/tCu
2018
–
2.20
4.10
3.40
4.04
N/A
3.33
2017
–
2.02
5.71
4.89
5.22
N/A
3.87
1. Further information on Antofagasta’s carbon emissions can be found at Carbon Disclosure Project – Climate Change www.cdp.net/en/responses/820.
48
Antofagasta plc Annual Report 2018
BIODIVERSITY
AIR
Antofagasta’s Biodiversity Standard was approved by the Board in
2016. It was developed in conjunction with the Wildlife Conservation
Society (WCS) and is aligned with ICMM’s position statement on
Biodiversity and Protected Areas. It has three goals: to prevent and
minimise the Group’s impact on biodiversity, to appropriately restore
or compensate for any such impact, and to generate additional
benefits for the areas in which the Group operates.
Most of the Group’s biodiversity challenges are in the Choapa
Valley, where Los Pelambres is located, an area rich in biodiversity.
Los Pelambres has undertaken several biodiversity projects over
the years including the restoration of a coastal wetland recognised
under the Ramsar Convention that had become an illegal waste
dump, and the protection of both Santa Inés, a rare temperate relict
rainforest, and Palmas de Monte Aranda, one of Chile’s last remaining
palm forests.
+ See page 39 for more information
The Group protects over 26,921 hectares of high conservation
value land.
Antofagasta Minerals has strong air-quality monitoring and dust-
suppression programmes. The mining division operates no copper
smelters, so is not exposed to toxic air emissions such as lead,
arsenic and selenium. Antofagasta Minerals’ innovation programme,
InnovaMinerals, made a pioneering proposal to reduce dust emissions
through electromagnetic technologies, which will be piloted in 2019.
MINE
CLOSURE
Antofagasta has no operations close to closure. The Group has
adopted comprehensive mine closure standards that ensure both legal
compliance and that the physical and chemical stability of the facilities
go beyond regulatory requirements for post-closure environmental
and social management. All the Group’s operations in Chile have
closure plans approved by Sernageomin (the National Geology and
Mining Service) as required under Chilean law. Plans also allow for
the funding of closure activities and making financial provision for
their implementation.
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49
STRATEGIC REPORT
VALUE CREATION
VALUE CREATION
Mining and its associated activities are well placed to have a positive impact on the
industry’s different stakeholders, especially host communities and mining regions.
Antofagasta is always looking for new ways to contribute to the development of
a more innovative, sustainable and inclusive mining industry, which allows it to
adapt to challenges and generate a significant and lasting positive impact.
Antofagasta believes that the development of innovative, inclusive
and sustainable mining practices requires it to deal with significant
challenges and assume leadership roles in providing solutions that
deliver value to its different stakeholders.
develop a Human Rights Policy and action plan. The Company has
also extended its Diversity and Inclusion Strategy, first introduced
in 2017, to all of its operations.
+ See page 36 for more information
CHALLENGES AND SOLUTIONS
Antofagasta is seeking solutions to technical, operational and socio-
environmental challenges using the experience, acquired learnings,
innovation, and the diversity and wealth of knowledge of its workforce.
Among the most important challenges are:
PROVIDING A
SAFE WORKPLACE
This is Antofagasta’s main challenge, as many of its activities
are considered hazardous and can have serious consequences.
The Group continues to strengthen the execution of its Safety and
Health Strategy, efficiently manage safety and health risks, improve
incident reporting and foster visible leadership at its operations.
+ See page 44 for more information
ADAPTING TO
CLIMATE CHANGE
RESISTANCE TO NEW PROJECTS
AND GREATER SOCIETAL DEMANDS
REGARDING THE REAL CONTRIBUTION
OF MINING TO LOCAL DEVELOPMENT.
These are undoubtedly the challenges that have gained most
prominence in recent years. At Antofagasta, collaborative, trackable,
comprehensive and transparent dialogue with members of host
communities has been critical in moving the relationship from one
of competition to one of coexistence. This has allowed the Company
and local people to prepare together long-term, shared development
plans that have a positive impact for all parties. As part of this process
Antofagasta launched its Social Management Model in 2018
which standardises the way the Group engages with communities.
This allows it to monitor the timely and correct implementation of
social commitments, projects and programmes, while aligning
its management of their impact and socio-environmental risk.
In addition, the Group seeks to align its environmental and social
commitments with the UN Sustainable Development Goals (SDGs)
and address local problems in ways that contribute in a tangible way
to achieving these goals.
Antofagasta has adopted a learning-oriented approach to tackle this
new scenario, in which one of the biggest challenges is water scarcity.
The Group is committed to using sea water for any new water resource
requirements, such as the Los Pelambres Expansion Project where a
desalination plant is being built as an integral part of the project.
+ See page 47 for more information
These challenges are compounded by economic and operational
challenges, such as the volatility of the copper market, uncertainty
about the world economy and international trade, and the
deterioration in the quality of mineral deposits owing to lower
grades, harder rock or geological issues.
+ See page 38 for more information
SUSTAINABILITY PRIORITIES
The Group’s Sustainability Policy is structured around five pillars:
People, Financial Performance, Environmental Management,
Social Development and Transparency, and Corporate Governance.
The Policy provides the framework for Antofagasta’s constant
efforts to mine in a more innovative, sustainable and inclusive way.
At Antofagasta, the safety and health of its employees and
contractors always comes first. The Group is constantly improving
its environmental performance, contributing to the social development
of the areas in which it operates and maintaining open and
transparent communication with all its stakeholders.
The Group’s sustainability priorities are based on its values, its main
risks and opportunities, and its stakeholders’ key concerns and
expectations, all of which are reviewed frequently by the Board and
the Sustainability and Stakeholder Management Committee.
In addition, in 2018 Antofagasta set its first carbon reduction target
to reduce forecast CO2 emissions over the period 2018 to 2022 by
300,000 tonnes. This goal will mainly be achieved through energy
efficiency measures and incorporating non-conventional renewable
energy into its processes.
IMPLEMENTING A RESPECTFUL,
DIVERSE AND INCLUSIVE WORK CULTURE
Another challenge is for Antofagasta to review its activities’ impacts
over its people (employees, communities, contractors). In 2018 the
Company began a due diligence to provide a baseline on which to
50
Antofagasta plc Annual Report 2018
TOTAL ECONOMIC
CONTRIBUTION
The economic value generated is distributed among all the Group’s stakeholders,
delivering not only financial returns but contributing to the achievement
of common sustainable development objectives.
$4,936m
EMPLOYEES
COMMUNITIES
SUPPLIERS
Salaries, wages
and incentives
Contributions and
project funding
Payments made to
suppliers for the
purchase of utilities,
goods and services
SHAREHOLDERS
AND LENDERS
Dividends and
interest payments
GOVERNMENTS
Income taxes, royalties
and other payments to
governments
$488m
$34m
$3,244m
$655m
$515m
DISTRIBUTION OF GENERATED
ECONOMIC VALUE
During 2018, $4,936 million was distributed to
stakeholders, which includes employees, communities,
suppliers, shareholders, lenders and governments.
Antofagasta aims to conduct mining for a better future
and understands that generating economic value
means more than making a profit.
For Antofagasta, creating economic value implies
generating profits responsibly and with a long-term
vision, incorporating unique and innovative solutions in
business decisions to address challenges in the regions
in which it operates and working to tackle today’s
global challenges.
SUSTAINABILITY INDICES
Antofagasta is a constituent of the
FTSE4Good Index series, the STOXX
Global ESG Leaders Index and the
ECPI Index.
antofagasta.co.uk
51
SUSTAINABLE DEVELOPMENT GOALS
In 2018 the Company mapped all the projects, programmes
and processes in Los Pelambres’ area of influence against the
SDGs applicable to the mining industry.1
The aim of this exercise was to evaluate the performance of
Los Pelambres and its expansion project with respect to the
SDGs and therefore with regard to its positive contribution
to sustainable development, critical areas and possible
improvement measures.
During 2019 a second phase of the project will be carried out,
applying the SDGs at the territorial level of the area of influence.
1. Mapping Mining to the Sustainable Development Goals: An Atlas, by the Columbia
Center on Sustainable Investment, Sustainable Development Solutions Network,
UNDP and the World Economic Forum (2016).
STRATEGIC REPORT OPERATING
PERFORMANCE
The Group seeks to set realistic but demanding operating
targets each year and then achieve them year after year.
52
Antofagasta plc Annual Report 2018
OPERATING
PERFORMANCE
Business model
Operating review
Key inputs and cost base
Operating excellence and innovation
Business units
Growth projects and opportunities
Exploration activities
The copper market
Financial review
Sustainability governance
54
56
56
58
60
70
73
74
76
82
antofagasta.co.uk
53
STRATEGIC REPORT BUSINESS MODEL
THE MINING LIFECYCLE
CREATING VALUE
THROUGH THE
MINING LIFECYCLE
Mining is a long-term
business and timescales
can 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.
CREATING VALUE THROUGH THE MINING LIFECYCLE
INPUTS
EXPLORATION
EVALUATION
CONSTRUCTION
Resources
Relationships
Chile
International
The Group’s mining
operations depend on a
range of key inputs such as
energy, water, labour, acid
and fuel. The management of
these inputs has a significant
impact on operating costs
and the sustainability of
mining operations, and
ensuring the long-term
supply of key inputs is a
vital part of the business.
+ See page 56 for
more information
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 73 for
more information
Los Pelambres
Expansion Phase 2
Centinela Second
Concentrator
Zaldívar Chloride
Leach Project
Twin Metals Minnesota
Effective project evaluation
and design maximise value
at this stage of the mining
cycle. The Group’s wealth
of experience in both areas
helps to make the best
use of mineral deposits.
The Group integrates
sustainability criteria into
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 pages 70 to 72 for
more information
Los Pelambres
Expansion Phase 1
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 to maximise
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 70 to 72 for
more information
54
Antofagasta plc Annual Report 2018
CREATING VALUE THROUGH THE MINING LIFECYCLE
CORE OPERATIONS
EXTRACTION
PROCESSING
MARKETING
MINE CLOSURE
OUTPUTS
Los Pelambres
Centinela
Antucoya
Zaldívar
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 62 to 67 for
more information
Copper
Molybdenum
Gold
Silver
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.
+ See pages 76 to 81 for
more information
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 49 for
more information
The marketing team builds
long-term relationships with
the smelters and fabricators
who purchase the Group’s
products, with approximately
65% of output by value 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 42 for
more information
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 62 to 67 for
more information
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STRATEGIC 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.
As concentrate producers, Los Pelambres and Centinela require
reagents and grinding media. As cathode producers using the
SX-EW process, Centinela, Antucoya and Zaldívar 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 largest operation, Los Pelambres, is competitively
positioned on the copper industry cost curve in the first quartile,
but, like the Group’s other operations and the industry as a
whole, it has a declining grade profile over time, which places
upward pressure on unit costs.
ENERGY
The Group sources its energy from the main electricity grid in Chile,
the National Electric System (SEN), formed following the merger early
in 2018 of two previously independent systems, the northern grid
(SING) and the central grid (SIC). The SEN has an installed capacity
of 22.7 GW, supplying 99% of national demand, and its creation has
increased customers’ access to a range of power generation sources.
The northern sector of SEN supplies the Centinela, Antucoya and
Zaldívar mines, and the central sector supplies Los Pelambres.
The northern sector of SEN is supplied by coal-fired power stations
and renewable sources such as wind and solar, and the central
sector primarily from hydroelectric plants. Due to this reliance on
hydroelectric power, the cost of energy fluctuates in the southern
sector depending on precipitation levels, while the northern sector’s
costs tend to be more stable.
Approximately 14% of the Group’s cost base is 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 are all
under PPAs.
The Group’s mining operations located in the northern sector of
SEN 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. In 2018 the Group signed a new
PPA to give Zaldívar continuity of supply after 2020, with the
new PPA guaranteeing that 100% of the power will come from
renewable sources.
WATER
Water is a precious commodity in the regions where the
Group’s mines operate, so its efficient use and recycling is
extremely important.
Water for each operation is sourced either from the sea or from
surface and underground sources. Each operation has the necessary
permits for the supply of water at current production levels and
Zaldívar submitted an Environmental Impact Assessment during
the year to extend its water extraction permit from current sources
beyond 2025, in line with its existing Life-of-Mine.
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 an optimal rate, 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 2018, sea water
accounted for 48% of total Group water use, an increase from the
previous year.
LABOUR
Securing the availability of labour is key to the Group’s success.
Labour agreements with unions are in place at all of the Group’s
mining operations and generally last for a period of three years.
The Group continues to foster good working relationships with
its employees and unions and there has never been any industrial
action. During 2018 Los Pelambres successfully concluded labour
agreements with both mine and plant unions in the formal
negotiation period.
Contractors account for approximately 70% of the Group’s workforce
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.
56
Antofagasta plc Annual Report 2018
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 team 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 4,750 suppliers of 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 both
parties and achieve a sustainable, longer-term, lower cost base.
OIL PRICE
Fuel and lubricants represent approximately 7% of total operating cost
base and are used mainly by trucks hauling 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. The
oil price tends to affect not only the fuel price but 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 27% during 2018,
putting pressure on the Group’s operating cost base.
SULPHURIC ACID
The sulphuric acid market was tight during 2018 and will tighten
further during 2019, mainly due to supply disruptions across the
world and scheduled smelter upgrades in Chile during 2018 and
the first half of 2019. These upgrades have increased the regional
deficit, raising demand for acid from outside the region and causing
prices to rise in 2018 and into 2019. However, once the upgrades
are completed, prices are expected to revert to previous levels.
The Group secures most of its sulphuric acid requirements under
contracts for a year or longer, normally at prices agreed in the latter
part of the previous year. The tight market in 2018 is reflected
in higher annual acid prices for 2019.
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 some 50% 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, so a natural
hedge exists for the Group. During 2018, the Chilean peso weakened
by 1.3% from Ch$649/$1 in 2017 to Ch$641/$1.
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57
STRATEGIC REPORT OPERATING REVIEW CONTINUED
OPERATING EXCELLENCE
AND INNOVATION
Excellence, forward thinking and innovation are three of the Group’s
core values and applying these to how the Group runs its operations allows
the Group to achieve its production targets at competitive costs in a fatality-free
environment. It does this through three initiatives: the implementation of its
Cost Competitiveness Programme, the promotion of operating excellence,
and the development of innovative solutions and ideas.
COST AND COMPETITIVENESS
PROGRAMME
The Cost and Competitiveness Programme (CCP) was introduced in
2014 to reduce the Group’s cost base and improve its competitiveness
within the industry. Four years later, its scope has evolved to reflect
the greater maturity level that has been achieved over this period.
The programme focuses on five areas to deliver sustainable cost
reductions and productivity increases:
GOODS AND SERVICES PROCUREMENT PRODUCTIVITY:
− Improving the productivity and quality of purchase contracts while
reducing costs
− Seeking synergies for the operating companies through
centralised procurement
OPERATING EFFICIENCY AND ASSET RELIABILITY:
− Maximising plant and equipment availability and minimising
variability through continuous improvement
− Ensuring the reliability and performance of assets through planned,
proactive and predictive maintenance
ENERGY EFFICIENCY:
− Optimising energy efficiency and lowering energy contract prices
CORPORATE AND ORGANISATIONAL EFFECTIVENESS:
− Reducing costs and restructuring the Group’s
organisational framework
WORKING CAPITAL, CAPITAL EXPENDITURE AND
SERVICES EFFICIENCY:
− Optimising inventory levels, capital expenditure and services costs
The Group has achieved savings in mine site costs of $709 million
since 2014, approximately $184 million of which was made during
2018. This is equivalent to 10c/lb for the year.
The target for 2019 is a further $100 million of savings, mainly as
a result of productivity improvements achieved through applying the
Group’s operating excellence methodology.
OPERATING EXCELLENCE
Following the introduction of the Group’s new Operating Model
in 2016, and as part of the organisational restructuring, Operating
Excellence departments were established centrally and at each
operation to drive continuous improvement. They apply the
“full potential” methodology to challenge existing operating
practices, identify opportunities and create value.
The departments implemented the operating model by standardising
and strengthening production processes, improving collaboration
between key areas, defining clear roles and responsibilities and
seeking to reduce the variability and deviation from production plans
so as to optimise asset performance. A key aspect of the methodology
is that the operating departments originate and lead the initiatives,
with support from Operating Excellence, which assist with the
development of the necessary skills and culture.
In 2018 more than 50 initiatives were implemented at the Group’s
operations, making a significant contribution to efficiency. The
success of operating excellence is gaining momentum and new
opportunities are being identified to further improve assets usage and
performance, and energy efficiency, through the implementation of
innovative solutions.
53%
through productivity improvements
$184
million
of savings achieved in 2018
47%
through more efficient contract and input
negotiations, consumption rates and better
use of maintenance resources
58
Antofagasta plc Annual Report 2018
INCREASING CONCENTRATORS THROUGHPUT
LOS PELAMBRES
In 2017 a study identified the main variables affecting plant
performance as ore hardness, granulometry and amount of
ore circulating through the pebble crushers.
Using this information, the performance of the SAG mills
improved by 2.4% during 2017, which was better than
expected based on the models that had been developed using
historical performance data. In 2018 further improvements
were implemented, again exceeding the performance predicted
by the models with throughput increasing by a further 6.5%.
CENTINELA
Historical data were used to build a virtual milling system
in order to improve the operation of the milling circuit at
Centinela, through testing hypotheses, identifying opportunities
for improvement and implementing design improvements.
As a result, the performance of the SAG mill increased by
10% in 2018, compared with 2017.
Improvements were made not only at the mill but also in the
way it was fed from the stockpile and by changing the blasting
procedure to improve fragmentation.
INNOVATION
The Group believes that innovation is critical to its strategy of
creating long-term value and is a key enabler of safe, sustainable
competitiveness and growth. This requires out-of-the-box thinking,
the creation and nurture of new ideas and the adoption of new
technology, as well as incremental improvements.
The Group fosters a culture that supports innovation and, as one of
its core values, this culture is strengthened by the recognition and
support of actions by individuals and teams to further the adoption
of innovation within the Group.
An innovation roadmap has been developed to prioritise the adoption
of technology and transformational programmes in response to the
challenges they face and their potential benefits. In 2018 the focus
was on strengthening operating systems, communication networks
and cyber security in order to provide a robust base to develop and
implement future initiatives.
INNOVATION MODEL
An innovation model has been developed based on three pillars:
operating innovation, strategic innovation and digital transformation.
Through operating innovation, the Group focuses on the present,
solving issues and challenges that limit each operation’s ability
to achieve full potential. In parallel, strategic innovation and digital
transformation focus on tomorrow’s operations, addressing the
main challenges for the future and capturing the key opportunities
for the Group.
OPERATING INNOVATION
To apply new solutions to existing operations by adopting existing
innovations from the market or co-developing new ones.
This process is supported by InnovAminerals, an open platform
where challenges are shared and the ideas to solve them are generated
from inside and outside the Group. These ideas are evaluated and then
submitted to the Innovation Board, which decides which ones to implement.
OPEN INNOVATION PLATFORM
INNOVAMINERALS
Since the beginning of the programme in 2016, over 400 ideas
have been uploaded to the platform.
49 of these have been presented to the Innovation Board and
31 have been approved for implementation.
16 have been either implemented or are in the advanced stages
of being implemented.
STRATEGIC INNOVATION
To co-develop and adapt solutions to challenges the Group has
defined as priorities for its development and growth.
Current initiatives being explored include leaching primary sulphides
at competitive rates of recovery, reducing the volume and improving
the monitoring of tailings, and transporting large volumes of material
over long distances.
CATHODE PRODUCTION THROUGH NEW
TECHNOLOGY WITH CUPROCHLOR-T®
This project seeks to extend the life of the Zaldívar mine using
the existing infrastructure but applying a new technology to
produce copper cathodes.
CuproChlor-T® is being developed in-house to economically
leach chalcopyrite (primary sulphide) through the use of a
chloride medium and applying temperature.
This initiative is currently in the pilot plant stage of testing.
DIGITAL TRANSFORMATION
To combine information and operating technologies to capture
improvements in productivity, cost reduction and safety in a
sustainable way, through areas such as data management
and integrated real-time analysis, process automation and
robotics substitution.
Current projects under examination include digitising management
functions, applying advanced analytical technologies to underpin
operating excellence at the operations, implementing integrated
operations management tools, adopting autonomous mine equipment
for the development of future deposits and robotising some
maintenance activities.
INTEGRATED OPERATIONS MANAGEMENT (IOM)
IOM is a project carried out by the Group during 2018. Its aim
was to improve the prediction of operating variables and to
support decision-making through the use of integrated data
from the whole value chain, in order to minimise the variability
of various stages of the production process.
This included installing new equipment and sensors to capture
better information, testing the use of remote operation and
building an integrated operations control centre.
During 2019 work will be conducted to close technical and
infrastructural gaps and to collect all the information needed to
make a decision on whether to implement the project.
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59
STRATEGIC REPORT OPERATING REVIEW CONTINUED
PERU
BUSINESS UNITS
BOLIVIA
ESPERANZA
PORT
MEJILLONES
ANTUCOYA
CENTINELA
Antofagasta
Region
ANTOFAGASTA
Antofagasta
Region
Coquimbo
Region
ZALDÍVAR
ARGENTINA
SANTIAGO
CHILE
PACIFIC OCEAN
LA SERENA
Coquimbo
Region
ILLAPEL
LOS PELAMBRES
LOS VILOS
PUNTA
CHUNGO
PORT
60
Antofagasta plc Annual Report 2018
Los Pelambres is located in the Coquimbo Region of
central Chile and Centinela, Antucoya, Zaldívar and
the transport division are located in the Antofagasta
Region of northern Chile.
725,300
Tonnes of copper produced in 2018
210,100
Ounces of gold produced in 2018
13,600
Tonnes of molybdenum produced in 2018
$1.29/lb
Net cash costs1 in 2018
Los Pelambres
Centinela
Antucoya
Zaldívar
Capital city
Cities and town centres
Ports
LOS PELAMBRES
p62
CENTINELA
ANTUCOYA
ZALDÍVAR
p64
p66
p67
TRANSPORT DIVISION
p68
GROWTH PROJECTS
AND OPPORTUNITIES
p70
1. Non IFRS measure, refer to the alternative performance measures in Note 37 to the financial statements.
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STRATEGIC 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.
60%
owned
2000
Start of
operations
2018 PRODUCTION
COPPER (TONNES)
357,800 +4.1%
MOLYBDENUM (TONNES)
13,300 +26.7%
GOLD (OUNCES)
63,200 +14.1%
.
4
5
5
3
.
8
3
4
3
.
8
7
5
3
2018 FINANCIALS
EBITDA
$1,428m 0%
NET CASH COSTS
$0.91/lb (10.8%)
.
3
3
1
.
5
0
1
1
.
7
20
years
Remaining
mine life
2019 FORECAST
COPPER (TONNES)
360–370,000
MOLYBDENUM (TONNES)
9.5–10,500
GOLD (OUNCES)
50–60,000
.
2
3
6
.
8
7
5
.
4
5
5
16
17
18
16
17
18
16
17
18
COPPER PRODUCTION
(‘000 TONNES)
MOLYBDENUM PRODUCTION
(‘000 TONNES)
GOLD PRODUCTION
(‘000 OUNCES)
357,800 tonnes
produced in 2018
13,300 tonnes
produced in 2018
63,200 ounces
produced in 2018
62
Antofagasta plc Annual Report 2018
2018 PERFORMANCE
OPERATING PERFORMANCE
Los Pelambres finished the year strongly, outperforming both
production and cost guidance for the full year and again confirming
its position as a stable and reliable operation.
EBITDA at Los Pelambres was $1,428 million in 2018, compared
with $1,428 million in 2017, reflecting increased sales volumes and
lower operating costs as copper, molybdenum and gold sales volumes
increased and the molybdenum price strengthened.
PRODUCTION
Copper production for the year increased by 4.1% to 357,800 tonnes
compared to 2017 due to higher throughput.
Molybdenum production in 2018 was 13,300 tonnes, 26.7%
higher than in 2017 due to record recoveries and higher grades
and throughput.
CASH COSTS
Cash costs before by-product credits at $1.52/lb were 5.6%
higher than in 2017, following the one-off bonus paid after labour
negotiations with the plant and mine unions early in the year and
with a rise in input prices only partially offset by higher throughput.
Net cash costs for 2018 were $0.91/lb compared with $1.02/lb in
2017 due to significantly higher credits from molybdenum sales.
CAPEX
Phase 1 of the Los Pelambres Expansion Project was approved by
the Board in November. Construction of this $1.3 billion project will
start at the beginning of 2019 and first production is expected in
the second half of 2021. Throughput at the plant will be increased
from the current capacity of 175,000 tonnes of ore per day to an
average of 190,000 tonnes of ore per day. The project includes a
$500 million desalination plant and an additional SAG mill, ball mill
and corresponding flotation circuit with six additional cells. The
expansion will add an average of 60,000 tonnes of copper a year
to the mine’s production over the first 15 years of operation.
+ See pages 70 to 72 for more information
Capital expenditure was $255 million, including $54 million
on mine development.
SAFETY
Regrettably, during the year a contractor suffered a fatal accident.
This is Los Pelambres’ first fatality since September 2014. A full
investigation has been completed and changes implemented as a
result of the lessons learned.
OUTLOOK FOR 2019
The forecast production for 2019 is 360–370,000 tonnes of payable
copper (slightly higher than in 2018), 9.5–10,500 tonnes of
molybdenum and 50–60,000 ounces of gold.
Cash costs before by-product credits for 2019 are forecast to be
approximately $1.50/lb and net cash costs around $1.05/lb.
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STRATEGIC REPORT OPERATING REVIEW CONTINUED
MINING DIVISION
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 produces copper concentrate (containing gold and silver)
through a milling and flotation process, and molybdenum
concentrate. It also produces copper in cathodes, using
the solvent extraction and electrowinning (SX-EW) process.
70%
owned
2001
Start of
operations
2018 PRODUCTION
COPPER (TONNES)
248,000 +8.6%
GOLD (OUNCES)
146,900 (6.4%)
MOLYBDENUM (TONNES)
300 (first year)
.
4
0
8
1
.
9
3
6
1
.
5
5
5
1
2018 FINANCIALS
EBITDA
$645m (25%)
NET CASH COSTS
$1.51/lb +11.0%
.
5
2
9
.
5
4
8 6
5
5
.
49
years
Remaining
mine life
2019 FORECAST
COPPER (TONNES)
260–280,000
GOLD (OUNCES)
190–200,000
MOLYBDENUM (TONNES)
2,000
.
0
3
1
2
.
0
7
5
1
.
9
6
4
1
16
17
18
16
17
18
16
17
18
COPPER CONCENTRATE
(‘000 TONNES)
COPPER CATHODES
(‘000 TONNES)
GOLD
(‘000 OUNCES)
155,500 tonnes
produced in 2018
92,500 tonnes
produced in 2018
146,900 ounces
produced in 2018
64
Antofagasta plc Annual Report 2018
CASH COSTS
Cash costs before by-product credits for the year were $1.89/lb,
4.4% higher than in 2017, mainly a result of higher input prices, offset
by higher production.
Net cash costs were $1.51/lb, 11.0% higher than in 2017, reflecting
higher cash costs before by-product credits and lower credits from
gold production.
CAPEX
Capital expenditure was $502 million, including $279 million
on mine development.
OUTLOOK FOR 2019
Production for 2019 is forecast at 260–280,000 tonnes of
payable copper, 190–200,000 ounces of gold and 2,000 tonnes of
molybdenum, with production decreasing in the second half of the
year as grades decline.
Cash costs before by-products in 2019 are forecast to be
approximately $1.85/lb and net cash costs $1.35/lb.
2018 PERFORMANCE
OPERATING PERFORMANCE
Centinela’s performance strengthened during the year with the
copper grade and throughput in the sulphide line increasing
quarter by quarter. Additionally, the new Encuentro Oxides plant
commissioned in 2017 achieved its design throughput capacity
during the year, increasing cathode production by 28,000 tonnes
and utilising most of the SX-EW plant’s production capacity.
EBITDA at Centinela was $645 million, compared with $859 million
in 2017, despite higher copper production, as the realised copper
and gold price decreased by 4.5% and 2.3% respectively.
PRODUCTION
Copper production for 2018 was 248,000 tonnes, 8.6% higher
than in 2017, primarily as a result of higher throughput at Centinela
Concentrates and the ramp-up at Encuentro Oxides, and partially
offset by lower grades in both the sulphide and oxide lines.
Production of copper in concentrates was 155,500 tonnes, 5.1%
lower than 2017, mainly reflecting lower average grades and the
consequent drop in recoveries, partially offset by higher throughput.
New production from Encuentro Oxides contributed to cathode
production of 92,500 tonnes in 2018, 43.4% higher than in 2017.
Gold production for the year 2018 was 146,900 ounces, 6.4% lower
than in 2017, mainly due to lower grades and recoveries.
The new molybdenum plant started operation during the year
producing 300 tonnes of molybdenum in concentrates.
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MINING DIVISION
ANTUCOYA
Antucoya is approximately 1,400 km north of Santiago
and 125 km north-east of the city of Antofagasta. Construction of the
project was completed in 2015 with full production achieved in 2016.
Antucoya mines and leaches oxide ore to produce copper cathodes using
the solvent extraction and electrowinning (SX-EW) process.
70%
owned
2016
Start of
operations
21
years
Remaining
mine life
2018
PRODUCTION
COPPER (TONNES)
72,200 (10.3)%
2019 FORECAST
COPPER (TONNES)
75–80,000
2018
FINANCIALS
EBITDA
$142m (32%)
CASH COSTS
$1.99/lb +18.5%
.
5
0
8
.
2
2
7
.
2
6
6
16
17
18
COPPER PRODUCTION
(‘000 TONNES)
72,200 tonnes
produced in 2018
2018 PERFORMANCE
OPERATING PERFORMANCE
Antucoya had a challenging start to the year following a conveyor
failure in December 2017 and lower plant availability during the first
half of 2018. These affected both throughput and recoveries, but
performance improved during the last quarter of 2018 and this is
expected to continue into 2019.
EBITDA at Antucoya was $142 million compared with $207 million
in 2017, reflecting Antucoya’s lower sales volumes and lower
realised prices.
PRODUCTION
Copper production was 72,200 tonnes, 10.3% lower than in 2017,
due to lower throughput and recoveries.
CASH COSTS
Cash costs for 2018 were $1.99/lb, 18.5% higher than in 2017,
mainly because of lower production and higher input prices.
CAPEX
Capital expenditure was $43 million, including $19 million on
mine development.
OUTLOOK FOR 2019
Production in 2019 is forecast to be 75–80,000 tonnes and cash
costs are expected to be approximately $2.00/lb.
66
Antofagasta plc Annual Report 2018
ZALDÍVAR
Zaldívar is an open-pit, heap-leach copper mine operating at an average
elevation of 3,000 metres above sea level, approximately 1,400 km north
of Santiago and 175 km south-east of the city of Antofagasta. The Group
acquired a 50% interest in the asset from Barrick Gold Corporation
in 2015 and is the operator of the mine.
50%
owned
1995
Start of
operations
12
years
Remaining
mine life
2018
PRODUCTION1
COPPER (TONNES)
47,300 (8.5)%
7
.
1
5
7
.
1
5
.
3
7
4
2018
FINANCIALS
EBITDA
$87m (35%)
CASH COSTS
$1.94/lb +19.8%
COPPER PRODUCTION
(‘000 TONNES)
47,300 tonnes
produced in 2018
16
17
18
2019 FORECAST
COPPER (TONNES)1
55–60,000
1. Attributable share
of production.
2018 PERFORMANCE
OPERATING PERFORMANCE
During 2018 Zaldívar successfully focused on improving copper
recoveries following a decline in 2017, although this effort was offset
by lower throughput arising from multiple stoppages affecting the
uptime of the plant.
Attributable EBITDA was $87 million compared with $134 million
in 2017.
PRODUCTION
Copper production was 47,300 tonnes, 8.5% lower than 2017,
mainly due to lower throughput, which was partially offset by higher
grades and recoveries.
CASH COSTS
Cash costs for 2018 were $1.94/lb, 19.8% higher than the previous year,
mainly because of the impact of lower production and higher input prices.
CAPEX
Attributable capital expenditure for 2018 was $52 million, which includes
approximately $10 million with respect to mine development. These
amounts are not included in the Group’s capital expenditure figures.
OUTLOOK FOR 2019
Attributable copper production in 2019 is forecast to be 55–60,000
tonnes at a cash cost of approximately $1.75/lb.
OTHER MATTERS
During 2018 Zaldívar submitted an Environmental Impact Assessment
to extend the company’s water extraction permit from current sources
beyond 2025 in line with its existing life of mine.
Zaldívar’s final pit phase, which represents approximately 18% of
current ore reserves, impacts a portion of Minera Escondida’s mine
property, as well as infrastructure owned by third parties (road,
railway, powerline and pipelines). Mining of the final pit phase is
subject to agreements or easements to access these areas and
relocate this infrastructure.
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STRATEGIC REPORT OPERATING REVIEW CONTINUED
TRANSPORT DIVISION
This 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, Mejillones
and the city of Antofagasta. The port at Antofagasta is managed by Antofagasta Terminal Internacional (ATI), which is minority-
owned by the Group.
2018 TONNAGE
TRANSPORTED
(‘000 TONNES)
100% OWNED
1888: start of
operations
2018 FINANCIALS
EBITDA
$89m (9%)
6
9
4
6
,
7
6
2
6
,
5
6
0
6
,
16
17
18
6.1M TONNES
TRANSPORTED IN 2018
2018 PERFORMANCE
During the year, the transport division continued to improve its
operations through the application of its Management Model, which
is based on the three key areas of sustainability, productivity and cost
management. Tonnage transported was 6.1 million, 3% down on the
previous year as some existing customers’ cathode production fell
and others’ operations were disrupted.
As production from existing customers has fallen it has become more
important that the division expands its customer base and it has been
successful in winning two important rail contracts from mining clients
during the year. Both contracts are large tonnage, long-term, take or
pay contracts. New locomotives, for the first of these contracts, were
commissioned during the second half of the year as the first stage
of modernising the current fleet and generating long-term operating
benefits. Seven additional new locomotives will be commissioned in
2019, which will service new contracts as well as extensions of the
current ones.
In 2018 the FCAB celebrated 130 years of continuous operation
in Chile since its incorporation in the UK in 1888. This important
milestone was commemorated with local stakeholders.
68
Antofagasta plc Annual Report 2018
OPERATING PERFORMANCE
The division’s EBITDA was $88.9 million in 2018, which was better
than expected, but 9% lower than the previous year, mainly due to
lower volumes and increased costs, including the cost of upgrading
the safety standards at all of the division’s sites and improving the
safety features of the light vehicle fleet.
TRANSPORT TONNAGE
During 2018 the division transported 6.1 million tonnes, slightly lower
than in 2017, mainly due to lower production levels from some of the
company’s customers.
Looking ahead, the company will transport an increasing amount of
bulk materials, particularly copper concentrates.
COSTS
Cost management was focused on optimising the division’s
business processes to ensure long-term competitiveness. The
Group’s Cost and Competitiveness Programme has been applied at
the division to reshape its cost structure and to improve operating
standards. The programme achieved benefits of $4.5 million in 2018,
through increased revenues and lower costs. The main areas of
improvement were in organisational effectiveness, lower prices
in selected contracts, and improved operating and maintenance
management. During the year, fleet reliability and availability
improved compared with previous years, with a significant increase
in the amount of preventive, as opposed to corrective, maintenance.
CUSTOMERS MAP
Tocopilla
María Elena
Calama
Sierra Gorda
ANTOFAGASTA
REGION
Mejillones
Antofagasta
Taltal
Road route
Rail route
FCAB customers
In community matters, 2018 was marked by a number of high-profile
activities to commemorate the FCAB’s 130th anniversary and highlight
the long relationship between the Company and the Antofagasta
Region and its inhabitants.
Finally, looking to the future, FCAB plans to convert its real estate
in the centre of Antofagasta city from industrial to urban use, in
harmony with the gradual redevelopment of the city.
OUTLOOK
The division will continue to develop new business opportunities and
expects significant future growth from the award of new contracts.
Improvements are expected in maintenance, using knowledge gained
from the mining division and best practices in the railway industry,
and benefiting from the new locomotives and higher fleet availability.
Diversification of cargo will be an area of focus in the short and
medium term, with bulk cargoes such as lime, explosives, diesel and
concentrates being targeted.
SUSTAINABILITY
The division’s sustainability activities are aligned with those of the
mining division’s operations in the region, facilitating the exchange of
best practices and experiences within the Group.
No fatalities or accidents with serious consequences to people were
reported in 2018 and the Lost Time Injury Frequency Rate (LTIFR) fell
7% to 6.7 compared with 7.2 in 2017, as the maturity level of safety
processes increased during the year.
In 2019 the focus will be on consolidating the application of the various
sustainability programmes and implementing a new programme on
Critical Behaviours. In the health area, a new occupational health unit
will be created and controls over contractors will be improved
through the implementation of a new programme.
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69
STRATEGIC REPORT OPERATING REVIEW CONTINUED
GROWTH PROJECTS
AND OPPORTUNITIES
The Group’s approach to considered growth allows it to focus 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. In 2018 Centinela’s Encuentro Oxides
brownfield project ramped up to full capacity and Centinela’s molybdenum plant
started operating. Additionally, Phase 1 of the Los Pelambres expansion was
approved, with construction beginning in early 2019.
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.
LOS PELAMBRES EXPANSION
This expansion project is divided into two phases in order to simplify
the permitting application process.
70
Antofagasta plc Annual Report 2018
PHASE 1
This phase is designed to optimise throughput within the limits of
the existing operating, environmental and water extraction permits.
The Board approved the project in October 2018 and the award of
major contracts and long lead items with construction beginning in
early 2019.
Throughput at the plant will increase from the current capacity of
175,000 tonnes of ore per day to an average of 190,000 tonnes of
ore per day and first production is expected in the second half of
2021. The plant expansion includes an additional SAG mill, ball mill
and the corresponding flotation circuit with six additional cells.
Annual copper production will be increased by 40,000 tonnes in the
first full year of the expansion, reaching 70,000 tonnes towards the
end of the first 15 years as the hardness of the ore increases and the
benefit of higher milling capacity is fully realised. Over the full period
production will average approximately 60,000 tonnes per year.
The capital cost of the project is $1.3 billion, which includes
$500 million for a 400-litres per second desalination plant and
water pipeline. The desalination plant will supply water for the
expansion and a potential further growth phase (Phase 2) and will
act as a back-up for the existing operation in extreme dry conditions,
were these to occur. Desalinated water will be pumped from the
coast to the Mauro tailings storage facility, where it will connect with
the existing recycling circuit returning water to the Los Pelambres
concentrator plant.
The EIA for the expansion was approved in February 2018.
PHASE 2
In the second phase of expansion, throughput will increase to
205,000 tonnes of ore per day and, using the large resource base
of Los Pelambres, the mine’s life will be extended by 15 years beyond
the current 20. As part of this development the Group will submit a
new EIA to increase the capacity of the Mauro tailings storage facility
and the mine waste dumps, and extend certain operating permits.
Work began on the environmental baseline study for the new EIA in
2017 and will be completed in 2020, along with the early stages of
community engagement activities, in preparation for submitting the
EIA for approval in 2020.
Capital expenditure for this phase was estimated in the pre-feasibility
study completed in 2014 at approximately $500 million, the majority
being on mining equipment, and increasing the capacity of the
concentrator and the Mauro tailings facilities. The conveyors from
the primary crusher in the pit to the concentrator plant will also have
to be repowered to support the additional throughput.
Critical studies on tailings and waste storage capacity have been
undertaken and are now progressing towards the feasibility study
stage. However, the project will only proceed once Phase 1 is
significantly advanced and will require the submission of extensive
permit applications, including the new EIA. First production from this
phase is estimated to be in 2023 at the earliest, depending in large
part on the length of the permitting process. Phase 2 is expected to
increase copper production by 35,000 tonnes per year.
+60,000 tonnes
annual copper production
15 YEARS
Life-of-Mine extension
+35,000 tonnes
annual copper production
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STRATEGIC REPORT OPERATING REVIEW CONTINUED
CENTINELA SECOND CONCENTRATOR
During 2018 the Company considered two growth alternatives
for Centinela: the construction of a second concentrator, and the
expansion of the existing concentrator. Following a detailed evaluation
of the two alternatives it has decided to progress the studies on a
second concentrator, as this alternative offers the best potential
combination of financial returns and risk profile.
The construction of a second concentrator and tailings deposit
some 7 km from the existing concentrator is being considered
in two phases. Phase 1 would have an ore throughput capacity
of 90,000 tonnes per day, producing copper, and gold and
molybdenum as by-products, with an annual production of
approximately 180,000 tonnes of copper equivalent. Once Phase 1
has been completed and is operating successfully, a further
expansion is possible and would involve increasing the capacity
of the concentrator to 150,000 tonnes of ore per day with annual
production increasing to 250,000 tonnes of copper equivalent,
maximising the potential of Centinela’s large resource base.
Ore for the second concentrator would be sourced initially from the
Esperanza Sur deposit, around 4 km from the Esperanza pit, and later
from Encuentro Sulphides. The latter lies under the Encuentro Oxides
reserves, which are expected to be depleted by 2026.
The EIA for both phases of the project was approved in 2016 and
the feasibility study for Phase 1 is expected to be completed during
2020. The capital cost estimated in the 2015 pre-feasibility study
for Phase 1 was $2.7 billion, which included pre-stripping, mining
equipment, a concentrator plant, a new tailings deposit, water
pipeline and other infrastructure, plus the owner’s and other
costs. The feasibility study will update these estimates as well
as including an evaluation of the potential disposal of Centinela’s
water infrastructure and the evaluation of a new milling and
crushing strategy using high pressure rolls rather than the more
traditional SAG mills.
Centinela second concentrator: Phase 1
180,000 tonnes
copper equivalent production per annum
72
Antofagasta plc Annual Report 2018
ZALDÍVAR CHLORIDE LEACH PROJECT
The feasibility study for the Zaldívar Chloride Leach Project was
completed in 2018 and the project is expected to be brought to the
Board for approval during 2019, following the completion of detailed
engineering and subject to a favourable outcome or progress on the
EIA for the extension of water rights beyond 2025. The application
was submitted during 2018 and is currently being reviewed by the
water regulator, a process which includes consultation with the
relevant communities.
The project will improve copper recoveries from the secondary
sulphides ore by adjusting the leach process through the addition of
chlorides to increase the chlorine content of the leach solution. This
process is based on a proprietary technology called CuproChlor® that
was developed by the Group at its Michilla operation (which closed in
2015) and was based on many years of experience at the mine, which
had similar ore types to those that are processed at Zaldívar.
The project requires an upgrade of the Solvent Extraction (SX) plant
and the construction of additional washing ponds at an estimated
capital cost of $175 million. If approval is granted this year, the project
completion date is expected to be in 2021.
As the Group equity accounts its interest in Zaldívar, capital
expenditure at the operation is not included in Group total capital
expenditure amounts.
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 in north-eastern Minnesota, US. In 2018 an update of
the pre-feasibility study was completed on an 18,000 tonnes of ore
per day project producing an average of 42,000 tonnes of copper
per year plus nickel and PGM as by-products, the equivalent of some
65,000 tonnes of copper per annum.
In 2017 the Group commenced preparation of the Mine Plan of
Operations (MPO), a prerequisite for permitting applications, and
expects to complete it in 2019. Following a thorough review, it will
be ready to be submitted to the relevant Federal and State agencies.
While the MPO is being reviewed the Company will advance the
feasibility study.
After reaffirming Twin Metal’s right to renew its two federal
mineral leases, the Department of Interior reinstated the leases to
TMM in May 2018 and they are expected to be renewed during 2019.
In October 2018, the US Forest Service announced its decision to
rescind its proposal to withdraw federal land from the Superior
National Forest.
PROJECT COMPLETED
DURING THE YEAR
MOLYBDENUM PLANT
The new molybdenum plant at Centinela started production in
the third quarter of 2018 and is designed to produce an average
of 2,400 tonnes of molybdenum per year. This allows Centinela
to benefit from another by-product credit, lowering its unit net
cash costs.
EXPLORATION ACTIVITIES
The Group focuses on expanding its mineral resource base to ensure
its long-term future, undertaking exploration activities in Chile and abroad,
with particular focus on the Americas.
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
projects managed by its exploration teams in Santiago, Lima and
Toronto. Exploration is conducted using these in-house teams
and through partnerships with third parties, with the aim of building
a portfolio of long-term opportunities in Chile and abroad, most
specifically in the Americas.
The Group’s exploration and evaluation expenditure, which includes
expenditure on pre-feasibility studies, increased by 42% to $98 million
compared with 2017, following a reduction in expenditure when the
copper market was weaker and cost control was critical.
CHILE
The Group’s exploration programmes are in the copper belts of
northern and central Chile, particularly areas that are a good prospect
for manto and IOCG (Iron Ore Copper Gold)-type deposits, as well as
the main porphyry copper belts.
During 2018 drilling and geological modelling took place at several
projects and in the Centinela region evaluation work continued to
identify new high-quality projects on land belonging to Antofagasta
and its partners.
INTERNATIONAL
International exploration efforts remain concentrated on the key
copper belts of North and South America, with a strong focus on Peru
and western North America. South American activities were led from
the Group’s office in Lima and North American efforts from the office
in Toronto.
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73
STRATEGIC REPORT
OPERATING REVIEW CONTINUED
THE COPPER MARKET:
SUPPLIERS TO A
CHANGING WORLD
As the world develops and becomes ever more environmentally aware,
the demand for copper increases. The Group is responding by
supplying the copper needed for a more sustainable world.
MARKET ENVIRONMENT
During the first half of 2018 the copper price was well supported,
trading above $3.00/lb on good demand growth, favourable world
economic prospects and production uncertainties due to an unusually
large number of union negotiations. However, by the middle of the
year no significant labour disruptions had occurred and investment
community sentiment had turned negative as trade relations
deteriorated between the US and China. Although the fundamental
supply and demand characteristics remained positive for the year,
sentiment outweighed this and copper prices came under pressure,
correcting below $3.00/lb, and trading between $2.65/lb and
$2.85/lb during the second half of the year.
REFINED CONSUMPTION BY REGION
8%
16%
10%
17%
China
Other Asia
North America
49%
Europe
Rest of world
Source: Wood Mackenzie,
Copper Outlook December 2018
74
Antofagasta plc Annual Report 2018
REFINED COPPER
2018 MARKET PERFORMANCE
The LME copper price at the beginning of 2018 was $3.27/lb
and ended the year at $2.70/lb, averaging $2.96/lb over the year,
an increase of 5.9% compared with 2017.
Copper supply was relatively steady during the year, with mine
production facing a low disruption rate compared with previous
years. Demand was supported by the good performance of the global
economy, especially in China, despite the trade tension between China
and the US.
Global mine production accounts for some 87% of the total refined
supply and is estimated to have grown by 2.8% during 2018, in part
driven by good performance and a low rate of disruption in Chile,
the largest producer in the world, where mine production is estimated
to have increased by 5% compared to 2017.
Secondary copper supply is estimated to have remained flat or
increased marginally as the drop in the copper price reduced
scrap availability and the Chinese ban on the import of lower-grade
scrap disrupted the usual trade flow and treatment of scrap. Scrap
conversion to refined copper is coming under pressure in China as
the country enacts environmentally-friendly legislation restricting the
import of “dirty” lower-grade scrap, which has meant that demand in
China for other forms of copper (concentrate, blister, cathodes) has
been firm.
The Group’s average realised price in 2018 was $2.81/lb, 5% below
the average LME price, reflecting a net negative provisional pricing
adjustment at the end of the year of $188 million.
MARKET OUTLOOK
The market was in a slight deficit in 2018 and this deficit is expected
to increase in 2019 as mine supply continues to be affected by the
long-term trend of grade decline and lack of new investment, with
few projects coming into production in the near future.
On the demand side, growth will continue to be driven by
Chinese consumption and increased demand from other countries
in Southeast Asia, where additional fabrication capacity has been
installed in recent years. Demand will also rise as electric vehicle
manufacture and investment in renewable energy increases, but the
impact of this will be more significant in three or four years’ time.
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 10% of
the Group’s cost before by-product credits.
GOLD
The gold price during 2018 decreased by about 1.6%, peaking
during the first quarter of the year at an average of $1,330/oz.
Macroeconomic events such as rising US interest rates and the trade
tension between China and the US helped support the price of gold
during the year.
Gold averaged $1,270/oz in 2018 compared with $1,258/oz in
2017 and closed the year at $1,282/oz. At the beginning of 2019 the
consensus price forecast for the year was slightly under $1,300/oz.
MOLYBDENUM
Molybdenum prices continued to perform strongly in 2018 due
to increased demand from the steel industry and limited increases
in production. The price averaged $11.9/lb for the year compared with
$8.2/lb in 2017, and the consensus price for 2019 at the beginning of
the year was about $10.5/lb.
2018 MARKET PERFORMANCE
Most of the new copper production in the world is in the form of
concentrates and this has been largely absorbed by new smelter
capacity in China. During 2018 there was an unusually high disruption
rate in the custom smelter sector, the most significant of which was at
Tuticorin in India, which has been closed since March 2018. However,
with the low disruption rate to mine supply the concentrate market
has moved from a deficit in the first part of the year to a small surplus
in the second half, softening the spot TC/RCs towards the fourth
quarter of 2018, but in line with the annual terms agreed at the end
of 2017.
MARKET OUTLOOK
Further increases in smelter capacity and the reopening of Tuticorin
are expected in 2019, while growth in concentrate production will be
limited, leading to a tight copper concentrate market that should lead
to declining TC/RCs. The annual terms for 2019 have been agreed
at levels close to $80 per dry tonne of concentrate and 8c/lb
of refined copper, below the levels agreed for 2018.
antofagasta.co.uk
75
STRATEGIC REPORT FINANCIAL REVIEW
STRONG OPERATING
PERFORMANCE
“Our strong operating
performance during the
year and asset sales have
allowed us to increase our
dividend pay-out ratio.”
Alfredo Atucha, CFO
FINANCIAL REVIEW FOR THE YEAR ENDED 31 DECEMBER 2018
Revenue
EBITDA (including results from associates and joint ventures)
Total operating costs
Operating profit from subsidiaries
Net share of results from associates and joint ventures
Total profit from operations, associates and joint ventures
Net finance expense
Profit before tax
Income tax expense
Profit from continuing operations
Discontinued operations
Profit for the year
Attributable to:
Non-controlling interests
Profit for the financial year attributable to the owners of the parent
Basic earnings per share
From continuing operations
From discontinued operations
Total continuing and discontinued operations
76
Antofagasta plc Annual Report 2018
Year ended
31.12.2018
Year ended
31.12.2017
Total
Total
$m
4,733.1
2,228.3
(3,388.1)
1,345.0
22.2
1,367.2
(114.5)
1,252.7
(423.7)
829.0
51.3
880.3
336.6
543.7
US cents
51.5
3.6
55.1
$m
4,749.4
2,586.6
(2,908.3)
1,841.1
59.7
1,900.8
(70.0)
1,830.8
(633.6)
1,197.2
0.5
1,197.7
447.1
750.6
US cents
76.1
0.1
76.2
800
700
600
500
400
300
200
100
0
The $206.9 million decrease in the profit for the financial year
attributable to the owners of the parent from $750.6 million in 2017
to $543.7 million in the current year reflected the following factors:
751
(16)
51
544
111
210
(480)
(38)
s
e
u
n
e
v
e
R
sts
o
g c
eratin
Total o
p
V
d J
n
s a
ciate
o
s
s
A
(45)
s
m
e ite
c
n
a
Fin
Y
017 – F
2
Y
018 – F
2
x
Ta
sts
s
n
g intere
ntrollin
o
n-c
o
N
eratio
p
d o
e
u
ntin
o
c
Dis
REVENUE
The $16.3 million decrease in revenue from $4,794.4 million in 2017
to $4,733.1 million in the current year reflected the following factors:
5,000
4,749
88
33
180
(279)
2
4,733
(9)
(30)
4,000
3,000
2,000
1,000
0
Y
017 – F
2
e
er – pric
p
p
o
d c
e
alis
e
R
s
C
R
/
C
e
m
olu
s – v
ale
er s
p
p
o
C
s – T
ale
er s
p
p
o
C
s –
ale
m s
e
m
olu
u
n
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e & v
d
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pric
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e
m
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s – m
ale
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e
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s – m
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G
Y
018 – F
2
s
ale
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p
s
n
Tra
REVENUE FROM THE MINING DIVISION
Revenue from the mining division decreased by $18.0 million, or
0.4%, to $4,560.3 million, compared with $4,578.3 million in 2017.
The decrease reflected a $158.0 million reduction in copper sales,
largely offset by increased by-product revenues, in particular
molybdenum sales.
REVENUE FROM COPPER SALES
Revenue from copper concentrate and copper cathode sales
decreased by $158.0 million, or 3.9%, to $3,915.2 million,
compared with $4,073.2 million in 2017. The decrease reflected the
$279.4 million impact of lower realised prices, partly offset by the
$88.2 million impact of higher sales volumes and the $33.2 million
impact of lower treatment and refining charges.
(I) REALISED COPPER PRICE
The average realised price decreased by 6.3% to $2.81/lb in 2018
(2017 – $3.00/lb), resulting in a $279.4 million decrease in revenue.
While the LME average market price increased by 5.7% to $2.96/lb
(2017 – $2.80/lb), this was offset by a negative provisional pricing
adjustment of $188.0 million. The provisional pricing adjustment
mainly reflected the decrease in the period-end copper price to
$2.71/lb at 31 December 2018, compared with $3.25/lb at
31 December 2017.
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 in 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).
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 by
2.0% from 657,700 tonnes in 2017 to 671,100 tonnes in 2018
increasing revenue by $88.2 million. This increase was due to higher
copper sales volumes at Los Pelambres (14,100 tonnes) and Centinela
(8,700 tonnes) as a result of increased production volumes, partly
offset by lower sales volumes at Antucoya (9,500 tonnes).
(III) TREATMENT AND REFINING CHARGES
Treatment and refining charges (TC/RCs) for copper concentrate
decreased by $33.2 million to $244.5 million in 2018 from
$277.7 million in 2017, mainly due to a decrease in the average
TC/RCs. Treatment and refining charges are deducted from
concentrate sales when reporting revenue, 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 $140.0 million or 27.7% to
$645.1 million in 2018, compared with $505.1 million in 2017. This
increase was due to higher molybdenum revenue, partly offset by
lower gold and silver sales.
Revenue from molybdenum sales (net of roasting charges) was
$348.0 million (2017 – $168.5 million), an increase of $179.5 million.
The increase was due to the higher realised price of $12.4/lb
(2017 – $8.7/lb) and increased sales volumes of 14,000 tonnes
(2017 – 9,600 tonnes).
Revenue from gold sales (net of treatment and refining charges)
was $248.0 million (2017 – $278.4 million), a decrease of
$30.4 million which mainly reflected a decrease in volumes as well
as a slightly lower realised price. Gold sales volumes decreased
by 9.2% from 218,200 ounces in 2017 to 198,100 ounces in 2018,
mainly due to lower grades and recoveries at Centinela. The realised
gold price was $1,256.3/oz in 2018 compared with $1,280.4/oz in
2017, reflecting the average market price for 2018 of $1,269.6/oz
(2017 – $1,257.6/oz), adjusted for a negative provisional pricing
adjustment of $1.8 million.
Revenue from silver sales decreased by $9.1 million to $49.1 million
(2017 – $58.2 million). The decrease was due to a decrease in the
realised silver price to $15.3/oz (2017 – $16.8/oz) as well as lower
sales volumes of 3.3 million ounces (2017 – 3.5 million ounces).
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77
STRATEGIC REPORT FINANCIAL REVIEW CONTINUED
REVENUE FROM THE TRANSPORT DIVISION
Revenue from the transport division (FCAB) slightly increased by
$1.7 million or 1.0% to $172.8 million, with improved revenue from
the sale of industrial water ($3.6 million impact) being partly offset by
slightly lower tonnages transported, mainly due to some customers’
lower production levels.
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 $13.4 million to $109.2 million, mainly
due to higher diesel prices and, to a lesser extent, increased
contractor and labour costs.
3,500
3,000
2,500
2,000
1,500
1,000
500
0
TOTAL OPERATING COSTS
The $479.8 million increase in total operating costs from
$2,908.3 million in 2017 to $3,388.1 million in the current year
reflected the following factors:
260
2,908
184
3
29
13
3,338
(9)
Y
017 – F
2
n
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n
n a
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Minin
sts
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OPERATING COSTS (EXCLUDING DEPRECIATION,
AMORTISATION AND LOSS ON DISPOSALS) AT THE
MINING DIVISION
Operating costs (excluding depreciation, loss on disposals and
impairments) at the mining division increased by $282.0 million
to $2,505.1 million in 2018, an increase of 12.7%. Of this increase,
$259.7 million is attributable to higher mine-site operating costs.
This increase in mine-site costs reflected the higher production
volumes and activity levels in the year 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 $1.41/lb in 2017 to
$1.55/lb in 2018.
The Cost and Competitiveness Programme has been implemented
to reduce the Group’s cost base and improve its competitiveness
within the industry. During 2018 the programme achieved benefits
of $184 million, of which $87 million reflected cost savings and
$97 million reflected the value of productivity improvements. Of the
$87 million of cost savings, $70 million related to Los Pelambres,
Centinela and Antucoya, and therefore impacted the Group’s
operating costs, and $17 million related to Zaldívar (on a 100%
basis) and therefore impacted the share of results from
associates and joint ventures.
Other mining division costs increased by $2.9 million. Exploration
and evaluation costs increased by $28.8 million to $97.6 million
(2017 – $68.8 million). This reflected increased early-stage
generative exploration activity in Chile, drilling work at Centinela
and evaluation expenditure at Twin Metals. Corporate costs
decreased by $9.4 million.
78
Antofagasta plc Annual Report 2018
DEPRECIATION, AMORTISATION AND DISPOSALS
The depreciation and amortisation charge increased by $179.4 million
in 2018 to $760.5 million (2017 – $581.1 million). This mainly reflected
higher amortisation of mine development costs at Centinela and
Los Pelambres, and the start of depreciation of the Encuentro Oxides
project, which achieved commercial production on 1 January 2018.
The loss on disposal of property, plant and equipment was
$13.3 million, an increase of $5.0 million (2017 – $8.3 million)
OPERATING PROFIT FROM SUBSIDIARIES
As a result of the above factors, operating profit from subsidiaries
decreased in 2018 by 26.9% to $1,345.0 million (2017 – $1,841.1 million).
SHARE OF RESULTS FROM ASSOCIATES AND JOINT
VENTURES
The Group’s share of results from associates and joint ventures was
a profit of $22.2 million in 2018, compared with $59.7 million in 2017,
with the decrease mainly reflecting lower profit from Zaldívar. In
August 2018 the Group disposed of its interest in El Arrayan for cash
consideration of $28.0 million, resulting in a profit on disposal of
$5.8 million, which is included within the total $22.2 million share of
results from associates and joint ventures for the year.
EBITDA
EBITDA (earnings before interest, tax, depreciation, amortisation)
decreased by $358.3 million or 13.9% to $2,228.3 million (2017 –
$2,586.6 million). EBITDA includes the Group’s proportional share
of EBITDA from associates and joint ventures.
EBITDA from the Group’s mining division decreased by 14.0% from
$2,488.5 million in 2017 to $2,139.4 million this year. This reflected
the higher mine-site costs, increased exploration and evaluation
expenditure and the reduction in revenue explained above.
EBITDA at the transport division decreased by $9.2 million to
$88.9 million in 2018, reflecting the increased operating costs
explained above partly offset by the slightly higher revenue.
NET FINANCE EXPENSE
Net finance expense increased by $44.5 million to $114.5 million,
compared with $70.0 million in 2017.
Investment income
Interest expense
Other finance items
Net finance expense
Year ended
31.12.18
Year ended
31.12.17
$m
30.1
(113.5)
(31.1)
(114.5)
$m
23.8
(91.5)
(2.3)
(70.0)
Interest income increased from $23.8 million in 2017 to $30.1 million in
2018, mainly due to the increase in average interest rates.
Interest expense increased from $91.5 million in 2017 to $113.5 million in
2018. This mainly reflected the increase in the average LIBOR rate, which
was partly offset by the effect of the lower average borrowing balance
due to repayments.
Other finance items were a net expense of $31.1 million (2017 – expense
of $2.3 million). This reflected an expense of $12.7 million for the unwinding
of the discounting of provisions (2017 – $11.6 million) and an expense of
$18.3 million in respect of foreign exchange (2017 – gain of $17.1 million).
In 2017 there was an expense of $7.8 million relating to the time value
element of changes in the fair value of derivative options. Following the
adoption of IFRS 9 from 1 January 2018 the time value is now recognised
in other comprehensive income rather than the income statement.
PROFIT BEFORE TAX
As a result of the factors set out above, profit before tax decreased by 31.6% to $1,252.7 million (2017 – $1,830.8 million).
INCOME TAX EXPENSE
The tax charge for 2018 was $423.7 million (2017 – $633.6 million) and the effective tax rate was 33.8% (2017 – 34.6%).
Profit before tax
Tax at the Chilean corporate rate tax of 27.0% (2017 – 25.5%)
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
Mining tax (royalty)
Withholding taxes
Tax effect of share of results of associates and joint ventures
(Unrecognised tax losses)/reversal of previously unrecognised tax losses
Net other items
Tax expense and effective tax rate for the year
Year ended
31.12.2018
ITEMS
$m
1,252.7
(338.2)
–
2.6
(10.8)
21.1
–
(82.5)
(4.5)
3.0
(13.8)
(0.6)
(423.7)
Year ended
31.12.2017
ITEMS
%
25.5
–
1.9
1.5
(1.0)
0.2
4.3
3.5
(0.8)
(0.5)
–
34.6
%
27.0
–
(0.2)
0.9
(1.7)
–
6.5
0.4
(0.2)
1.1
–
33.8
$m
1,830.8
(466.9)
(0.6)
(35.4)
(26.7)
17.4
(4.3)
(78.3)
(64.8)
15.2
9.9
0.9
(633.6)
The effective tax rate varied from the statutory rate principally due to the mining tax (impact of $82.5 million/6.5%) and items not deductible
for Chilean corporate tax purposes, principally the funding of expenses outside of Chile (impact of $10.8 million/0.9%), partly offset by the
deduction of the mining tax which is an allowable expense when determining the Chilean corporate tax charge (impact of $21.1 million/1.7%)
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 $3.0 million/0.2%).
PROFIT FROM DISCONTINUED OPERATIONS
On 11 September 2018 the Group completed the disposal of Centinela Transmisión SA, which holds the electricity transmission line supplying
Centinela and other external parties, for a cash consideration of $117.2 million. The profit on disposal was $49.2 million, which along with the
$2.1 million profit from Centinela Transmisión SA for the period prior to the disposal, resulted in a total profit from discontinued operations of
$51.3 million (2017 – $0.5 million).
NON-CONTROLLING INTERESTS
Profit for 2018 attributable to non-controlling interests was $336.6 million, compared with $447.1 million in 2017, a decrease of $110.5 million.
This reflected the decrease in earnings analysed above.
EARNINGS PER SHARE
Earnings per share from continuing operations
Earnings per share from discontinued operations
Earnings per share from continuing and discontinued operations
Earnings per share calculations are based on 985,856,695 ordinary shares.
Year ended
31.12.18
Year ended
31.12.17
$ cents
51.5
3.6
55.1
$ cents
76.1
0.1
76.2
As a result of the factors set out above, profit attributable to equity shareholders of the Company was $543.7 million compared with
$750.6 million in 2017, and total earnings per share from continuing and discontinued operations was 55.1 cents per share (2017 – 76.2 cents
per share). Earnings per share from continuing operations was 51.5 cents per share (2017 – 76.1 cents per share).
antofagasta.co.uk
79
STRATEGIC REPORT
FINANCIAL REVIEW CONTINUED
DIVIDENDS
Dividends per share declared in relation to the period are as follows:
Ordinary dividends:
Interim
Final
Total dividends to ordinary shareholders
Year ended
31.12.18
$ cents
Year ended
31.12.17
$ cents
6.8
37.0
43.8
10.3
40.6
50.9
The Board determines the appropriate dividend each year based on consideration of the Group’s cash balance, the level of free cash flow and
underlying earnings generated during the year and significant known or expected funding commitments. It is expected that the total annual
dividend for each year would represent a payout ratio based on underlying net earnings for that year of at least 35%.
The Board has declared a final dividend of 2018 of 37.0 cents per ordinary share, which amounts to $364.8 million and will be paid on
24 May 2019 to shareholders on the share register at the close of business on 26 April 2019.
The Board declared an interim dividend for the first half of 2018 of 6.8 cents per ordinary share, which amounted to $67.0 million and was
paid on 5 October 2018 to shareholders on the share register at the close of business on 7 September 2018.
This gives total dividends proposed in relation to 2018 (including the interim dividend) of 43.8 cents per share or $431.8 million in total
(2017 – 50.9 cents per ordinary share or $501.8 million in total).
CAPITAL EXPENDITURE
Capital expenditure decreased by $28.4 million from $901.3 million in 2017 to $872.9 million. The decrease reflected a decrease in capitalised
stripping costs at Centinela and the completion of the Encuentro Oxides project at the end of the prior year, partly offset by preliminary
expenditure related to the Los Pelambres Expansion project and the purchase of new locomotives at the transport division.
NB: capital expenditure figures quoted in this report are on a cash flow basis, unless stated otherwise.
DERIVATIVE FINANCIAL INSTRUMENTS
The Group periodically uses derivative financial instruments to reduce its exposure to commodity price, foreign exchange and interest rate
movements. The Group does not use such derivative instruments for speculative trading purposes. At 31 December 2018 the derivative financial
instruments in place had a fair value of $0.8 million (positive).
CASH FLOWS
The key features of the Group cash flow statement are summarised in the following table.
Cash flows from continuing operations
Income tax paid
Net interest paid
Capital contributions and loans to associates
Disposal of subsidiary and associate
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
31.12.18
$m
1,877.0
(498.0)
(41.8)
(8.1)
145.2
(872.9)
(466.9)
(120.0)
16.6
(0.2)
30.9
(154.3)
(16.5)
(139.9)
(456.4)
(596.3)
Year ended
31.12.17
$m
2,495.0
(338.4)
(44.8)
(45.4)
3.1
(901.3)
(252.3)
(320.0)
81.8
4.3
682.0
(72.2)
5.5
615.3
(1,071.7)
(456.4)
Cash flows from continuing operations were $1,877.0 million in 2018 compared with $2,495.0 million in 2017. This reflected EBITDA from
subsidiaries for the year of $2,118.8 million1 (2017 – $2,430.5 million) adjusted for the negative impact of a net working capital increase of
$240.3 million (2017 – working capital decrease of $12.5 million) and a non-cash decrease in provisions of $1.6 million (2017 – increase of
$52.0 million). The working capital increase was mainly due to a one-off short-term VAT payment of $265 million made in December 2018,
with the same amount then being reclaimed and refunded to the Group in January 2019. This resulted in a temporary increase in receivables
as at 31 December 2018, resulting in a negative cash flow impact for 2018. There will be a corresponding decrease in receivables and a positive
cash flow impact in 2019. Accordingly, there is nil net cumulative impact in respect of this transaction over the period from Q4 2018 to Q1 2019.
1. Excluding the Group’s share of EBITDA from associates and joint ventures.
80
Antofagasta plc Annual Report 2018
The net cash outflow in respect of tax in 2018 was $498.0 million (2017 – $338.4 million). This amount differs from the current tax charge
in the consolidated income statement of $404.5 million (2017 – $509.8 million) mainly because cash tax payments for corporate tax and
the mining tax partly include the settlement of outstanding balances in respect of the previous year’s tax charge of $147.2 million (2017 –
$113.7 million), payments on account for the current year based on the prior year’s profit levels of $465.4 million, as well as the recovery
of $114.6 million in 2018 relating to prior years.
The cash inflow from the disposal of a subsidiary and an associate of $145.2 million related to proceeds from the disposal of Centinela
Transmisión SA ($117.2 million) and El Arrayan ($28.0 million).
Contributions and loans to associates and joint ventures of $8.1 million relate to Tethyan Copper Company.
Capital expenditure in 2018 was $872.9 million compared with $901.3 million in 2017. This included expenditure of $502.4 million at Centinela
(2017 – $578.3 million), $255.5 million at Los Pelambres (2017 – $240.0 million), $42.8 million at Antucoya (2017 – $43.6 million), $4.5 million
at Corporate (2017 – $6.9 million) and $67.7 million at the transport divisions (2017 – $32.5 million).
Dividends paid to equity holders of the Company were $466.9 million, of which $399.9 million related to the payment of the final element of the
previous year’s dividend and $67.0 million to the interim dividend declared in respect of the current year.
Dividends paid by subsidiaries to non-controlling shareholders were $120.0 million (2017 – $320.0 million).
FINANCIAL POSITION
Cash, cash equivalents and liquid investments
Total borrowings
Net debt at the end of the period
At 31.12.18
At 31.12.17
$m
1,897.6
(2,493.9)
(596.3)
$m
2,252.3
(2,708.7)
(456.4)
At 31 December 2018 the Group had combined cash, cash equivalents and liquid investments of $1,897.6 million (31 December 2017 –
$2,252.3 million).
Total Group borrowings at 31 December 2018 were $2,493.9 million, a decrease of $214.8 million on the prior year (31 December 2017 –
$2,708.7 million). The movement reflected repayments during the year of $562.1 million, new borrowings of $309.6 million (of which
$215.0 million related to new borrowing facilities resulting in cash inflows and $94.6 million to new finance leases with no cash impact),
non-cash net increases of $47.3 million (principally accrued interest) and decreases due to foreign exchange of $9.6 million.
The repayments of borrowings and finance leasing obligations of $562.1 million reflected repayments at Los Pelambres of $263.2 million,
Centinela $175.0 million, Antucoya $90.3 million, the corporate centre of $3.2 million and the transport division of $30.4 million. The new
borrowing facilities of $215.0 million reflected new short-term facilities at Los Pelambres of $100.0 million, Centinela $25.0 million and
Antucoya $45.0 million, and a new long-term loan at the transport division for $45.0 million. The $94.6 million of new finance leases were
all at Los Pelambres.
This resulted in net debt at 31 December 2018 of $596.3 million (31 December 2017 – $456.4 million).
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
This Annual Report contains certain forward-looking statements. All statements other than historical facts are forward-looking statements.
Examples of forward-looking statements include those regarding the Group’s strategy, plans, objectives or future operating or financial
performance, reserve and resource estimates, commodity demand and trends in commodity prices, growth opportunities, and any assumptions
underlying or relating to any of the foregoing. Words such as “intend”, “aim”, “project”, “anticipate”, “estimate”, “plan”, “believe”, “expect”, “may”,
“should”, “will”, “continue” and similar expressions identify forward-looking statements.
Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that are beyond the Group’s
control. Given these risks, uncertainties and assumptions, actual results could differ materially from any future results expressed or implied
by these forward-looking statements, which speak only as at the date of this report. Important factors that could cause actual results to differ
from those in the forward-looking statements include: global economic conditions, demand, supply and prices for copper and other long-term
commodity price assumptions (as they materially affect the timing and feasibility of future projects and developments), trends in the copper
mining industry and conditions of the international copper markets, the effect of currency exchange rates on commodity prices and operating
costs, the availability and costs associated with mining inputs and labour, operating or technical difficulties in connection with mining or
development activities, employee relations, litigation, and actions and activities of governmental authorities, including changes in laws,
regulations or taxation. Except as required by applicable law, rule or regulation, the Group does not undertake any obligation to publicly
update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Past performance cannot be relied on as a guide to future performance.
antofagasta.co.uk
81
STRATEGIC REPORT
SUSTAINABILITY GOVERNANCE
ESTABLISHING GOOD
SUSTAINABILITY PRACTICES
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.
BOARD INVOLVEMENT
The Board is responsible for leading and monitoring sustainable
practices. The Sustainability and Stakeholder Management Committee
assists the Board in the stewardship of the Group’s sustainability
programmes and makes recommendations to ensure that ethical,
safety and health, environmental, social and community considerations
are taken into account in the Board’s deliberations.
The Committee reviews and updates the Group’s strategy and policy
framework, including safety and health, environment, climate change,
human rights, community and other stakeholder issues. It also
establishes targets and monitors the Group’s performance in
these areas.
Sustainability and performance goals: by incorporating sustainability
targets in annual performance bonus agreements, the Company
mobilises and aligns the whole organisation behind strong
sustainability practices and gives a clear signal of the Board’s
commitment to create value in a sustainable manner. Targets
associated with safety, people, environment and social performance
account for 20% of these targets.
BUSINESS INTEGRITY AND COMPLIANCE
In 2018 Antofagasta implemented a new Compliance Model structured
around three pillars (Prevent, Detect and Act) that were based on
compliance risk management and the Code of Ethics.
1. PREVENT situations and behaviours that are at odds with ethical
behaviour and compliance. For this purpose, the Company has
various guidelines and tools, including:
− Crime Prevention Manual which describes the Group’s
Anti-Corruption Model to ensure compliance with regulations
under the UK Bribery Act and Law 20,393 in Chile. There is a
person in charge of Crime Prevention at each of Antofagasta’s
operations. All of them are certified by the risk classification
system Feller Rate until March 2019 in line with Law 20,393
− Policies and procedures which determine how the Group
engages with stakeholders and provides guidelines that all
workers must follow. These include the Antitrust Protocol,
and guidelines on business relations with companies linked
to Politically Exposed Person and on modern slavery
− Conflict of interest declarations which must be completed by
all employees and updated regularly
− Due diligence is conducted on suppliers and contractors to
review company ownership, involvement in corruption cases,
commercial behaviour, legal and labour cases, conflicts of
interest and contract risks
− Training to provide employees with the knowledge and skills
to deal with any problem that might arise
82
Antofagasta plc Annual Report 2018
2. DETECT promptly infringements of ethics guidelines. For
this purpose, there is a consultation and complaint reporting
mechanism. Complaints that affect the Group are resolved by
the Corporate Ethics Committee. Committees have also been
established at each operation to deal with local issues. In addition,
assessments and analysis are conducted on the most sensitive
concerns and complaints.
3. ACT when identifying possible infringements. To this end,
investigations are conducted to take the necessary measures to
protect the Company, as well as to strengthen internal controls,
the effective functioning of the Compliance Model and
communication with key stakeholders.
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.
CODE OF ETHICS
The Code stresses the commitment of the Board, employees and
contractors to conduct business in a responsible and transparent
manner. It includes the values that guide the Company’s actions,
guidelines to identify and manage potential conflicts of interest
and for the handling of privileged, confidential and financial
information, and it also sets out the role of the Ethics Committee.
At the same time, it provides guidelines on a number of issues
including respect for human rights, local culture and values and
the rights of neighbouring communities.
TRAINING
Antofagasta ensures its Crime Prevention Model and its policies
and procedures are implemented and understood across the entire
organisation. This is achieved through induction training for all new
workers, extensive e-learning every two years, special training for
the most exposed areas and a training plan that is updated annually.
MANAGEMENT OF COMPLIANCE RISKS
The Compliance Risks Department keeps a record and monitors the
evolution of the main compliance risks, but daily risk management is
everyone’s responsibility. Compliance risks and existing controls are
regularly highlighted and assessed and action plans are defined
to reduce risk exposure. As part of this process, changes in the
operating environment that require controls to be strengthened
or additional measures are also highlighted, and this helps to
continuously improve the Compliance Model.
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
NON-FINANCIAL INFORMATION STATEMENT
The table below sets out where stakeholders can find information in the strategic report that relates to non-financial matters, as required
under the new Non-financial Reporting Directive requirements.
Reporting
Requirement
Sustainability
Safety and health
Relevant Policies and Standards
Content
Value Chart
Sustainability Policy
ICMM Guidelines
Letter from the Chairman
Sustainability and Stakeholder Management Committee Chairman’s letter
Value creation
How we engage with our stakeholders
Safety and Occupational Health Strategy
Special Corporate Safety and Health Regulation for Contractors and
Subcontractors (RECCS)
Transversal Fatality Risk Standard (ERFT)
Occupational Health Standard (ESO)
Safety and Occupational Health Strategy
Safety risk management
Health risk management
Safety and Health reporting
Visible leadership
Awareness and commitment
Performance
Safe transport
Environmental management
Environmental compliance
Water and mining
Mining waste
Climate change
Energy management
Biodiversity
Air
Mine closure
Inclusive culture
Diverse and global talents
Labour relations and engagement
Aligning contractors
Social Management Model
Social projects and programmes
From competition to coexistence
Open innovation
Addressing social concerns
Responsible supply
Local suppliers
Respectful, diverse and inclusive work culture
Human Rights
Modern Slavery Act
Business integrity and compliance
Code of Ethics
Management of Compliance Risks
Principal Risks
Key Risks
Risk Management Framework
The Mining Lifecycle
Key Performance Indicators
Antofagasta during 2018
Total economic contribution
Page
6
114
50
34, 35
44, 45
46, 47,
48, 49
36, 37
38, 39
40,41
50
82-83
82
82
24
25
25
54
20
33
51
Environmental
matters
Environmental Management Model
Integral closure of mining operations Standard
Climate change Standard
Water management Standard
Biodiversity Standard
Employees and
contractors
People Strategy
Diversity and Inclusion Strategy
Social matters
Social Management Model
Engagement Standard
Management of initiatives Standard
Suppliers
Code of Ethics
Purchase and contracts guideline
Direct award procedure
Material management policy
Human Rights
Code of Ethics
Anti-corruption
and anti-bribery
Code of Ethics
Compliance Model
Anti-Corruption Model
Antitrust Protocol
Description of principal risks and impact of business activity
Description of the business model
Non-financial Key Performance Indicators
− 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
Of the Group’s operations only Zaldívar needs to engage with an
indigenous community and they live in Peine, 100 km away from the
mine. Relations with the community are good and are conducted in
accordance with the provisions of ILO Convention 169, 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, discrimination, harassment and other abuses. These are
regularly audited by each operation and also by the corporate centre.
PAYMENTS TO GOVERNMENTS
Antofagasta makes payments to governments relating to activities
involving the exploration, discovery, development and extraction of
minerals. In June 2018, the Group published its third report detailing
its mining division’s payments to governments for the year ended
31 December 2017. These payments were primarily taxes paid to the
Chilean government, and mineral licence fees.
In 2017 these payments totalled $317 million, of which 99.9% 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 political donations in 2018. However, it often
contributes financing for projects benefiting local communities in
alliance with the local municipalities and the government. These
contributions are regulated by specific laws and are reviewed by
the Chilean Internal Revenue Service.
The Strategic Report has been approved by the Board and signed
on its behalf by:
Jean-Paul Luksic
Chairman
18 March 2019
Ollie Oliveira
Senior Independent Director
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A BETTER
FUTURE IS
BUILT ON
STRONG AND
EFFECTIVE
GOVERNANCE
The Board of Antofagasta plc is responsible
for the long-term, sustainable success of
the Group, generating value for shareholders
and contributing to wider society.
The Board has established strong and
effective governance structures that
clearly define roles and responsibilities
and promote constructive challenge.
These structures reflect the Board’s
commitment to international best practice
and continuing success as an international
mining company based in Chile.
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GOVERNANCE
Applying the Code in 2018
Board Leadership and
Company Purpose
Chairman’s introduction
Senior Independent Director’s
introduction
Group governance overview
Board activities
Stakeholder engagement
Shareholder engagement
Division of Responsibilities
Directors’ biographies
Board balance and skills
Roles in the Boardroom
Executive Committee members’
biographies
Introduction to the Committees
Composition, Succession and
Evaluation
Nomination and Governance
Committee report
Board effectiveness
Audit, Risk and Internal Control
Audit and Risk Committee report
Sustainability and Stakeholder
Management Committee report
Projects Committee report
Remuneration
Remuneration and Talent
Management Committee report
Committee Chairman’s introduction
Remuneration at a glance
2018 Directors’ Remuneration
Report
2018 Executive Remuneration
Report
Summary of 2017 Directors’
Remuneration Policy
Directors’ Report
Statement of Directors’
Responsibilities
108
114
116
118
119
121
122
125
134
137
139
86
88
90
92
94
96
97
98
100
101
102
104
105
107
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85
GOVERNANCE
APPLYING THE CODE IN 2018
FOCUSING ON
THE PRINCIPLES
“We continuously monitor and carefully consider how best to apply
the principles of the Code to our specific circumstances as an
international mining company based in Chile.”
Jean-Paul Luksic, Chairman
Chairman, Jean-Paul Luksic meeting with management at Zaldívar during a site visit in 2018
UK CORPORATE GOVERNANCE
CODE COMPLIANCE STATEMENT
The UK Corporate Governance Code issued by the Financial
Reporting Council in April 2016 sets out the governance principles and
provisions that applied to the Company during the 2018 financial year.
The Code is not a rigid set of rules. It consists of main and supporting
principles and provisions. The Listing Rules require companies to apply
the main principles and report to shareholders on how they have done
so. The Corporate Governance Report that follows has been prepared
for this purpose and demonstrates how these principles have been
considered and applied to the Company’s specific circumstances.
The Company complied with all of the detailed provisions of the
Code in 2018. 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 2004 Annual Report.
The UK Corporate Governance Code issued by the Financial Reporting
Council in July 2018 will be applied by the Company during the 2019
financial year.
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Antofagasta plc Annual Report 2018
+ The UK Corporate Governance Code is available on the Financial Reporting
Council website at www.frc.org.uk
HOW THE CODE PRINCIPLES WERE APPLIED IN 2018
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87
LEADERSHIPTHE ROLE OF THE BOARD −The Company is headed by an effective Board which is collectively responsible for the Company’s long-term sustainable success, generating value for shareholders and contributing to wider society as shown throughout this Corporate Governance Report. −The Board settled the Group’s purpose statement, reaffirmed the Group’s vision and values and adopted behavioural guidelines in respect of these values during the year as explained in the Chairman’s introduction – page 88. −An overview of how the Board ensures that its obligations to shareholders are met is described throughout this Corporate Governance Report and an example of how the Board listens to and engages with stakeholders is set out in the stakeholder engagement case study – page 96. −The Company has appropriate insurance in place to cover Directors against claims that may be made against them.DIVISION OF RESPONSIBILITIES −The Board is 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. −The CEO is not a Director of the Company and therefore not a member of the Board – page 101. −There is a clear division of responsibilities between the Chairman and CEO –page 101. −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 roles of the Board and the Board Committees are recorded in the Schedule of Matters Reserved for the Board and the Terms of Reference for each of the Board’s Committees, which are available on the Company’s website at www.antofagasta.co.uk.THE CHAIRMAN −The Chairman is responsible for leadership of the Board, and his responsibilities are set out on page 101. −He is responsible for setting the Board’s agenda and ensuring that the Directors receive accurate, timely and clear information – pages 92 and 101.NON-EXECUTIVE DIRECTORS −The Non-Executive Directors constructively challenge management and each other, and help develop proposals on strategy – page 101.EFFECTIVENESSCOMPOSITION OF THE BOARD −The Board has 11 Directors, comprising 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, including gender – page 100. −The Directors’ biographies provide further information on their experience – pages 98 and 99. −The Roles in the Boardroom diagram shows the participation in Board discussions and deliberations of each Director, the CEO and the Company Secretary – page 101. APPOINTMENTS TO THE BOARD −There is a formal and transparent procedure for the identification and appointment of new Directors – page 106.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 91 and 138. −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 100. −Directors are regularly updated with information and training and, as a minimum, receive an annual briefing on legal, regulatory, market and other developments that are relevant to directors of UK-listed companies – page 100.INFORMATION AND SUPPORT −The Board is provided with information in a form and of a quality appropriate to discharge its duties – page 92. −The Board has access to independent professional advice and to the advice and services of the Company Secretary – page 100. −The Board is regularly updated on the Group’s performance between scheduled Board meetings – page 93.EVALUATION −An internal Board and Committee effectiveness review was completed during the year and an externally-facilitated review will be conducted in 2019 – page 107.RE-ELECTION −All Directors stand for annual re-election. William Hayes will not be standing for re-election in 2019 – page 89.ACCOUNTABILITYFINANCIAL AND BUSINESS REPORTING −The Board has presented this Annual Report, which is fair, balanced and understandable – page 139. −Auditors’ report – pages 142 to 146. −Business model description – pages 54 and 55. −Going concern statement – page 22. −Robust assessment of principal risks and the Group’s risk appetite – pages 24 to 30. −Effectiveness of risk management and internal control systems – pages 22 and 23 and 111 and 112. −Viability statement – page 22.AUDIT COMMITTEE AND AUDITORS −Three out of the four Audit and Risk Committee members are considered to have recent and relevant financial experience – page 108. −Whistleblowing policy – page 113. −Internal audit function – page 111.REMUNERATIONTHE LEVEL AND STRUCTURE OF REMUNERATION −The Company has no executive directors but voluntarily discloses the CEO’s remuneration, which includes transparent, stretching and rigorously applied performance-related elements designed to promote the Company’s long-term sustainable success – pages 118 to 133.PROCEDURE −The Directors’ Remuneration Policy was approved by shareholders at the 2017 AGM – pages 134 to 136. −The procedure for setting policies on executive remuneration is voluntarily disclosed – pages 125 to 133. −No Director is involved in setting his or her own remuneration and the CEO is not involved in fixing his own remuneration – page 118.RELATIONS WITH SHAREHOLDERSDIALOGUE WITH SHAREHOLDERS −The Chairman and Senior Independent Director met with shareholders and the Company met with over 550 investors and potential investors during the year – pages 88, 90 and 97.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 Chairs were available to answer questions. −Notice was sent out at least 20 working days before the meeting.GOVERNANCE CHAIRMAN’S INTRODUCTION
DEVELOPING OUR
GOVERNANCE FOR
A BETTER FUTURE
“One of the foundations of our
success has been our enduring
regard for international corporate
governance best practice, which
we apply to enable us to operate
successfully in Chile, where our
corporate headquarters, senior
management team and all of our
operating assets are located.”
Jean-Paul Luksic, Chairman
INTRODUCTION
As noted in my introduction to the Annual Report, it is now nearly
40 years since my father Andrónico Luksic acquired a stake in the
Company and began the process of creating one of the world’s
leading copper mining companies. Over this period, the Company
has generated significant returns for shareholders over several
mining cycles and we have contributed enormously to the interests
of our stakeholders, most of whom are in Chile.
One of the foundations of our success over this period has been our
enduring regard for international corporate governance best practice,
applied in a way that allows us to operate successfully in Chile, where
our corporate headquarters, senior management team and all of our
operating assets are located.
As you would expect, we have been closely monitoring the UK
corporate governance reforms that were finalised during 2018 and
we will report against those in the 2019 Annual Report. We have
conducted a thorough analysis of the requirements in the new code
and I, and our Senior Independent Director, Ollie Oliveira, have met
with shareholders and policy makers during the year to discuss the
implications of these reforms and to understand how they will impact
our ability to continue to operate successfully in Chile. We were
pleased to receive assurances from policy makers and shareholders
alike that the “comply or explain” methodology underpinning the Code
remains fundamental to the UK corporate governance framework and
that our unique circumstances as a controlled company based in Chile
will continue to be taken into account when considering how we
decide to apply the new Code in 2019.
Throughout this year’s Corporate Governance Report we outline how
we have applied the principles of the 2016 UK Corporate Governance
Code, while highlighting some of the unique circumstances that
differentiate us from other companies and that, in many cases,
have brought us the success that we have achieved thus far.
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Antofagasta plc Annual Report 2018
The Board has been pursuing and overseeing a number of important
developments during the year, which are highlighted throughout this
Corporate Governance Report, a selection of which I would like to
highlight in this introductory letter.
RISK AND RISK APPETITE
The risks facing the Group are constantly evolving, and in order
to achieve our strategic objectives we believe it is fundamentally
important that our approach and attitude towards those risks is
equally dynamic.
During 2018, the Board, with the assistance of the Audit and Risk
Committee, reviewed and updated the Group’s risk management
policy and risk appetite. The purpose of this exercise was to ensure
that our management team have clear and current guidance from
the Board on this subject and for this guidance to be applied to the
day-to-day responsibilities of all of the members of our workforce.
REVIEWING AND EMBEDDING
OUR CULTURE
In recent years, we have put a tremendous amount of effort into
defining the values that drive our culture and our vision for the
future. In 2018, those efforts were furthered through the adoption
of our purpose statement and behavioural guidelines, setting out
the behaviours that embody our culture and charter of values. Over
the last two years, our employees have provided input and guidance
on these matters and I was delighted to lead several discussions
with the Board during the year that allowed us to refine and adopt
statements that are truly reflective of the culture we have and want
to develop further.
I was enormously proud that three women from the Company
were honoured by the Women In Mining advocacy organisation in
their “Top 100 Global Inspirational Women in Mining 2018 Edition”,
identifying them as key women in mining today, and that our
occupational health and safety manager, Katharina Jenny, was
named female executive of the year in Chile.
BOARD CHANGES AND SUCCESSION
PLANNING
As announced in November last year, Francisca Castro, who has
served as an independent Non-Executive Director since 2016, has
been appointed as Chair of the Remuneration and Talent Management
Committee, with effect from 1 May 2019. Ms Castro is replacing
Tim Baker as Chair and Tim will continue to serve on this Committee
to assist Francisca during the transition period. I would like to thank
them both, and indeed all of our committee members, for their hard
work over the course of the year.
As announced in January, William Hayes, a Non-Executive Director
of the Company since 2006, will not offer himself for re-election as
a Director at the Company’s upcoming Annual General Meeting. I
would like to thank Bill for the significant contribution he has made
to the Company as a Director, former Senior Independent Director
and Audit and Risk Committee Chairman, and for the wise counsel
he has contributed to the Board over many years.
In accordance with the Board’s succession plans, we expect to be in
a position to appoint a new independent Non-Executive Director soon
and we will notify shareholders as soon as a decision has been made.
As always, I welcome questions or comments from shareholders at
the Annual General Meeting.
Jean-Paul Luksic
Chairman
STAKEHOLDER ENGAGEMENT
Mining is a long-term business and timescales often run into decades.
Our relationships with our employees, local communities, suppliers,
governments, customers and shareholders 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 deliberations.
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. These visits provide us with
a closer understanding of the topics that are important for our
workforce and other stakeholders.
We engage constantly with our workforce, not only in the years
when there are scheduled union negotiations, but every year. This
open dialogue is key to maintaining good relations and is a testament
to the trust that has been built up between the Company and its
employees. I am proud that we have maintained such strong
employee and union relations, successfully completing wage
negotiations at Los Pelambres and the transport division this year
and recording yet another year without strikes.
The strength of these relationships is something that we have sought
to replicate with the communities that surround our operations. In
2014 we launched Somos Choapa, an innovative model of community
engagement at Los Pelambres and I am delighted that the success of
this model has seen it expanded to our operations in the north of Chile
during 2018.
DIVERSITY AND INCLUSION
We have a diverse Board comprising Directors with a broad spectrum
of complementary skills, personalities and competencies. We believe
in the benefits of diversity throughout the Group, not just at Board
level, and that more diverse companies attract the best talent and
achieve stronger, more reliable overall performance.
The Company took further steps to implement the Group’s diversity
and inclusion strategy during 2018. This included appointing female
executives to all the Group’s operating company boards, inclusiveness
and unconscious bias training for all employees and further talent
management efforts to increase the number of female workers in
the Group and to enable us to achieve our goal of 1% of the workforce
comprising workers with disabilities by the end of 2019. We are also
incorporating global profiles into our Group, which will enable us to
integrate new perspectives and organisational practices. Progress in
the implementation of our diversity and inclusion model will once again
be measured and assessed during the year and specific objectives
have again been included as targets within the Group’s 2019 Annual
Bonus Plan. Performance against these targets will be determined by
the Remuneration and Talent Management Committee and the Board
at the end of the year.
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89
GOVERNANCE SENIOR INDEPENDENT DIRECTOR’S INTRODUCTION
ENSURING
INDEPENDENCE
“The Company’s corporate
governance arrangements
rigorously protect the interests of
all shareholders. I regularly meet
shareholders to discuss corporate
governance and related matters
and report these discussions to
the Board.”
Ollie Oliveira, Senior Independent Director
Q. WHAT ARE YOUR RESPONSIBILITIES AS SENIOR
INDEPENDENT DIRECTOR?
I am appointed by the Board to act as a sounding board for the
Chairman and to serve as an intermediary for the other Directors
and shareholders. Thus my role is to support the Chairman on
several levels. I advise him on corporate governance matters and
I seek to ensure that he clearly understands the issues that are
especially important to the Board’s independent Non-Executive
Directors. I lead the annual review of the Chairman’s performance
and follow up on the closure of gaps identified in internal and
externally-facilitated reviews of Board and Committees’ performance.
Most importantly, I provide feedback on issues that matter to the
Company’s shareholders.
I live in Europe, close to many shareholders, directors at other
UK-listed companies and advisers, and I am senior independent
director at another large FTSE-listed mining company, which helps
me to ensure that the Chairman, the Board and the Group receive
independent and objective feedback and challenge, as well as a
balanced view of issues that are relevant and important for
shareholders of UK-listed companies.
Q. WHAT IMPACT DOES THE CONTROLLING
SHAREHOLDING HAVE ON COMPANY DECISIONS?
The Luksic family first acquired an interest in the Company 40 years
ago. Since then, the Company has demonstrated an excellent track
record in terms of safety, operational expertise and financial acumen.
First as an Independent Director and now as the Senior Independent
Director, I have discussed the role of the controlling shareholder with
other shareholders, proxy advisers and policy makers. The widely-
held view is that the substantial controlling interest is regarded
positively, with shareholders satisfied that the interests of
the controlling shareholder are aligned with theirs, with their
understanding of the copper price cycle and market fundamentals,
long-term vision of the industry, and well-known conservative
operating, financial and growth strategy.
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Antofagasta plc Annual Report 2018
Their support is – of course – conditional on the continuation of the
current corporate governance framework, which rigorously protects
the interests of all shareholders equally.
I, and all the Independent Directors, place a strong emphasis on
maintaining this governance and protection regime. We guard our
independence and preside over a framework and processes that go
beyond the regulatory norm. We are supported and encouraged by
the other Directors who – like the Independent Directors – bring their
own perspectives and opinions and are committed to the long-term
sustainable success of the Company.
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 the independent input and challenge that we are
convinced proves indispensable in Board decision-making.
Q. WHAT DID YOU DISCUSS WITH SHAREHOLDERS
IN 2018?
I initiated meetings with a number of shareholders and proxy advisers
during the year to understand their perspectives ahead of the 2019
AGM and reporting season, to explain and reinforce the reasons
behind the Company’s current governance arrangements and to
anticipate and gauge responses to the Company’s likely approach
to the 2018 Code.
I was delighted to hear that levels of concern regarding the
Company’s current corporate governance arrangements are low
and to receive assurances that explanations and circumstances will
be carefully considered when assessing how the Company decides
to apply the new Code in 2019.
Ollie Oliveira
Senior Independent Director
RELATIONSHIP AGREEMENT
The E. Abaroa Foundation is a controlling shareholder of the Company
for the purposes of 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 138.
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 2018.
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 presented all such related party transactions
(regardless of their 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 such transactions. In most cases, transactions of
this nature will also be subject to independent review by 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. 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 to ensure that there is full transparency in the way related party transactions are handled
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.
+ Further details on this process are set out on page 138
Responsibility
Directors
Proposed transaction
Ongoing monitoring of Directors’ interests and the Company’s related parties provides information to
determine if a related party approval is required for a proposed transaction.
Process
Contract negotiation and verification
How this is managed
The Executive Committee seeks 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 compliance with the
Relationship Agreement.
Responsibility
Company Secretary,
Antofagasta Group
management and the
Executive Committee
Responsibility
Antofagasta Group
management and
Executive Committee
and, if involving the
controlling shareholder,
Directors who are
independent from the
controlling shareholder
Process
Approval by Independent Directors
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 Directors independent from the
controlling shareholder.
Responsibility
Directors who are
independent from the
related party
All other potential related party transactions over $25 million, whether or not in the ordinary course of
business, are approved by the Board and any Director with a potential conflict or connection with the
related party will not take part in that decision. Transactions within the ordinary course of business that
are below $25 million require approval by the relevant subsidiary board.
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91
GOVERNANCE GROUP GOVERNANCE OVERVIEW
STRUCTURED FOR EFFECTIVE
DECISION-MAKING
ANTOFAGASTA PLC BOARD
The Board’s role is to promote the long-term, sustainable success
of the Company, generating value for shareholders and contributing
to wider society. The Board has established the Company’s purpose,
values, strategy and risk appetite and monitors the culture of the
Group as well as ongoing performance against these measures.
The schedule of matters reserved for the Board is available on the
Company’s website at www.antofagasta.co.uk.
KEY RESPONSIBILITIES
− Culture
− Strategy
− Governance
− Shareholder engagement
− Internal controls, risk management and compliance
− Financial and performance reporting
− Approving material transactions
BOARD COMMITTEES
Nomination
and
Governance
Audit
and Risk
Sustainability
and
Stakeholder
Management
Projects
Remuneration
and Talent
Management
The Board is assisted in 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 Chair of each Committee reports to the Board following
each Committee meeting, allowing the Board to understand and,
if necessary, discuss matters in detail and 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 page 104.
BOARD AND COMMITTEE INFORMATION FLOWS
CHAIRMAN AGREES AGENDA
WITH DIRECTORS
PAPERS CIRCULATED
IN ADVANCE OF MEETINGS
BOARD AND
COMMITTEE MEETINGS
The Chairman tables an agenda of
standing topics to be considered by
the Board each year, which is then
supplemented, during the year,
with agreed key topics and events
requiring consideration.
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
strategic challenges, changes in risk
assessments and emerging issues, as
well as the management report with
detailed information on the Group’s
performance against key safety, health,
environmental, community, financial,
project development and organisational
culture indicators.
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’s
progress. 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.
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Antofagasta plc Annual Report 2018
CEO AND EXECUTIVE COMMITTEE
The Board has delegated day-to-day responsibility for implementing
the Group’s strategy and fostering the corresponding organisational
culture 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, evaluates risk and establishes internal controls, and
promotes the sharing of best practices across the Group.
SUBCOMMITTEES OF THE EXECUTIVE COMMITTEE
Operating
Performance
Review
Business
Development
Disclosure
Project
Steering
Ethics
The Executive Committee is assisted in 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 on the activities of those
companies to the Board, Mr Arriagada and the Executive Committee.
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 that may need to be disclosed to the market
and for managing the disclosure of such information.
The Ethics Committee is responsible for implementing, developing
and updating the Group’s Code of Ethics and monitoring compliance.
MINUTES PREPARED,
CIRCULATED AND APPROVED
The Company Secretary minutes all Board
and Committee meetings and these 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 maintains an action list that is
reviewed at the beginning of each meeting
to ensure that Directors’ enquiries and
concerns are clearly identified and
addressed in a timely manner.
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 community-
relations performance, ensuring that the
Board is regularly updated on the Group’s
performance. Occasionally, Directors may
receive additional 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.
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, reporting in real time on
the Company’s performance and
implementation of the Group’s strategy.
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GOVERNANCE BOARD ACTIVITIES
STRATEGIC CHALLENGE
AND OVERSIGHT
The Board’s 2018 activities focused on revisions to, and implementation of,
the Group’s strategy – as explained in more detail below.
STRATEGY AND CULTURE
− Held a stand alone strategy day with
particular focus on the Group’s purpose,
mission, vision and strategic pillars.
− Adopted the Group’s purpose statement
and approved an updated Charter of
Values with four strategic pillars.
− Approved the 2018 Human Resources plan
which included a review of the Group’s
organisational culture, talent management,
organisational effectiveness, labour
relations and staff engagement.
− Monitored progress on the implementation
of the Group’s diversity and inclusion
strategy and reviewed a gender-based
remuneration analysis.
GOVERNANCE AND ENGAGEMENT
− Reviewed and considered the 2018 UK
Corporate Governance Code.
− Reviewed Director independence.
− Reviewed Directors’ conflict of
interest declarations.
− Monitored feedback from letters sent
to investors regarding the Group’s
corporate governance arrangements.
− Approved sponsorship of the 2018
FIA Formula-E championship, which
promotes the use of electricity for
worldwide mobility.
INTERNAL CONTROLS, RISK
MANAGEMENT AND COMPLIANCE
− Commissioned an external review of risk
management system’s maturity level.
− Approved a restructuring of the risk
management function and reporting lines.
− Approved updates to the Group’s Risk
Management Policy.
− Reviewed the Group’s risk appetite
statements, aligned with the Group’s
strategic pillars.
− Reviewed the Group’s risk matrix,
materialised risks and risk mitigation actions.
− Reviewed budgets for initiatives designed
to mitigate material identified risks.
− Approved updates to Committees’ terms
− Approved project guidelines specifying
the level of project definition for feasibility
study and execution approval, designed
to reduce project development risk.
− Approved the Group’s Modern Slavery
Act statement.
− Reviewed half-yearly compliance reports.
− Reviewed results of the Group’s whistle
blowing processes.
SUCCESSION PLANNING
AND TALENT MANAGEMENT
− Reviewed Board succession plans.
Each Director withdrew from any meeting
when his or her own position was
being considered.
− Reviewed the annual talent management
exercise, including succession plans for
the Executive Committee.
− Monitored the implementation of
upgraded short-term and long-term
incentive programmes.
FINANCIAL AND
PERFORMANCE REPORTING
− Approved the Group’s 2017 full-year and
2018 half-year results.
− Approved the dividends paid
to shareholders during 2018.
− Reviewed and approved the Group’s
commercial parameters.
− Reviewed findings of the independent
technical board on tailings deposits.
− Reviewed and approved the base case and
development case for the Group’s assets.
− Commissioned an independent audit of
− Reviewed and approved the Group’s
data protection.
2019 budget.
− Reviewed the Group’s reserves and
resources statements.
of reference.
− Oversaw the implementation of key
recommendations arising from the
2016–17 externally-facilitated and 2018
internal Board effectiveness reviews.
− Engaged with shareholders on corporate
governance matters at the 2018 AGM.
All Directors attended.
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Antofagasta plc Annual Report 2018
THE EXISTING CORE BUSINESS
The first pillar of the strategy is to optimise and enhance the existing
core business: Los Pelambres, Centinela, Antucoya, Zaldívar and the
Transport Division.
− Reviewed and monitored the Group’s safety and health
− Reviewed the Group’s maintenance strategy.
performance.
− Reviewed and monitored the Group’s operating performance.
− Approved key procurement and sales contracts.
− Reviewed and approved the Group’s copper concentrate and
− Approved carbon emission reduction targets.
copper cathode sales strategy.
− Monitored results of the Group’s Competitiveness and
− Reviewed the recovery plan following the blockage of Los
Cost Programme.
Pelambres’ concentrate pipeline.
− Reviewed the Group’s compliance with environmental
commitments and the results of a sustainability audit.
− Continued to monitor the independent review of tailings dam
safety at Los Pelambres and Centinela.
− Monitored labour relations at the Group’s mining operations
and transport division and reviewed the results of collective
negotiations.
− Reviewed progress in the implementation of the Somos Choapa
community relations model and its extension to the operations in
the north of Chile.
− Continued to monitor dialogue with governments in Argentina
and Chile regarding the Cerro Amarillo waste dump at
Los Pelambres and its removal.
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.
− Approved execution of the Los Pelambres Expansion Project.
− Reviewed lessons learned from the Encuentro Oxides,
− Monitored the alternative growth cases for the expansion
of Centinela.
− Reviewed the Zaldívar Sulphide Leaching project.
− Reviewed and approved the acquisition and divestment of mining
properties in Chile.
Molybdenum Plant and Thermo-Solar plant projects at Centinela.
− Approved work plans, budgets and studies in relation to the
Los Pelambres Expansion and Centinela expansion projects.
GROWTH BEYOND THE CORE
The third pillar of the strategy is to seek growth beyond the Group’s
existing operations, through the acquisition of high-quality operating
assets and/or high-potential early-stage developments.
− Continued to monitor developments at the Twin Metals project
− Reviewed business development and exploration updates detailing
in Minnesota.
− Monitored the “Growth beyond the Core Business” strategy
guidelines for management of the preferred geography,
commodity, size and stage for growth opportunities outside the
Group’s core business.
exploration activities and results during the year.
− Reviewed business development opportunities and divestment of
non-core assets.
− Approved the divestment of non-core assets, including the sale of
Centinela’s electricity transmission lines and the Group’s interest
in the Parque Eólico El Arrayán wind farm.
+ Further information on the Group’s strategy and objectives for 2019 can be found on pages 18 and 19
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GOVERNANCE STAKEHOLDER ENGAGEMENT
ENGAGEMENT ON
LOS PELAMBRES EXPANSION
Strong ongoing stakeholder engagement and relationships are
central to the Group’s long-term sustainable success.
During 2018, the Board approved a $1.3 billion investment to expand the Los Pelambres mine in the Choapa Province in the
Coquimbo Region of Chile. The expansion will add an average of 60,000 tonnes of copper a year to the mine’s production
over the first 15 years of operation and involves the construction of a desalination plant, water pipeline and additional
plant infrastructure.
In reaching an approval decision, the Board and each of its Committees received and carefully considered, at regular intervals
over a study period of several years, detailed information in relation to the interests of, and impact of the project on, the Group’s
stakeholders. Specific information relating to the impact of the project was received through extensive and collaborative
stakeholder engagement processes. Some of the specific stakeholder considerations arising from these processes include
the following.
+ Further details on the Los Pelambres Expansion project are set out on
pages 70 and 71
+ Further details on the Group’s relationships with stakeholders and
stakeholder engagement mechanisms are set out on pages 34 to 43
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Antofagasta plc Annual Report 2018
GOVERNMENT AND REGULATORSThe formal environmental approval process for the Los Pelambres Expansion commenced in June 2016, involving participation from the citizens of the Salamanca and Los Vilos municipalities, more than 100 professionals, 20 companies from various fields, and a wide range of governmental agencies, trade associations and communities, representing the views of their own stakeholders. The feedback received was used to clarify and refine elements of the project design in the interests of stakeholders. The environmental permit for the project was finally received in February 2018.LOCAL COMMUNITIESPrior to the formal environmental approval process, Los Pelambres initiated a voluntary preliminary participation process aimed at gathering the communities’ comments and concerns, with the idea of incorporating them, when possible and appropriate, into the project design. This “open house” process allowed them to understand the project’s planned activities and phases of development before the formal permitting process began. As a result, local community views on and concerns about water supply, local employment and the impact of construction activities on livelihoods were identified at an early stage.The capital cost of the project includes $500 million for a desalination plant and water pipeline. The desalination plant will supply the expansion of Los Pelambres and a potential further growth phase as well as acting as a back-up for the existing operation should extreme dry conditions occur.The project also includes voluntary commitments relating to:a. the professional development of local suppliers – efforts aimed at improving skills and capabilities to allow some of these suppliers to supply key inputs for the project, as well as ancillary services in the future, andb. road maintenance and safety and health measures to reinforce the availability of emergency healthcare, mitigating the impact of additional workers and construction in the province.Processes are in place to monitor the impact of the project on local communities and throughout the construction period. The results will be reported to the Sustainability and Stakeholder Management Committee and to the Board.WORKFORCE30% of the project’s workers will come from the Coquimbo Region. At its peak, the construction will require 3,000 workers. Workers will be fully trained to meet the safety and other standards required by the Group and for this project, including awareness training on the impact of this increased workforce and activity in the province during the construction phase. To assist the local workforce, the Group is operating a mobile office that provides job application support in the local communities. SUPPLIERSThe main project contract is with the EPCM contractor Bechtel. Bechtel is working with three local supplier associations to engage with local suppliers for the project and a local supplier platform has been launched to connect project contractors with local suppliers for goods and services. All of the projects’ suppliers and contractors are required to comply with the Group’s policies relating to safety and health, environment, ethics, labour conditions, compliance and risk management. Ongoing compliance is subject to monitoring and audit processes and mechanisms are in place to require suppliers and employees of contractors to report any conduct that is not in accordance with the Group’s Code of Ethics. This can be done through the Group’s website, by intranet, by email, by letter, or by using a dedicated whistleblowing hotline. Likewise, monthly audits of contractors ensure that all labour law requirements are fulfilled. CUSTOMERSFirst production is expected in the second half of 2021 and to average approximately 60,000 tonnes over the first 15 years of operation. This additional production will allow the Group to maintain its long-term relationships with existing customers, many of whom have been with us since Los Pelambres first began production in 1999. SHAREHOLDER
ENGAGEMENT
The shares of Antofagasta plc are listed on the main market of the
London Stock Exchange. As explained in the Directors’ Report on page 137,
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 with 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.
Throughout the year the Company held regular meetings with
institutional investors and sell-side analysts, including 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 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 press releases are
available on the Company’s website. The Group also publishes a
separate Sustainability Report on its social and environmental
performance: the latest report is available on the website
in both Spanish and English.
WHAT INVESTORS FOCUSED ON MOST IN 2018
− free cash flow generation and capital allocation
− the Group’s ability to achieve its full-year production and
cost guidance
− cost reduction programmes and expected future costs
− labour negotiations at Los Pelambres
− 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 regarding
meetings held as part of the investor relations programme.
The Company’s Annual General Meeting is also an opportunity to
communicate with both institutional and private shareholders. All
the Directors met shareholders at the 2018 Annual General Meeting.
CORPORATE GOVERNANCE ENGAGEMENT
As noted on pages 88, 90, 105 and 119, the Board paid close
attention to the UK Corporate Governance reforms and the final
reform package as published in the 2018 Corporate Governance
Code and associated reporting regulations.
Senior Independent Director Ollie Oliveira met with a number of
proxy advisers and major shareholders in London in November 2018
to discuss corporate governance and associated matters relating to
the Company, its strategy and management performance and its
approach towards the UK Corporate Governance reforms. These
meetings were also attended by the Company Secretary and the
Director of the London Office.
2018 SHAREHOLDER
ENGAGEMENT CALENDAR
Q1
− CEO presented at an industry conference for institutional
investors in the US.
− One-on-one and small group meetings with some 140 investors,
of which senior management participated in over 40%.
− Presentation of full-year 2017 results by the CEO and CFO.
− US East Coast roadshow – 2 days.
− London and Geneva roadshow – 4 days.
− Scandinavia roadshow – 1 day.
− Investor relations team attended three investor conferences:
two in the UK and, together with the CFO, one in Chile.
Q2
− CEO presented at an industry conference for institutional
investors in the US.
− One-on-one and small group meetings with some 110 investors,
of which senior management participated in over 50%.
− Annual General Meeting in London.
− US West Coast roadshow – 3 days.
− Buy-side analysts and institutional investors visited
Los Pelambres.
− Investor relations team attended two investor conferences
in the UK and one in the US.
Q3
− Presentation of half-year 2018 results by the CEO and CFO.
− One-on-one and small group meetings with some 140 investors,
of which senior management participated in over 60%.
− Europe roadshow – 2 days.
− London roadshow – 2 days.
− US East Coast roadshow – 3 days.
− Chairman’s lunch with key investors.
− CFO attended two industry conferences in the UK.
− Investor relations team attended two investor conferences
in the UK.
Q4
− CEO presented at an industry conference in Australia.
− CEO and CFO presented to institutional investors in Chile.
− North America roadshow – 3 days.
− One-on-one and small group meetings with some
160 investors.
− Sustainable and responsible investment roadshow in
London with Vice President of Corporate Affairs and
Sustainability – 1 day.
− Investor relations team attended three investor
conferences in the UK.
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GOVERNANCE DIRECTORS’ BIOGRAPHIES
INDEPENDENT OVERSIGHT
Biographical details for each Director standing for re-election
at the 2019 AGM are set out below.*
All Directors have confirmed that their other commitments do not prevent them from
devoting sufficient time to fulfilling their roles. Ages are as at the date of the AGM.
JEAN-PAUL
LUKSIC
Chairman, 54
NG
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
PREVIOUS ROLES
− Chairman of Consejo
Minero, the industry body
representing the largest
mining companies
operating in Chile
− CEO of the Group’s
mining division
CURRENT POSITIONS
− Member of the board
of Consejo Minero
− Non-Executive Director of
Quiñenco SA; and of 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
− Chairman of 2019 APEC
CEO Summit
AR
OLLIE
OLIVEIRA
Senior Independent
Director, 67
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, nomination
committee chairman and
audit and risk committee
and remuneration
committee member of
Polymetal International plc
PC
NG
GONZALO MENÉNDEZ
Non-Executive Director, 70
RAMÓN JARA
Non-Executive Director, 66
PC
JUAN CLARO
Non-Executive Director, 68
ST
INDEPENDENT: NO
APPOINTED TO THE BOARD
2003
Lawyer with considerable
legal and commercial
experience in Chile
PREVIOUS ROLES
− Partner, Jara del
Favaro Abogados
− Director of Empresa
Nacional del Petróleo
(“ENAP”)
CURRENT POSITIONS
− Chairman of Fundación
Minera Los Pelambres
(charitable foundation)
− Director of Fundación
Andrónico Luksic A
(charitable foundation)
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
Industrial Council)
− 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 Embotelladora
Andina SA (Coca Cola)
and Energía Coyanco SA
− Director of Empresas
Melón and Agrosuper
− Member of the governing
board of Centro de
Estudios Públicos
− Country adviser,
Goldman Sachs
INDEPENDENT: NO
APPOINTED TO THE BOARD
1985
Commercial engineer and
economist with extensive
experience in commercial
and financial businesses
across Latin America
PREVIOUS ROLES
− CEO of Antofagasta
Holdings plc
− Member of the governing
board of Centro de Estudios
Públicos
− Member of the High Council
of Universidad 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
* As noted on page 89 William Hayes will not offer himself for
− Vice-Chairman of Fundación
re-election at the 2019 AGM.
Andrónico Luksic A
(charitable foundation)
− Vice-Chairman of Fundación
Educacional Luksic
(charitable foundation)
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Antofagasta plc Annual Report 2018
KEY TO COMMITTEES
NG
Nomination and
Governance
AR
Audit and Risk
ST
PC
RT
Sustainability and
Stakeholder Management
Projects
Remuneration and
Talent Management
Chairman
BOARD MEETING ATTENDANCE
Jean-Paul Luksic
Ollie Oliveira
Gonzalo Menéndez
Ramón Jara
Number attended
9/9
9/9
9/9
9/9
Juan Claro
William Hayes1
Tim Baker2
Andrónico Luksic C3
Number attended
9/9
7/9
8/9
7/9
Vivianne Blanlot
Jorge Bande
Francisca Castro
Number attended
9/9
9/9
9/9
1. William Hayes was unable to attend two meetings during the year due to commitments in his capacity as Chair of the Group’s
Joint Venture Company, Tethyan Copper Company Pty Limited.
2. Tim Baker was unable to attend one meeting during the year due to a commitment outside Chile.
3. Andrónico Luksic C was unable to attend two meetings during the year due to an unscheduled meeting requiring his attendance
and a commitment outside Chile.
ANDRÓNICO
LUKSIC C
Non-Executive Director, 65
INDEPENDENT: NO
APPOINTED TO THE BOARD
2013
Extensive experience across
a range of business sectors
throughout Chile, Latin
America and Europe
CURRENT POSITIONS
− Chairman of Quiñenco SA
and of Compañía
Cervecerías Unidas SA;
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
TIM BAKER
Non-Executive Director, 67
NG
PC
RT
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 Alio Gold
(previously called Rye Patch
Gold Corporation)
ST
AR
VIVIANNE
BLANLOT
Non-Executive Director, 64
RT
AR
JORGE
BANDE
Non-Executive Director, 66
ST
PC
FRANCISCA
CASTRO
Non-Executive Director, 56
AR
RT
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
and the World Bank,
Washington DC
CURRENT POSITIONS
− Member of the Chilean
Pension Funds Risk
Classification Committee
− Member of the independent
Technical Panel of Chilean
Public Works Concessions
− Director of Salfacorp
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)
INDEPENDENT: YES
APPOINTED TO THE BOARD
2014
Economist with over
40 years’ experience
in the mining, energy and
water industries in Chile
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
− Undersecretary of Comisión
− Vice President of
Nacional de 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
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
− Director of NextMinerals SA
− Professor of the
International Post-Graduate
Programme in Mineral
Economics at the University
of Chile
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GOVERNANCE
BOARD BALANCE AND SKILLS
A DIVERSE AND
EFFECTIVE BOARD
The Board comprises of 11 Directors with a broad and complementary set of technical skills, educational and professional experience,
nationalities, personalities, cultures, perspectives and gender.
BOARD BALANCE1
INDEPENDENCE2
GENDER DIVERSITY
TENURE
NATIONALITY3
1
2
5
Chairman
Independent
Non-Independent
5
Male
Female
9
5
1-5 years
6-9 years
9+ years
3
3
1
1
1
Chile
USA
Canada
UK
8
1. William Hayes will not be standing for re-election at the 2019 AGM. The following figures reflect the Board balance during 2018 and as at the date of the Annual Report.
2. 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.
3. “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 106, although the Group’s footprint is primarily in Chile,
the mining industry is international and the Board includes a number of Directors from outside Chile in support of its vision and strategy.
BOARD SKILLS MATRIX
Independence
CEO experience
experience
M ining
M ining operations
experience
Board governance
Financial
Latin A m erican
experience
co m pensation
Executive
U K m arket
Legal
m anage m ent
Project
Sustainability
Energy experience
Govern m ent
relations
Co m m unication
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
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 strategy, UK corporate
governance, operations, projects and
exploration activities; and visits to the
Group’s operating companies.
CONTINUING PERSONAL
DEVELOPMENT
RESOURCES
Directors receive an annual briefing
on governance, legal, regulatory and
market developments that are relevant
to directors of UK-listed companies
complemented by discussions on Board-
related matters.
Directors have access to, and are
encouraged regularly to attend,
round-table discussions, seminars and
other events that cover topics relevant
to the Group and their role.
The Company provides Directors with
the necessary resources to maintain and
enhance their knowledge and capabilities.
All Directors have access to the advice and
services of the Company Secretary as well
as to management and such 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.
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Antofagasta plc Annual Report 2018
ROLES IN THE BOARDROOM
ROLES IN THE
BOARDROOM
CHAIRMAN
JEAN-PAUL LUKSIC
Leads the Board and ensures its
effectiveness in all aspects of its duties.
− Promotes the highest standards
of integrity, probity and corporate
governance.
− Sets the agenda for Board meetings
in consultation with other Directors,
members of senior management, and
the Company Secretary.
− Chairs meetings and ensures that there
is adequate time for discussion of all
agenda items, focusing 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 and performance reviews.
− Leads relations with shareholders.
INDEPENDENT NON-EXECUTIVE
DIRECTORS
TIM BAKER
JORGE BANDE
VIVIANNE BLANLOT
FRANCISCA CASTRO
OLLIE OLIVEIRA
Ensure that no individual or small
group of individuals can dominate the
Board’s decision-making.
− Meet the independence criteria set out
in the UK Corporate Governance Code.
− 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.
CEO
IVÁN ARRIAGADA1
Leads the implementation of the
Group’s strategy set by the Board.
− Manages the overall operations and
resources of the Group.
− Leads the Executive Committee and
ensures its effectiveness in all aspects
of its duties.
− Provides information to the Board
and participates in Board discussion
regarding day-to-day activities
of the Group.
SENIOR INDEPENDENT DIRECTOR
NON-EXECUTIVE DIRECTORS
EXECUTIVE COMMITTEE MEMBERS
OLLIE OLIVEIRA
Provides a sounding board for the
Chairman and supports the Chairman
in the delivery of his objectives
as required.
− Where necessary, acts as an
intermediary between the Chairman
and the other members of the Board
or the CEO.
− Acts as an additional point of contact
for shareholders, focusing on the
Group’s governance and strategy, and
gives shareholders an alternative
means of raising concerns other than
with the Chairman or senior
management.
JUAN CLARO
WILLIAM HAYES
RAMÓN JARA
ANDRÓNICO LUKSIC C
GONZALO MENÉNDEZ
Provide a range of outside
perspectives to the Group and
encourage robust debate with, and
challenge of, the Group’s executive
management.
− 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.2
− Ensure that no individual or small group
of individuals can dominate the Board’s
decision-making.
+ See pages 102 and 103
Present proposals, recommendations
and information to the Board within their
areas of responsibility.
− Support the CEO in the implementation
of the Group’s strategy set by the Board.
COMPANY SECRETARY
JULIAN ANDERSON
Ensures that Directors have access
to the advice and services they need
to perform their roles effectively.
− Provides a conduit for Board and
Committee communications and
provides a link between the Board
and management.
− Supports the Board in applying
the Code and complying with
listing obligations.
1. 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.
2. 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 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. Gonzalo Menéndez, Ramón Jara,
Juan Claro and William Hayes have served on the Board for more than nine years from the date of their first election.
antofagasta.co.uk
101
GOVERNANCE EXECUTIVE COMMITTEE MEMBERS’ BIOGRAPHIES
AN EXPERIENCED
MANAGEMENT TEAM
IVÁN ARRIAGADA
CEO
BD
D
P
ALFREDO ATUCHA
CFO
BD
E
D
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 an MBA and
over 30 years’ financial and international
experience in the mining, energy and
fast-moving consumer goods industries.
PREVIOUS ROLES
− 10 years’ 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
E
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
HERNÁN MENARES
Vice President of Operations
OP
E
P
D
PATRICIO ENEI
Vice President of Legal
E
D
ANDRÓNICO LUKSIC L
Vice President of Development
BD
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
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 at
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
102
Antofagasta plc Annual Report 2018
JOINED THE GROUP IN 2006
− Business administrator with broad mining
experience in sales, exploration, business
development and general management.
PREVIOUS ROLES
− Corporate Manager at Antofagasta Minerals
− Director, Antofagasta Minerals Toronto Office
− Various positions at Banco de Chile
KEY TO COMMITTEES
OP
BD
Operating Performance
Review Committee
Business Development
Committee
E
D
P
Ethics Committee
Disclosure Committee
Project Steering Committees
ANA MARÍA RABAGLIATI
Vice President of Human Resources
E
GONZALO SÁNCHEZ
Vice President of Sales
JOINED THE GROUP IN 1996
− Civil engineer with over 25 years’
experience in marketing and
hedging metals.
PREVIOUS ROLES
− Deputy Commercial Director,
Antofagasta Minerals
− Copper sales at Codelco
JOINED THE GROUP IN 2013
− Human resources specialist with more
than 25 years’ experience in international
companies across a range of 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
FRANCISCO WALTHER
Vice President of Projects
P
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
MAURICIO LARRAIN
General Manager –
Los Pelambres
ANDRÉS HEVIA
General Manager –
Centinela
LEONARDO GONZALEZ
General Manager –
Antucoya
LUIS SANCHEZ
General Manager –
Zaldívar
JOINED THE GROUP IN 2017
− Civil mining engineer and
Master of Science
(Mineral Economics)
with 28 years’
experience in mining.
PREVIOUS ROLES
− General Manager at
El Teniente
− Operations Manager at
El Teniente
− Mine Planning Corporate
Director at Codelco
− Various positions at
Codelco and Los
Pelambres
JOINED THE GROUP IN 2017
− Civil mining engineer and
MBA, with 35 years’
experience in mining.
JOINED THE GROUP IN 2015
− Civil mining engineer and
MBA, with 24 years’
experience in mining.
JOINED THE GROUP IN 2016
− Civil metallurgic engineer
and MBA, with 24 years’
experience in mining.
PREVIOUS ROLES
− Mining consultant and
director in various
mining companies
− Head of Planning at
Minera Escondida
− General Manager at
São Bento Mineração
in Brazil
PREVIOUS ROLES
− General Manager at
Zaldívar
− Operations Manager at
Zaldívar
− Mining Superintendent
at Collahuasi
PREVIOUS ROLES
− Operations Manager at
Centinela
− President at Pampa
Norte (Spence and
Cerro Colorado)
− General Manager
at Spence
− Various roles at
Escondida, Codelco
and Collahuasi
MAURICIO ORTIZ
General Manager – FCAB
(Transport division)
JOINED THE GROUP IN 2015
− Electrical engineer and
Master of Science (Metals
and Energy Finance) with
14 years’ experience in
the energy, mining and
railway industries.
PREVIOUS ROLES
− Business Development
Manager at Antofagasta plc
− Finance Manager at
Codelco – Chuquicamata
− Business Development
Principal at Rio Tinto plc,
London
− Various operating
and project roles at
BHP Billiton
antofagasta.co.uk
103
GOVERNANCE INTRODUCTION TO THE COMMITTEES
BOARD COMMITTEES
The Board relies on its Committees to ensure that deliberations are focused
on key issues and that proposals are submitted after 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
can be represented in the Board’s deliberations.
NOMINATION
AND GOVERNANCE
COMMITTEE
p105
AUDIT AND RISK COMMITTEE
p108
SUSTAINABILITY AND
STAKEHOLDER MANAGEMENT
COMMITTEE
p114
PROJECTS COMMITTEE
p116
REMUNERATION AND TALENT
MANAGEMENT COMMITTEE
p118
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Antofagasta plc Annual Report 2018
CHAIR
Jean-Paul Luksic
MEMBERS
Tim Baker
Ollie Oliveira
CHAIR
Ollie Oliveira
MEMBERS
Jorge Bande
Vivianne Blanlot
Francisca Castro
CHAIR
Vivianne Blanlot
MEMBERS
Jorge Bande
Juan Claro
William Hayes
CHAIR
Ollie Oliveira
MEMBERS
Tim Baker
Jorge Bande
Ramón Jara
CHAIR
Tim Baker
MEMBERS
Vivianne Blanlot
Francisca Castro
KEY RESPONSIBILITIES
− Corporate governance
− Succession planning for
the CEO and the Board
− Board and Committee
composition
− Board effectiveness
reviews
KEY RESPONSIBILITIES
− Financial reporting
− External audit
− Internal audit
− Risk and internal control
− Compliance
KEY RESPONSIBILITIES
− Policies and commitments
− Safety and health
− Community relations
− Environment
KEY RESPONSIBILITIES
− Policies and commitments
− Project reviews
− Lessons learned from
completed projects
KEY RESPONSIBILITIES
− Remuneration governance
− Directors’ remuneration
− Executive remuneration
− Human resources and policy
− Talent management
and succession planning for
the Executive Committee
NOMINATION AND GOVERNANCE COMMITTEE REPORT
“The Nomination and
Governance Committee
ensures that the Board
and its Committees operate
effectively and that the Group
is aligned with the principles
of corporate governance
best practice.”
Jean-Paul Luksic, Chairman
KEY RESPONSIBILITIES
2018 MEMBERSHIP AND MEETING ATTENDANCE
Jean-Paul Luksic (Chair)
Tim Baker
Ollie Oliveira
Number
attended
3/3
3/3
3/3
− Other regular attendees include the CEO and the
Company Secretary.
− The Committee meets as necessary and at least twice per year.
− Except for the Chairman, all Committee members
are independent.
KEY RESPONSIBILITIES
KEY RESPONSIBILITIES
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
appointments are made on merit and against objective criteria
− overseeing CEO succession plans.
KEY ACTIVITIES IN 2018
Corporate governance
− Reviewed the 2018 UK Corporate Governance
Code and associated reforms and approved plans to
respond to the new requirements and expectations.
− Reviewed updates to the Committees’ terms
of reference.
− Completed the review of governance structures
in place at the Group’s operating companies.
− Solicited feedback from shareholders on the
Group’s corporate governance arrangements in
advance of the 2018 AGM.
− Attended meetings with shareholders.
− Reviewed Directors’ potential conflict of
interest declarations.
− Reviewed the Governance section of the 2017
Annual Report and recommended it to the Board
for approval.
Succession
planning
Board and committee
composition
Board effectiveness
reviews
− Reviewed updated
written succession
plans for the Board
and its Committees.
− Reviewed updated
written succession
plans for the CEO.
− Continued to
provide 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.
− Reviewed the
− Oversaw the
independence of all
Directors, making
recommendations
to the Board.
− Recommended that
Independent Non-
Executive Director,
Francisca Castro, be
appointed Chair of the
Remuneration and
Talent Management
Committee, with effect
from 1 May 2019.
implementation of
recommendations
arising from the
2016-17 externally-
facilitated review
of Board and
Committees’
performance.
− Reviewed the 2018
internal evaluation
of Board and
Committees’
performance.
− Reviewed plans for
the external Board
effectiveness review
to be carried out
in 2019.
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105
GOVERNANCE
NOMINATION AND GOVERNANCE COMMITTEE REPORT CONTINUED
BOARD COMPOSITION AND
SUCCESSION PLANNING
Succession planning at Board level includes the setting of policies that encourage
a strong and diverse pipeline of candidates well into the future.
Q. WHAT IS THE SCOPE OF THE BOARD’S
SUCCESSION PLANNING?
The succession plan is reviewed formally once a year and
addresses Board size, Committee structure and composition, skills
on the Board, Board and Committee members’ tenure, independence
of Directors, diversity (including gender), Board roles, Board
policies, and succession plans for all Board and Committee
positions. Succession plans include contingency plans in the
event of an unexpected departure, medium-term plans for orderly
replacement of current Directors and long-term plans linking
strategy with the skills needed on the Board in the future.
Q. WHAT STEPS DOES THE COMMITTEE TAKE TO
IDENTIFY AND APPOINT NEW DIRECTORS?
The Committee discusses relevant profiles for future appointments
and potential candidates, taking into account the results of Board
effectiveness reviews, as shown on page 107, the Group’s vision and
strategy, as shown on pages 18 and 19, the Board’s diversity policy
(below) and the core competencies and areas of expertise on the
Board, as shown on page 100.
The Committee usually appoints external search consultancies who
do not have any connection to the Group to assist with searches for
Board candidates. The consultancy is typically briefed on the skills
and experience of the existing Directors and 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.
Members of the Committee usually interview short-listed candidates
and collectively select a candidate to be recommended to the Board
for appointment. A similar process is being followed for the director
search that we have commenced in 2019.
Q. WHAT IS THE BOARD’S POSITION IN RELATION
TO DIVERSITY?
The Board believes in the benefits of diversity and that more diverse
companies attract the best talent, thereby achieving stronger overall
performance. However, diversity is a general term that covers
a number of different components including gender, disability,
educational and professional experience, nationality, personality
type, culture and perspective. We are an international mining
company based in Chile, thus we consider this broad definition of
diversity when setting policies and making appointments in support
of our vision and strategy.
Q. WHAT POLICY IS CURRENTLY IN PLACE TO ENSURE
THAT THERE IS DIVERSITY AT BOARD LEVEL?
The Board adopted its Diversity Policy in August 2015.
The Committee has worked hard to ensure that the Board is suitably
diverse across the definitions of diversity set out above. The Board
reviews its effectiveness in meeting diversity goals each year as part
of the annual Board evaluation process.
As previously noted, the Group’s current activities are focused in
Chile, but for many years the Board has included a number of
Directors from outside Chile in support of our vision and strategy.
Our Board is more diverse than companies of a similar size and scope
106
Antofagasta plc Annual Report 2018
in Chile and we consider this to be a significant advantage. Two of
our three most recent Board appointments have been women.
The Board actively seeks to increase female representation beyond
the current level, while ensuring that appointments continue to be
made on merit. This extends across all levels of the Group, including
the Board where we ensure that searches for new Directors access
the widest possible talent pool and include female candidates.
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 Diversity and Inclusion strategy was approved by the
Board in 2017. This was prepared following an exercise to assess
the maturity of the Group’s existing diversity and inclusion model
which included interviews with stakeholders, a bench-marking
exercise and a comprehensive review of the Group’s policies and
processes. As noted on page 89, the Board has reviewed progress
in the implementation of this strategy during 2018 which saw the
adoption of targets to double the percentage of women in the
workforce by 2022, compared to the 2017 baseline and to ensure
that more than 1% of the workforce comprises of disabled workers
by the end of 2019.
The Group carefully considered the elements of diversity that would
most contribute to achievement of the Group’s vision and strategy and
has committed to increasing the percentage of women, people with
disabilities and international backgrounds and/or experience in the
workforce by 2022, and for these improvements to be embedded,
sustained and improved upon from that point onwards. The current
levels of gender diversity within the mining division’s workforce and
further rationale behind the Diversity and Inclusion strategy are set
out within the Strategic Report on page 36.
As shown on page 129, metrics associated with the development
of the Diversity and Inclusion strategy were included as part of the
Group’s Annual Bonus Plan in 2018 and will again be included in
2019. Performance will 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 including at the level of those
who report to the Executive Committee, as noted on page 120.
Q. WHAT SUPPORT DOES THE COMPANY PROVIDE
TO FACILITATE INDUCTION AND ASSIST WITH
PROFESSIONAL DEVELOPMENT?
The Company provides new Directors with a thorough induction,
and incumbent directors with access to resources and continuing
professional development. Further details are set out on page 100.
Jean-Paul Luksic
Chair of the Nomination and Governance Committee
BOARD EFFECTIVENESS
A YEAR OF
INTERNAL REVIEW
Candid, thorough effectiveness reviews reflect
the Board’s commitment to continuous improvement.
EXTERNAL REVIEW
The Board aims to undertake an externally-facilitated effectiveness
review at least once every three years. A further external review
will be undertaken in 2019.
INTERNAL REVIEW
In years where there is no externally-facilitated review, the Board
conducts an internal effectiveness assessment, led by the Senior
Independent Director and the Company Secretary.
The most recent external reviews were carried out in 2016/17
and 2013 by Independent Audit Limited (“Independent Audit”).
Independent Audit has no other connection with the Group.
Based on interviews with Board members and executive
management and detailed reviews of Board and Committee papers,
Independent Audit stated in its February 2017 report that:
− a very thorough approach to follow-through of the agreed actions
has been adopted
− considerable progress has been made across many aspects
of the Board’s 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.
Following the 2019 externally-facilitated review, the Chairman and
the Senior Independent Director will meet to agree an action plan
for closing any gaps identified and the Nomination and Governance
Committee will evaluate gap-closure progress.
An internal review was carried out in 2018, which confirmed that
significant improvements had been made to Board effectiveness
since the first external review in 2013. The Board will continue to
use the findings of external and internal reviews to make additional
improvements to Board and Committee effectiveness.
During 2018, the Senior Independent Director 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 continue to improve the operation of the Board.
In turn, the Chairman assessed each of the Non-Executive
Directors’ individual effectiveness, performance and potential to
assume new Board or Committee roles, in order to update the
Board and Committee succession plans.
Year 1 – 2016
Year 2 – 2017
Year 3 – 2018
− External effectiveness review,
including benchmarking.
− Annual review of the Chairman by
the Non-Executive Directors, led by
the Senior Independent Director.
− Annual review of Non-Executive
− Internal review based on assessment
and monitoring of gap closure progress
following external effectiveness review.
− Internal review, gap closure and
development of plan for 2019
external assessment.
− Annual review of the Chairman by the
Non-Executive Directors, led by the
Senior Independent Director.
− Annual review of the Chairman by
the Non-Executive Directors, led by
the Senior Independent Director.
Directors conducted by the Chairman.
− Annual review of Non-Executive
− Annual review of Non-Executive
Directors conducted by the Chairman.
Directors conducted by the Chairman.
“External reviews provide fresh ideas and
we look forward to benefiting from another
external review in 2019.”
Jean-Paul Luksic
antofagasta.co.uk
107
GOVERNANCE AUDIT AND RISK COMMITTEE REPORT
“The Audit and Risk
Committee supports the
Board in its responsibilities
relating to financial reporting
and risk management.”
2018 MEMBERSHIP AND MEETING ATTENDANCE
Ollie Oliveira, Chair
Ollie Oliveira (Chair)
Jorge Bande
Vivianne Blanlot1
Francisca Castro
Number
attended
7/7
7/7
6/7
7/7
− Other regular attendees include the CEO, the CFO, the Group
Financial Controller, the Head of Internal Audit, the Head of Risk
and the Company Secretary.
− At least one Committee member serves on each of the other Board
Committees which allows the Committee to take into account the
full spectrum of risks faced by the Group.
− The Committee meets as necessary and at least twice a year.
1. Vivianne Blanlot was unable to attend one meeting held at short notice due to
prior commitments.
− All Committee members are independent.
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:
− financial reporting, which includes responsibility for reviewing
the year-end and half-year financial reports, and monitoring the
overall financial reporting process
− overseeing the external audit process and managing the
relationship with PwC, the Group’s external auditor
KEY ACTIVITIES IN 2018
Financial
reporting
External
audit
− 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.
− internal audit, including monitoring of the Group’s Internal Audit
function, processes and findings
− assisting the Board with its responsibilities in respect of risk
management, including reviews of the Group’s risk appetite and
key risks
− monitoring the performance of the compliance and crime
prevention models.
Risk and internal control
Compliance
− Reviewed the 2017
year-end and 2018
half-year financial
reports, focusing
on the significant
accounting issues
relating to the
Group’s results.
− Assisted the Board in
ensuring that the 2017
Annual Report was
fair, balanced and
understandable, and
reviewed the long-
term viability statement
contained in the 2017
Annual Report.
− Reviewed and approved
the 2018 audit plan,
including fees.
− Reviewed the conclusions of the assessment of
the maturity of the Group’s risk management
process, which was completed during the year.
− Assessed the
− Played a central role in the review of the Group’s
effectiveness of the
external audit process.
Internal
audit
− Reviewed the key
findings from the
internal audit reviews
conducted during 2018.
− Agreed the scope and
areas of focus for the
2019 internal audit plan.
risk appetite, which was completed during the year.
− Assisted the Board in reviewing and updating the
Group’s risk management policy.
− Conducted detailed reviews with the General
Managers of each of the Group’s operations,
covering the operations’ key risks.
− 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 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.
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Antofagasta plc Annual Report 2018
PROACTIVE RISK
MANAGEMENT
Proactive and focused risk management is a key tool in ensuring
optimal performance and driving appropriate behaviour across the Group.
Q. WHAT WERE THE KEY AREAS OF FOCUS FOR THE
COMMITTEE IN 2018?
The Group completed a review of the maturity of its risk management
process during the year. The Committee was closely involved
throughout the process, in particular reviewing the conclusions and
key actions arising from the assessment. Partly as a result of this
process, the Group updated its risk management policy, and the
Committee reviewed this policy prior to its approval by the Board.
The Board concluded a detailed review of the Group’s risk appetite,
and the Committee was closely involved with the work around the
framework and context of the review. I’ll discuss the conclusions
of these reviews in more detail below.
The copper market weakened in the second half of 2018, and
we have considered the potential accounting implications of that,
particularly in terms of the carrying value of the Group’s assets.
We have also monitored the implementation work in respect of the
significant new accounting standards, which apply for the first time
in 2018 and 2019.
FINANCIAL REPORTING
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 ensures 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, when 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 in
the Annual Report.
Given the significant new accounting standards that apply in 2018
and 2019, we have monitored the implementation and impact of
those new standards. As expected, the impact of the standards
which applied for the first time in 2018 (IFRS 9 Financial Instruments
and IFRS 15 Revenue from Contracts with Customers), was relatively
limited for the Group. The implementation of IFRS 16 Leases has been
a more complex and extensive process, and has a more pervasive
impact for the Group’s operations. We monitored the progress of the
implementation, in terms of the detailed contract review process
to identify leases contained within wider service contracts, the
conclusions of that work, and the necessary systems changes and
training required to implement the new standard. The main elements
of the implementation process were completed well in advance of
the 2018 year-end, and the effectiveness of the process has been
confirmed by the smooth transition to the new standard from
January 2019 onwards.
Q. WHAT WERE THE SIGNIFICANT ACCOUNTING ISSUES
IN RELATION TO THE FINANCIAL STATEMENTS
CONSIDERED BY THE COMMITTEE DURING 2018?
The main accounting issues considered in detail by the Committee
in respect of the 2018 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 2018 year end. While the
copper spot price has decreased during 2018 (from $3.25/lb at
31 December 2017 to $2.70/lb at 31 December 2018) we remain
confident in a positive longer-term outlook for the copper market,
supported by the increase in consensus analyst forecasts for the
long-term copper price. We also considered the Group’s operating
performance as well as the progress of significant development
projects that contribute to the value of the Group’s operations,
both of which were generally in line with expectations for 2018.
− 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 the fact that the
monitoring of mining work-in-progress inventories, particularly in
respect of leaching processes, can be complex. Relevant factors
that we review can include the processes and controls over the
stockpiles, including physical verification processes, 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 the potential
accounting impact of operating factors such as changing recovery
levels for the leach pile inventories. These reviews have not raised
any concerns with the carrying value of the Group’s inventory
balances as at 31 December 2018.
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GOVERNANCE AUDIT AND RISK COMMITTEE REPORT CONTINUED
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 four years. We carried
out a tender process during 2014, which resulted in PwC being
appointed with effect from 2015 onwards. In line with relevant
regulatory guidance we 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.
In light of this assessment, the Committee considers it appropriate
that PwC be reappointed as external auditor.
INDEPENDENCE AND OBJECTIVITY
OF THE EXTERNAL AUDITOR
The Committee monitors the external auditor’s independence and
objectivity in line with Group policy, which covers the potential
employment of former auditors, the types of non-audit services
that the external auditor may and may not provide to the Group,
and the approval process in respect of permitted non-audit services.
The policy specifies services which the external auditor may not
provide to any Group entity. This includes 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 and valuation services
that would have a material effect on the financial statements and
the preparation of material tax calculations. The policy also includes
“blacklisted” services that 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 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 monitors
the total level of non-audit services provided by the external auditor
in order 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 $88,000, or 5% of the fees for audit and audit-related
services. This mainly related to transfer pricing documentation and
compliance 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 has specific expertise or experience in the
relevant area and is considered to be the most suitable provider. 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 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 2018.
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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 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 ensure there are sufficient resources in the
plan to allow for special reviews that may be required during the year.
We also monitor the resources available to the Internal Audit team
so that 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 to the Committee summaries of the key
findings from the reviews conducted during the year and any actions
that have been taken or proposed. 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, avoid duplication of work, and achieve 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 with regard to risk management and related
controls. The Board has ultimate responsibility for overseeing the
Group’s principal risks, as well as maintaining control systems. In
order to achieve our business objectives, internal control systems
are designed to identify and manage, rather than eliminate, the risk
of failure, and can only provide reasonable, not absolute, assurance
against material misstatement or loss. The Committee assists the
Board with its assessment of the Group’s principal risks and its
review of the effectiveness of the risk management process.
Q. WHAT WERE THE COMMITTEE’S MAIN ACTIVITIES IN
2018 RELATING TO RISK?
The Risk Management function presented to the Committee
several times during the year on developments in the Group’s risk
management processes and Group-level strategic risks. The General
Managers of the Group’s operations presented to the Committee their
assessments of their respective operations’ 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 impact of the risk, as well as
an evaluation of the quality of the controls in place in respect of those
specific risks. The evaluation of the potential impact is not limited
to economic factors but includes issues such as safety and health,
environmental, community and reputational issues. We also look
at whether those risks have been increasing or decreasing in
significance. The General Managers present their forecasts 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. This direct interaction between
the Committee and the General Managers is extremely valuable –
not just in terms of the direct insight into each operation it affords the
Committee but in allowing us to emphasise the importance we attach
to strong risk management processes.
As explained above, the Group completed a review of the maturity
of its risk management process during the year. We have been
closely involved throughout the process, in particular reviewing the
conclusions and key actions arising from the assessment. In general,
the review confirmed that the Group’s risk management processes
are at the appropriate level for a Group of its size and nature. The
review helped us to identify a number of areas that would benefit
from further improvement and we are working to further strengthen
these processes, particularly with respect to our risk appetite
processes, our risk-related training, and the full alignment of
evaluation and remuneration processes with risk management
objectives. Partly as a result of this review, the Group updated its
risk management policy, which the Committee reviewed prior to its
approval by the Board.
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GOVERNANCE AUDIT AND RISK COMMITTEE REPORT CONTINUED
In terms of risk appetite, we have already updated our review of
the Group’s risk appetite. This was a Board-level process, but the
Committee was closely involved, particularly with respect to the
overall framework of the review.
The mining industry is undergoing a period of dynamic change,
with technological advances presenting significant opportunities and
risks, and it is important that our overall risk appetite assessment
is regularly updated to reflect the challenges and opportunities
facing the Group. A clearly-articulated risk appetite framework
is very valuable in ensuring that we have a focused, proactive
approach to risk management. It is also important in achieving
a clear understanding across the Group regarding the types of
actions and behaviours that are unacceptable. The updated review
reconfirmed the Group’s low risk appetite for issues relating to safety,
environmental impact, local communities, and potential corruption
issues. Conversely, we have a higher appetite for exposure to
commodity price fluctuations, given that this is a fundamental part
of our business, and focused exposure to the copper price is a key
reason why many of our investors choose to invest in the Group.
We also have a higher risk appetite in relation to the opportunities that
come from adopting innovative technological solutions – assuming,
of course, that the associated risks are well understood and managed.
+ For more information on the Group’s risk management framework please
refer to pages 22 and 23
Q. HOW DOES THE COMMITTEE INTERACT WITH THE
BOARD AND OTHER COMMITTEES?
I report to the Board following each Committee meeting,
summarising the main matters reviewed by the Committee. These
regular reports allow the 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 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, the operating update provided
by the CEO to the Board at each meeting covers any significant
materialised risks, and each proposal presented to the Board
incorporates an analysis of the principal risks.
These processes have assisted the Board in carrying out a robust
assessment of the principal risks facing the Company, including those
that could 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.
As noted above, the Board concluded a detailed review of the Group’s
risk appetite during 2018. The Committee assisted the Board with this
process, particularly in terms of the overall framework of the review.
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 2018.
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.
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Antofagasta plc Annual Report 2018
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, significant
whistleblowing reports, and updates on
compliance processes and activities.
We also have members of the Audit and Risk Committee
participating on the Nomination and Governance Committee, the
Projects Committee, the Remuneration and Talent Management
Committee and the Sustainability and Stakeholder Management
Committee, allowing close co-ordination between these Committees.
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 and the Committee makes
recommendations to the Board regarding this appointment as
well as monitoring and overseeing 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 2018 RELATING TO COMPLIANCE?
The Committee reviewed the Group’s whistleblowing arrangements,
which enable employees and contractors to raise concerns in
confidence about possible improprieties or non-compliance with
the Group’s Code of Ethics. This is important to encourage any
potential issues to be raised. We received regular reports on
reported whistleblowing incidents, detailing the number and type
of incidents, along with details of the most significant and the actions
resulting from their investigation.
We reviewed updates with respect to 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
Chair of the Audit and Risk Committee
+ For more information on the Group’s compliance and internal control
framework, please refer to page 31.
Chair of the Audit and Risk Committee, Ollie Oliveira and Committee member, Francisca Castro, meeting with Centinela General Manager,
Andrés Hevia, and members of his team at a site visit to Centinela during 2018
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GOVERNANCE SUSTAINABILITY AND STAKEHOLDER MANAGEMENT COMMITTEE REPORT
“The interests of our stakeholders
need to be addressed, including
the commitments we have made
to the communities neighbouring
our operating sites. This reflects
the focus of the Sustainability
and Stakeholder Management
Committee, the Board and the
Group as a whole.”
Vivianne Blanlot, Chair
2018 MEMBERSHIP AND MEETING ATTENDANCE
Vivianne Blanlot (Chair)
Jorge Bande
Juan Claro1
William Hayes
Number
attended
8/8
8/8
7/8
8/8
− Other regular attendees include the CEO, the Vice
President of Corporate Affairs and Sustainability and the
Company Secretary.
− Sessions were also regularly attended by Directors who are
not Committee members, including the Chairman of the Board.
− The Committee meets as necessary and at least twice per year.
1. Juan Claro was unable to attend one meeting held at short notice due to
prior commitments.
KEY RESPONSIBILITIES
− The Sustainability and Stakeholder Management Committee
supports 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, environment,
social and community considerations are taken into account in
the Board’s deliberations.
− The Committee provides guidance to the Board on 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 interests), while monitoring and
reviewing the Group’s performance in respect of
sustainability matters, indicators and targets.
KEY ACTIVITIES IN 2018
Policies and
commitments
Safety and
health
− Reviewed the
Group’s 2017
Sustainability
Report.
− Reviewed the
sustainability
aspects of
the Group’s
expansion
projects at Los
Pelambres and
Centinela.
− Reviewed the
Committee’s
terms of
reference.
− Monitored
the continued
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 and
Centinela in the
operation of their
tailings deposits.
Community relations
Environment
− Reviewed the application of UN Sustainable
Development Goals to the “Somos Choapa”
community relations programme.
− Monitored results from the communications
campaign “Generation Change”.
− Reviewed issues raised by communities with
Los Pelambres and strategies to resolve them.
− Reviewed Los Pelambres’ public perception
survey results.
− Reviewed results from Los Pelambres’ local
employment programme.
− Monitored the first year of the technical
training centre at Los Vilos, run in partnership
with a technical education specialist.
− Reviewed the transport division’s
sustainability strategy.
− Reviewed the Group’s environmental
compliance programme.
− Monitored fulfilment of the compliance
plan presented by Los Pelambres to the
environmental authorities.
− Reviewed progress of the removal of
the Cerro Amarillo waste rock dump and
of the strategy to resolve legal disputes
in Argentina.
− Reviewed reports from the new
environmental management system.
− Reviewed results of the internal audit of
sustainability processes.
+ A full description of the Group’s sustainability and stakeholder management initiatives can be found on pages 32 to 51
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Antofagasta plc Annual Report 2018
MONITORING OUR
COMMITMENTS TO
STAKEHOLDERS
The Committee discusses topics and issues 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 ACCOUNT THE VIEWS AND
INTERESTS OF STAKEHOLDERS?
Committee meetings provide a forum for detailed discussion of the
key issues that matter for our workforce (such as safety and health),
local communities and other stakeholders. These issues are identified
as part of the risk management and community engagement processes
and are brought to the Committee by executive management. As Chairman
of the Committee, I report to the Board following each Committee
meeting, summarising the main matters reviewed by the Committee.
Q. SIGNIFICANT PROGRESS HAS BEEN MADE IN RELATION
TO COMMUNITY RELATIONS AT LOS PELAMBRES.
WHAT ABOUT STAKEHOLDERS ELSEWHERE IN
THE GROUP?
The future of our operating companies depends on committed and
sustained partnerships with neighbouring communities and with local,
regional and national governments. In 2018 the Committee oversaw
the application of lessons learned from Los Pelambres’ “Somos
Choapa” model to the other mining operations and at the transport
division through the “Dialogue for Development” initiative.
Q. WHAT WERE THE KEY ACHIEVEMENTS OVERSEEN
BY THE COMMITTEE DURING THE YEAR?
After 26 months without a fatality there was a fatal accident at
Los Pelambres on 7 October and our sincere condolences go to
the family of Jorge Pérez Barraza. This incident was both extremely
sad and incredibly disappointing for the Group, and as a Committee
we will do everything we can to help the Group achieve its target of
zero fatalities in the future.
Although the Group missed its zero fatalities goal, in recent years
the systematic and thorough application of safety standards and
high levels of near-miss reporting by our operating companies has
significantly improved our safety record. Our first priority is the
safety and health of our people and we will continue to focus on
these standards and reporting statistics and details in pursuit of a
fatality-free working environment.
The Environmental Impact Assessment (EIA) for the Los Pelambres
Expansion project was approved in February 2018 and an EIA was
submitted for the extension of Zaldívar’s water rights beyond 2025
in line with its existing life of mine.
Along with two other mining companies, we are pioneering an online
system for monitoring the physical and chemical stability of tailings
deposits and providing early emergency warnings in the event of a
failure. The tailings dam at Los Pelambres is being used as the pilot,
with the participation of the local community, and the results will be
used to modify Chile’s already-rigorous tailings deposit regulations.
The Group has made some 7,683 environmental commitments as
part of the EIA processes it has completed to receive approval for
its projects over the years, and is using updated operating controls
to ensure compliance. The Committee has focused on ensuring that
the executive management recognises the importance of fulfilling
these commitments, as well as obtaining new approvals when
new conditions or new technology require a practical adjustment to
previous commitments. During the year the Committee also reviewed
progress in closing gaps identified by an external audit of the Group’s
environmental commitments.
We are also pleased to report that the model has attracted the
attention of others as best practice in stakeholder relations and
how best to address community issues.
Q. WHAT ARE THE COMMITTEE’S PRIORITIES IN 2019?
Our number one priority continues to be the safety and health of our
workforce. We have learned that on-site verification by supervisors
of the Group’s safety standards, together with employees’ and
contractors’ careful attention to risks through near-miss reporting,
are key to meeting the Group’s target of zero fatalities. Lessons from
the safety model are also being applied to occupational health
processes, with a goal of reaching the same maturity level 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 Group’s operating
companies. Being a good neighbour starts with continuing to meet
environmental commitments.
Work is under way to achieve our greenhouse gases target for
reduced carbon dioxide emissions, which was substantially advanced
by the introduction of a new power purchase agreement at Zaldívar,
which will now be exclusively supplied by renewable energy from
2020, as explained on page 56.
A good, long-term relationship with our neighbours is built day by
day. The Committee continues to monitor the implementation of the
Group’s social programmes and the work done with communities
close to our operations in accordance with the Group’s Social
Management Model.
Vivianne Blanlot
Chair of the Sustainability and Stakeholder Management Committee
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GOVERNANCE 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, Chair
2018 MEMBERSHIP AND MEETING ATTENDANCE
Ollie Oliveira (Chair)
Tim Baker
Jorge Bande1
Ramón Jara
Number
attended
7/7
7/7
6/7
7/7
− Other regular attendees include the CEO, the Vice President of
Projects, the Projects Finance Manager and the Company
Secretary.
− Sessions were also regularly attended by Directors who are not
Committee members, including the Chairman of the Board.
− The Committee meets as necessary and at least twice per year.
1. Jorge Bande was unable to attend one meeting held at short notice due to
prior commitments.
KEY RESPONSIBILITIES
− The Projects Committee reviews all aspects of projects to
be submitted for Board approval, highlighting key matters
throughout the project development 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 2018
− 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 overview of the
projects portfolio. This includes overview of the establishment
of project development guidelines, which draw from best
practice, industry experience and lessons learned from
other Group projects.
Policies and commitments
Project reviews
Lessons learned from completed projects
− Reviewed the Group’s projects portfolio,
− Reviewed the Los Pelambres Expansion
− Reviewed Antucoya’s dust control
including budgets and schedules.
− Reviewed project development
guidelines.
− Reviewed the Committee’s terms
of reference.
project, including progress in its
permitting applications.
status and work plan.
− Reviewed lessons learned from the
− Reviewed the Centinela Second
Encuentro Oxides project.
Concentrator project and an alternative
plan to expand the existing concentrator.
− Reviewed Zaldívar’s Sulphide
Leaching project.
− Reviewed a sustaining capital expenditure
project for Centinela’s tailings deposit.
− Reviewed the Twin Metals Minnesota
project pre-feasibility study.
− Reviewed lessons learned from the
Centinela Molybdenum Plant project.
− Reviewed lessons learned from the
El Tesoro Thermo-Solar Plant project.
+ A full description of the Group’s growth projects and opportunities can be found on pages 70 to 72
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Antofagasta plc Annual Report 2018
THOROUGH
PROJECT REVIEW
The Committee supports the Board by ensuring that
project development deliberations follow approved guidelines
and that project execution decisions create value for the Company.
ANTUCOYA
The Committee continued monitoring Antucoya’s dust control
status and work plan.
ZALDÍVAR
The Committee reviewed Zaldívar’s sulphide leaching project.
TWIN METALS
The Committee reviewed the pre-feasibility study for the Twin Metals
Minnesota project and the proposed work plan and budget for 2019.
Q. WHAT ARE THE COMMITTEE’S PRIORITIES IN 2019?
− To oversee progression of the Los Pelambres and Centinela
expansion projects.
− To oversee submission of the Mine Plan of Operations (MPO)
for the Twin Metals project.
− To monitor the progression of projects at Zaldívar and the
transport division.
− To continue to review and further enhance the Group’s ADS
framework and project development guidelines.
Ollie Oliveira
Chair of the Projects Committee
Q. WHAT IS THE PROJECTS COMMITTEE’S APPROVAL
AUTHORITY?
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. The Committee
invites management to consider different perspectives, ideas and
improvements to enhance the value of the Group’s projects, enabling
a focused discussion once the project is presented to the Board.
Q. WHAT TOOLS DOES THE COMMITTEE USE?
The Committee provides guidance to each project manager, from
the early stages of project planning through to 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 2018?
LOS PELAMBRES
The Committee monitored various aspects of the Los Pelambres
Expansion Project, including the functional quality assurance review,
Environmental Impact Assessment, technical permitting matters,
detailed engineering, vendor and contracting strategy, project
execution plan and co-ordination with the community relations team.
These activities aided the Board in its approval of the construction
of the Los Pelambres Expansion project, as explained in more detail
on pages 70 to 72 and 96.
CENTINELA
The Committee reviewed progress on the Centinela Second
Concentrator project’s feasibility study.
The Committee reviewed a scoping study of a lower-cost alternative
expansion plan for Centinela, to expand the existing concentrator and
optimise the use of the current tailings deposit, which did not prove
attractive in comparison with the Second Concentrator project.
The Committee reviewed lessons learned from the Encuentro Oxides
and Molybdenum Plant projects.
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GOVERNANCE REMUNERATION AND TALENT MANAGEMENT COMMITTEE REPORT
REMUNERATION: REMUNERATION AND TALENT MANAGEMENT COMMITTEE REPORT
“The Committee is focused
on ensuring that the Group’s
incentives and talent
management initiatives promote
and ensure our long-term
sustainable success as an
international mining company
based in Chile.”
Tim Baker, Chair
2018 MEMBERSHIP AND MEETING ATTENDANCE
Tim Baker (Chair)1
Vivianne Blanlot2
Francisca Castro1
Number
attended
6/6
5/6
6/6
1. Francisca Castro has been appointed Chair with effect from 1 May 2019.
Tim Baker will continue to serve on the Committee following this change.
2. Vivianne Blanlot was unable to attend one meeting during the year for
medical reasons.
KEY RESPONSIBILITIES
KEY RESPONSIBILITIES
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, reward and retention of talent.
− The Committee is responsible for setting the remuneration for
the Chairman, Directors and the CEO and for monitoring the
compensation strategy, level, structure and outcomes for
− Other regular attendees include the CEO, the Vice President
of Human Resources and the Company Secretary.
− At least one Committee member serves on each of the other
Board Committees which allows the Committee to take into
account strategic priorities and the views of all stakeholders in
its deliberations.
− The Committee meets as necessary and at least twice per year.
− All Committee members are independent.
Executive Committee members. No Director, nor the CEO,
are involved in setting his or her own remuneration.
− The Committee actively participates in the Group’s talent
management strategy, including the review, consideration and
implementation of succession plans for members of the Executive
Committee (excluding the CEO).
KEY ACTIVITIES IN 2018
Governance
Directors’
remuneration
Executive remuneration
Human Resources
and policy
− Monitored UK
corporate
governance
reforms relating to
remuneration and
succession
planning.
− Reviewed feedback
from shareholders
on the Group’s
remuneration
arrangements in
advance of the
2019 AGM.
− Reviewed the
Committee’s terms
of reference.
− Evaluated Chairman,
Director and Committee
fees and adjusted fees
paid to Committee
members.
− Reviewed and adjusted
Ramón Jara’s services
contract with Antofagasta
Minerals SA.
− Reviewed the 2017
Directors’ Remuneration
Report prior to its
approval by the Board
and subsequent approval
by shareholders at the
2018 AGM.
− Evaluated the CEO’s performance and determined the variable
compensation payable to him under the 2017 Annual Bonus Plan.
− Reviewed the 2018 Human
Resources plan.
− Reviewed LTIP eligibility, participants and criteria and approved
− Reviewed and approved
the grant of the 2018 awards.
− Reviewed performance for LTIP awards granted in 2015 and
approved vesting level.
− Reviewed Group performance against the 2017 Annual Bonus
Plan performance metrics and reviewed the metrics to apply to
the 2018 Annual Bonus Plan.
− Reviewed and approved the individual performance of Executive
Committee members under the 2017 Annual Bonus Plan.
− Reviewed proposed LTIP and Annual Bonus Plan structures for
2019, and on the basis of the significant changes implemented
in 2017, agreed that no further changes, other than using Total
Incident Recordable Frequency Rate in place of Lost Time
Frequency Rate for the 2019 Annual Bonus Plan.
implementation of the diversity
and inclusion strategy.
− Reviewed a gender-based
remuneration analysis.
− Reviewed the results of the
collective bargaining negotiations
at Los Pelambres and Centinela.
− Reviewed compensation across
the Group to ensure it remains
competitive, motivating and
appropriately aligned with the
Group’s strategy, vision and
risk appetite.
Talent management and succession planning
− Reviewed the Group’s 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 and the appointment of new
directors in the Group’s operating companies.
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Antofagasta plc Annual Report 2018
REMUNERATION AND
TALENT MANAGEMENT
The Committee has broad oversight of the Group’s
incentives and talent management initiatives.
Dear Shareholders,
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, 2018 was a good year for the Group. Our operating
performance was in line with guidance, a key project milestone was
achieved with the approval of construction of the Los Pelambres
Expansion project and we made significant progress on a number
of cultural and talent management initiatives which are described in
more detail below.
Sadly, as reported in the Chairman’s letter, one of our contractors
suffered a fatal accident at Los Pelambres in October. Responsibility
for safety and health is one of the Company’s core values and in
2016, the Committee recommended the introduction of an automatic
15% adjustment to the Group’s performance score under the Annual
Bonus Plan (downwards if there is a fatality during the year and
upwards if there are no fatalities during the year) to further align the
Group’s incentives with this core value and our goal of zero fatalities.
The Committee therefore endorsed the automatic 15% downward
adjustment for the Group performance score under the 2018
Annual Bonus Plan. The Committee also 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.
AREAS OF FOCUS FOR THE COMMITTEE IN 2018
As noted by the Chairman on page 89, the Committee oversaw
significant strategic initiatives during the year which included the
approval and implementation of the Group’s Diversity and Inclusion
Programme and associated updates to the Group’s charter of values
to support a more inclusive culture. 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
a more diverse and inclusive workplace. Metrics for the design
and implementation of the diversity and inclusion programme were
included in the Group’s 2018 Annual Bonus Plan and some of the specific
activities that were undertaken in 2018 are highlighted in the Chairman’s
introduction to the Governance section on page 88 and more generally on
page 36. I am pleased to report that metrics for this programme have
again been included in the 2019 Annual Bonus Plan.
As a Committee, we monitor the Group’s relationships with unions
and labour negotiations that take place on a regular basis, including
those during 2018 at Los Pelambres and the transport division. We
were pleased that the negotiations in 2018 once again concluded
without a strike and we continue to foster open and collaborative
dialogue with our workforce. With 71% of the Group’s employees
represented by labour unions, and the regular dialogue that takes
place between the unions and senior management throughout the
year (rather than only at the time of negotiations), the concerns
and perspectives of our employees are well represented before the
Committee and the Board. During 2018 the Group provided training
to staff responsible for labour negotiations and union representatives
to further upgrade and foster our labour relations.
Our broader workforce also includes some 15,000 contractors and
the Group’s policy is to ensure that the minimum wage for services
provided by employees and contractors is some 41% above the legal
minimum wage. We require bank guarantees for all service contracts
to guarantee the contractors obligations towards their employees
during the term of the contract and services provided under these
service contracts are audited regularly by an independent third party
to ensure that local labour laws and other conditions are being
complied with.
The Committee has been monitoring the UK corporate governance
reforms that were finalised during 2018 and we will report against
those new requirements that apply to us in the 2019 Annual Report.
The principles of the Code and the purpose behind these reforms,
and others in recent years, are carefully reviewed and discussed by
the Committee and the Board. Where specific regulations or Code
principles do not apply to us, we typically consider whether it would
be helpful for additional information to be provided to the Committee
to consider how the purpose behind them might influence its views
and perspectives. For example, although the Group has fewer than
ten employees in the UK, the Committee received gender pay gap
information for all of the mining division’s employees during 2018.
This showed the pay gap information across all levels of the
Group’s mining operating companies and the Committee used the
findings to identify and discuss initiatives that should be included in
the diversity and inclusion programme to encourage higher levels
of female participation generally, but specifically at the Group’s
mining operations.
As in previous years, although our CEO is not a Director, we
voluntarily disclose his remuneration as if he were and provide
details on the Group’s executive pay structures to allow shareholders
to understand how these structures support strategy and promote
long-term sustainable success.
EXECUTIVE REMUNERATION
Awards under both the LTIP and the Annual Bonus Plan are
subject to financial and non-financial performance metrics. The
non-financial metrics measure the development of important projects
and exploration activities that are essential for future mining activities.
Other metrics relate to safety, people and environmental and social
targets, which ensure that we act in a way that preserves our social
licence to operate and takes into account the interests of all 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 2018 under the Annual Bonus
Plan, which forms the basis for calculating 70% of the CEO’s and
Executive Committee’s annual bonus, was 100.2, within a range
of 90 (Threshold) to 110 (Maximum). This score includes the 15%
downwards adjustment for the fatality described above. A full
breakdown of performance against each metric is set out on page 129.
As noted in the 2017 Annual Report, at the beginning of 2018 the Board
and the Committee each carefully considered the pay arrangements
for Iván Arriagada, taking into account individual and Group
performance, the Group’s strategy and packages available to market
peers both internationally and in Chile. The findings showed that all
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119
GOVERNANCE REMUNERATION AND TALENT MANAGEMENT COMMITTEE REPORT CONTINUED
elements of the CEO’s remuneration package were significantly below
those in 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 Committee also granted LTIP awards to Iván Arriagada
equal to 325% of base salary in 2018 in light of this positioning versus
the international market and to retain his excellent services for the future.
The Committee once again considered the pay arrangements for Iván
Arriagada in 2019 versus international and local Chilean peer
companies and in light of this review, a decision was taken to increase
his target and maximum annual bonus to 100% (from 67%) and 200%
(from 133%) of base salary, respectively in 2019. The Committee
expects to grant LTIP awards to Iván Arriagada equal to 200% of his
base salary in 2019. The total remuneration awarded for 2018 and the
total remuneration for the lead executive in the Group for the past ten
years is shown on pages 126 and 127.
The Committee carefully considered a number of factors when setting
Iván Arriagada’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 were pleased
to recognise Iván Arriagada’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 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
the Group’s operations, to promote internally, to develop career paths
within the organisation and to identify and retain key talent.
The Committee is responsible for reviewing, monitoring and
recommending the talent management strategy for the Group’s senior
management. This includes assessing any changes in compensation
policies across the Group that may have a significant long-term
impact on labour costs and succession plans, as well as overseeing
the Group’s compensation and talent management strategies.
In 2018 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 development needs. This ensures that talented individuals
are available at each stage of the pipeline in the future or in the case
of unexpected departures.
REVIEW OF NON-EXECUTIVE
DIRECTOR AND COMMITTEE FEES
Basic fee levels for Non-Executive Directors have remained
unchanged since 2012 and this continued for the base fee in 2018.
However, as indicated in the 2017 Annual Report, from 1 April 2018,
there was a $5,000 per annum increase in all Board Committee
Chairman’s fees and a $2,000 per annum increase in all Board
Committee members’ fees in recognition of the considerable
additional time commitments and responsibilities attached to these
roles, which have grown in recent years.
As reported in the 2017 Annual Report, the Committee and the Board
also reviewed the fee payable and time commitments under Ramón
Jara’s service contract, which resulted in an exceptional 8% increase
to the hourly rate for services under that contract with effect from
1 January 2018. This contract was last reviewed in 2011 and the
adjustments bring his hourly rate into line with the market and reflect
the time Ramón Jara commits to the Group under this contract.
These adjustments are in accordance with the Directors’
Remuneration Policy that was approved by shareholders at the
2017 AGM and further details of which are set out within the
Directors’ Remuneration Report on page 122.
No change is expected to be made to the pay arrangements for
Directors in 2019.
KEY OBJECTIVES FOR THE COMMITTEE IN 2019
As announced in November last year, Francisca Castro, who has
served as an independent Non-Executive Director since 2016, will
take over as Chair of the Committee from 1 May 2019. Francisca first
joined the Committee at the beginning of 2017 and has contributed
enormously over that time. I will continue to serve on the Committee
and look forward to continuing to support the Group in this new role.
The Committee welcomes the UK corporate governance reforms
published in 2018. Supporting strategy, creating long-term value and
independent judgement are already at the core of our approach to
remuneration and during the year the Committee will continue to
identify areas where the Group’s remuneration arrangements can
be strengthened.
As well as the periodic annual activities of the Committee, the
Committee will also continue to oversee the implementation of the
diversity and inclusion programme and the progression of our talent
management and succession planning activities in 2019. These areas
of focus are essential to our long-term continued success.
Shareholders are invited to vote on the 2018 Directors’ Remuneration
Report at the 2019 AGM and we trust that there will continue to be
strong support for the Group’s pay arrangements.
Tim Baker
Chair of the Remuneration and Talent Management Committee
ARRANGEMENTS 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. This
reappointment was based on the Committee’s satisfaction with
the quality of 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 2018 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 £95,837.
The Committee also received assistance from the Chairman, the
CEO, the Vice President of Human Resources and the Company
Secretary during 2018, 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
Committee members.
120
Antofagasta plc Annual Report 2018
REMUNERATION
AT A GLANCE
REMUNERATION REPORT
2018 Executive Remuneration Report – Voluntary Disclosures
2018 Directors’
Remuneration
Report
p122
2018 Total
Remuneration
2018 Annual
Bonus Plan
Long-Term
Incentive Plan
Illustration of CEO
Remuneration
Policy in 2019
p126
p128
p130
p132
Summary of
Directors’
Remuneration
Policy
p134
REMUNERATION PHILOSOPHY AND APPROACH TO REPORTING
The Directors’ Remuneration Policy was approved at the 2017
AGM. This policy applies to Directors and is designed to ensure
that they are fairly rewarded with regard to their responsibilities.
A summary of the policy is set out on pages 134 to 136 and a
report on the implementation of that policy in 2018 is set out in
the 2018 Directors’ Remuneration Report on pages 122 to 124.
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 2018 Executive Remuneration Report on
pages 125 to 133.
2018 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 ten-year period, measured
by total shareholder return.
500
400
300
200
100
The CEO and the Executive Committee receive a base salary
and benefits in line with market conditions in Chile, taking into
consideration international factors, as appropriate. They participate
in the Annual Bonus and Long Term Incentive Plan which are
designed to align remuneration with overall Group performance
and promote outcomes that are for the long-term benefit of
the Group.
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.
CEO TOTAL REMUNERATION
IN 2018
$2.86m
46.3%
30.0%
$2.22m
44.2%
25.4%
$2.06m
46.4%
20.8%
$0.676m
100%
32.8%
23.7%
30.4%
Dec 8
Dec 9
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
Dec 15
Dec 16
Dec 17
Dec 18
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 126.
Maximum, Target and Minimum opportunities reflect the potential
2018 outcomes adjusted for the actual 2018 exchange rate, share
price and inflation. A detailed breakdown of the CEO’s remuneration
is set out in the 2018 Executive Remuneration Report on pages
125 to 133.
antofagasta.co.uk
121
GOVERNANCE 2018 DIRECTORS’ REMUNERATION REPORT
2018 DIRECTORS’
REMUNERATION REPORT
INFORMATION INCORPORATED
BY REFERENCE
The information set out on pages 118 to 136 forms part of (and is
incorporated by reference into) this 2018 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 at the 2017 AGM and on the Company’s 2017
Directors’ Remuneration Report at the 2018 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%
91.27%
1,062,115
RESOLUTION TO APPROVE THE COMPANY’S 2017
DIRECTORS’ REMUNERATION REPORT
Votes for
Votes against
Votes cast as a percentage
of issued share capital
Votes withheld
1,073,241,098
99.08%
9,917,915
0.92%
91.34%
113,419
The considerable vote in favour of the 2017 Directors’ Remuneration
Policy and the Company’s 2017 Directors’ Remuneration Report
confirms the strong support received from shareholders for the
Group’s remuneration arrangements.
IMPLEMENTATION OF THE
DIRECTORS’ REMUNERATION
POLICY IN 2018
CHAIRMAN
Jean-Paul Luksic was appointed Executive Chairman in 2004 and
was redesignated as Non-Executive Chairman in 2014. Mr Luksic’s
total fee in 2018 was $1,003,750, (2017 – $1,000,000) comprising:
− $730,000 per annum for his services as Chairman of the Board,
− $15,000 per annum (increased from $10,000 with effect from
1 April 2018) for his services as Chairman of the Nomination and
Governance Committee, and
− $260,000 per annum for his services as Chairman of the
Antofagasta Minerals board.
122
Antofagasta plc Annual Report 2018
This fee level reflects his responsibility, experience and time
commitment to the role.
NON-EXECUTIVE DIRECTORS
There has been no change to Non-Executive Director base 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 2018. As disclosed in the 2017 Annual Report, fees paid to
all Board Committee Chairmen were increased by $5,000 per annum
and fees paid to all Board Committee members were increased by
$2,000, from 1 April 2018, to reflect the considerable additional time
commitments and responsibilities attached to these roles, which have
grown in recent years.
In addition to Board fees, the Senior Independent Director receives
an additional fee that reflects his responsibility, experience and time
commitment to the role.
ADDITIONAL DIRECTOR FEES PAYABLE IN 20181
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
1. With effect from 1 April 2018.
Additional fees ($000)
20
25
12
15
6
21
12
21
12
21
12
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 2019. However, because the cost of travel to Board
meetings is reported as an expense benefit, the amounts relating
to benefits in 2019 will ultimately depend on the number and location
of Board meetings.
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 2018 is set out below in US dollars. Unless otherwise noted, amounts that are denominated in Chilean
pesos have been converted at the exchange rate on the first day of the month following the month in which the entitlement to payment accrued.
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
2018
$000
2017
$000
1,004
1,000
329
260
991
272
–
320
297
260
303
295
283
4,614
319
260
863
270
–
318
290
260
296
290
280
4,446
Benefits2,3
2018
$000
12
158
10
13
9
–
38
64
4
9
7
8
332
2017
$000
Total
2018
$000
2017
$000
11
1,016
1,011
129
25
21
11
58
49
46
3
8
9
6
376
487
270
1,004
281
–
358
361
264
312
302
291
4,946
448
285
884
281
58
367
336
263
304
299
286
4,822
1. During 2018, remuneration of $695,000 (2017 – $569,000) for the provision of services by Ramón Jara was paid to Asesorías Ramón F Jara Ltda. As reported in the 2017
Annual Report, Mr Jara’s time commitments and the hourly rate payable under his contract were increased by 8% with effect from 1 January 2018. The reported increase
in 2018 is due to this increase and, to a lesser extent, the annual adjustment for inflation in Chile. This amount is included in the amounts attributable to Ramón Jara of
$991,000 (2017 – $863,000).
2. Amounts for Jean-Paul Luksic include the provision of life and health insurance. Amounts for Ramón Jara include the provision of life 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 calculations have been 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 for 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 certain Directors. Figures are reported in the year that they are paid, or would be payable, by the Company.
antofagasta.co.uk
123
GOVERNANCE
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.
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 2018. No payments
were made to past Directors.
2018 DIRECTORS’ REMUNERATION REPORT CONTINUED
DIRECTORS’ INTERESTS (AUDITED)
The Directors who held office at 31 December 2018 had the following
interests in ordinary shares of the Company:
Jean-Paul Luksic1
Ramón Jara2
Ordinary shares of 5p each
31 December 2018
41,963,110
5,260
1 January 2018
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 2018 and the date
of this report.
The Directors had no interests in the shares of the Company during
the year other than those set out 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 as a result of the achievement
of performance conditions.
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Antofagasta plc Annual Report 2018
2018 EXECUTIVE
REMUNERATION REPORT
VOLUNTARY DISCLOSURES
– EXECUTIVE REMUNERATION
Iván Arriagada is the CEO and 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 Executive Committee,
including the variable pay mechanisms (Annual Bonus Plan and LTIP)
designed to motivate the CEO and the Executive Committee 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 pursuant to the Annual Bonus Plan 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 127 shows the total remuneration for the Group’s
lead executive over the last ten years. The total remuneration for
the CEO in 2018 was 24% higher than in 2017 (total remuneration for
the CEO in 2017 was 19% lower than for the Group’s lead executive
in 2016). The table on page 127 shows the changes in the individual
components of the CEO’s remuneration in 2018. The main cause
of this increase was due to the increase in remuneration under the
LTIP due to the inclusion of an additional tranche of awards as a
consequence of the CEO having reached more than three full years
of employment with the Group.
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 the Company’s share price. Further details
of the LTIP are set out on pages 130 and 131.
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 2018 was
$2.2 million. Fixed remuneration comprises base salary and benefits
and, in 2018, represented less than 31% 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 and the Group does not operate
a defined benefit pension scheme.
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 2018
was Ch$32,932,182 ($51,097) per month and his salary is adjusted
for inflation in Chile every three months.
Iván Arriagada’s total salary payments for 2018 were
Ch$430,388,950 ($668,400) (2017: Ch$390,416,994 ($603,387)).
As disclosed in the 2017 Annual Report, Iván Arriagada received a
10% merit-based increase and an increase in his target and maximum
annual bonus opportunity to 67% (from 50%) and 133% (from 100%)
of base salary respectively, which took effect from 1 April 2018. 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 exchange rate movements when reported in US dollars.
REMUNERATION STRUCTURE
The Committee is satisfied that the remuneration arrangements
for Iván Arriagada and the Executive Committee are linked to
performance, are appropriately stretching and are aligned to the
Group’s strategy.
Variable remuneration is a core component of Executive Committee
remuneration and in 2019 up to 58% of the Executive Committee’s
total potential annual remuneration (excluding that of the CEO) may
be received under the Annual Bonus Plan and the LTIP.
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GOVERNANCE 2018 EXECUTIVE REMUNERATION REPORT CONTINUED
2018 TOTAL REMUNERATION
SINGLE FIGURE OF CEO REMUNERATION TABLE:
CEO (not on the Board)
Iván Arriagada1
Total
Salary
Benefits2
Annual Bonus3
LTIP4
Total
2018
$000
2017
$000
2018
$000
2017
$000
2018
$000
668
668
603
603
8
8
7
7
564
564
2017
$000
517
517
2018
$000
2017
$000
2018
$000
2017
$000
981
981
663
663
2,221
2,221
1,790
1,790
1. No pension contributions are payable to or for Iván Arriagada and the Group does not operate a defined benefit pension scheme.
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 2017 is reported based on the exchange rate as at 1 April 2017. In the 2017 Remuneration Report a slightly higher figure of
$526,000 was reported, which reflected the anticipated exchange rate at the date the 2017 Remuneration Report was published. Iván Arriagada’s 2018 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 January 2019 and is calculated as shown on page 128.
4. As explained on pages 130 and 131, 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 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 vested on 28 March 2018. In the 2017 Remuneration
Report, a slightly lower figure of $662,000 was reported because the Performance Awards granted in 2015 had not yet vested and were estimated using the assumptions
set out in the 2017 Remuneration Report. The 2018 amounts payable to Iván Arriagada under the LTIP relate to Restricted Awards granted in 2015, Restricted Awards
and Performance Awards granted in 2016 (prior to his appointment as CEO) and to Restricted Awards granted in 2017. The performance period for Performance Awards
granted in 2016 concluded on 31 December 2018 and those awards will vest on or after 22 March 2019. Because the Performance Awards granted in 2016 have not
yet vested, the amounts attributable to these awards have been estimated by applying the performance scores set out on page 131, using the closing share price on
31 December 2018 of 783p and the exchange rate as at 31 December 2018 of $1.28/£1.00. As noted on pages 130 and 131, 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 ten-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 130 to 131.
500
400
300
200
100
0
Dec 2008
Dec 2009
Dec 2010
Dec 2011
Dec 2012
Dec 2013
Dec 2014
Dec 2015
Dec 2016
Dec 2017
Dec 2018
ANTOFAGASTA
FTSE ALL SHARE
EUROMONEY GLOBAL MINING
Total shareholder return represents share price growth plus dividends reinvested over the period.
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 ten-year period.
126
Antofagasta plc Annual Report 2018
LEAD EXECUTIVE REMUNERATION FOR THE LAST TEN YEARS
The total remuneration of the lead executive in the Group for the past ten years, in US dollars, is as follows:
Single figure of remuneration for
the Group’s lead executive $000
Chairman – Jean-Paul Luksic
CEO – Diego Hernández
CEO – Iván Arriagada
Total
Percentage change on previous year
Proportion of maximum annual bonus paid
to the CEO
Proportion of maximum LTIP awards
vesting in favour of the CEO4
2009
3,184
–
–
3,184
2010
3,330
–
–
3,330
2011
3,521
–
–
3,521
2012
3,598
–
–
3,598
2013
3,615
–
–
3,615
20141,2
2,196
688
–
2,884
2015
–
2,445
–
2,445
20163
–
1,525
681
2,206
2017
–
–
1,790
1,790
2018
–
–
2,221
2,221
24%
–
–
–
–
–
–
–
–
–
–
69%
39%
61%
79%
66%
76%
16%
–
85%
60%
1. The single figure of remuneration for the Group’s lead executive in 2014 comprises Jean-Paul Luksic’s remuneration until 1 September 2014 (when he became
Non-Executive Chairman) and Diego Hernández’s remuneration from 1 September 2014 (when he became CEO).
2. The Chairman was not eligible for variable remuneration and the 2014 percentage figures therefore only relate to the 2014 annual bonus and LTIP awards vesting for
the CEO.
3. The single figure of remuneration for the Group’s lead executive in 2016 comprises Diego Hernández’s remuneration until 8 April 2016 (when he stepped down as CEO)
and Iván Arriagada’s remuneration from 8 April 2016 (when he became CEO).
4. No Performance Awards vested for the CEO in 2016. As Restricted Awards do not have a performance element, they are not included in these calculations.
RELATIVE IMPORTANCE OF REMUNERATION SPEND
The table below shows the total expenditure on employee
remuneration, the levels of distributions to shareholders and the
taxation cost in 2017 and 2018.
Employee remuneration1
Distributions to shareholders2
Taxation3
2017
($m)
433.2
501.8
509.8
2018
($m)
447.8
431.8
404.5
Percentage
change
3.4%
(13.9%)
(20.7%)
1. Employee remuneration includes salaries and social security costs, as set out in
Note 8 to the financial statements.
2. Distributions to shareholders represent the dividends proposed and approved
for payment 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 Group’s tax
contribution, the majority of which is paid by 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.
RELATIVE CHANGE IN REMUNERATION
The total remuneration paid to Iván Arriagada in 2018 was 24%
higher than in 2017. This included a 10.8% increase in base salary, a
4.6% increase in benefits and an 8.9% increase in annual bonus. As
noted on page 125, the LTIP component of Iván Arriagada’s 2018 total
remuneration included an additional tranche of awards compared with
2017 as he has now reached more than three years of service with
the Group. The comparative increase in LTIP remuneration was the
biggest contributor to Iván Arriagada’s remuneration increase in 2018.
The equivalent average percentage increase in total remuneration for
Group employees as a whole in 2018 was 4.8%. This comprised a
5.8% increase in salaries, a 6.2% increase in benefits and a 0.5%
increase in annual bonus. It is common for employment contracts in
Chile to include a quarterly adjustment for Chilean inflation and most
Group employees’ base salaries in Chile are adjusted for inflation.
The table below compares the changes from 2017 to 2018 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 126.
CEO
Employees1
Percentage
change in
base salary
10.8%
5.8%
Percentage
change in
benefits
4.6%
6.2%
Percentage
change in
annual bonus
8.9%
0.5%2
1. Mining division employees were chosen as the comparator group because
the mining division accounts for more than 95% of the Group’s revenue and the
Annual Bonus Plan that applies to the Executive Committee is the same plan that
applies to all mining division employees at the management and professional level.
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 Los Pelambres in 2018.
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127
GOVERNANCE
2018 EXECUTIVE REMUNERATION REPORT CONTINUED
2018 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 2018, 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
fixed at the beginning of the year.
The target bonus payable to the CEO for achieving both Group
and personal performance targets in 2018 was 50% of the
maximum bonus opportunity. The maximum bonus payable to the
CEO for achieving stretch performance targets in 2018 was 133% of
annual base salary. The maximum bonus receivable for members of
the Executive Committee, excluding the CEO, was 67% of annual
base salary.
For 2018, the actual bonus for the CEO was 88% of base salary
and includes a downward adjustment following the fatality at
Los Pelambres as explained on page 129. The average bonus for
the Executive Committee members (excluding the CEO) was
approximately 48% 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
Remuneration and Talent Management 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 2018 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
Relationship with the
Board
Leadership
Performance
− Strong communication throughout the year, bringing the right issues forward for discussion and approval in
a timely manner.
− Receptive to Board input and feedback, ensuring that Board input was shared throughout the Group.
− Strong leadership in developing safety culture, operational excellence, reliability of operations, talent
management, diversity and inclusion, community relations and environmental responsibility.
Strategic planning
− Strong alignment between the strategic plan and management prioritisation with a focus on the Group’s core
Succession planning and
talent development
Business development
Results
business and organic growth at the Group’s current operations.
− Significant upskilling of the workforce and a much greater rotation of skills ensuring better performance,
sharing of ideas and development of relationships.
− Strong progress on the development of internal talent.
− Strong results from the Group’s exploration programme.
− One fatality during the year1.
− Strong operating results and cost savings from the cost and competitiveness programme significantly above
target.
Project development
− Sound environmental performance.
− Construction of the Los Pelambres Expansion Project approved by the Board.
− Advancement of the Centinela Second Concentrator project studies.
1. The Committee carefully considered how this result should affect Ivan Arriagada’s 2018 Annual Bonus. 70% of Ivan Arriagada’s bonus is determined by the Group
performance score which was automatically adjusted downwards by 15% as a consequence of the fatality during the year. In determining whether Ivan Arriagada’s
individual performance score should also be reduced, the Committee considered the safety leadership that had been demonstrated during the year, including the leadership
and measures taken in response to the fatality. The Committee determined that very strong safety leadership had been demonstrated throughout the year and decided that
a further downward adjustment to Ivan Arriagada’s personal performance score was not warranted on this occasion.
Based on performance achieved against targets during the 2018 financial year, the Committee determined that Iván Arriagada would receive
a bonus payment of $578,560 for 2018. 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 100.2) + (30% x 110) = 103.1
(103.1 – 90) ÷ 20 = 65.7%
65.7% of Ch$595,946,880 (Maximum)
= Ch$391,537,100
Calculated in US dollars using the exchange rate as at 1 January 2019 of $1 = Ch$695. Because the annual bonus is calculated and paid in
Chilean pesos, it is subject to exchange rate movements when reported annually in US dollars.
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Antofagasta plc Annual Report 2018
GROUP PERFORMANCE UNDER THE 2018 ANNUAL BONUS PLAN
Group performance under the 2018 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.
Objective
Core Business
EBITDA2
Copper production3
Costs4
Cash costs before by-product credits (17%)
Corporate expenditure (3%)
Business Development
Growth projects – construction execution5
Exploration programme6
Weighting
60%
15%
25%
20%
20%
15%
5%
20%
5%
5%
Sustainability and Organisational Capabilities
Safety7
People – Diversity and Inclusion policy
implementation8
Environmental performance9
Social performance10
5%
5%
Total – pre-adjustments
Adjustment for failing to meet zero fatality
target11
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. The threshold, target and maximum target figures for
EBITDA were adjusted for exchange rate fluctuations, copper price fluctuations,
fuel price fluctuations and the impact of one-off bonuses paid as part of labour
negotiations at Los Pelambres, which were not included in the Group’s budget
and were not included in the figures disclosed in the 2017 Annual Report due to
their commercial sensitivity.
3. 100% basis, except for Zaldívar (50%).
4. The threshold, target and maximum target figures for cash costs were adjusted
for exchange rate fluctuations, fuel price fluctuations and the impact of one-off
bonuses paid as part of labour negotiations at Los Pelambres. These were not
included in the Group’s budget and were not included in the figures disclosed
in the 2017 Annual Report due to their commercial sensitivity. The figures for
corporate expenditure were adjusted for exchange rate fluctuations.
5. Split between the Los Pelambres Expansion (6%), Centinela Second
Concentrator (6%) and the Zaldívar Chloride Leach projects (3%). Targets for the
Los Pelambres Expansion project related to dates for approval of key permits and
execution of the project. Targets for the Centinela Second Concentrator project
were based on study completion dates and the budget to advance the project.
Targets for the Zaldívar Chloride Leach project were based on feasibility study
completion dates and the return of the project. Outcome was 104 comprising
107.5 for the Los Pelambres Expansion project, 100 for the Centinela Second
Concentrator project and 105 for the Zaldívar Chloride Leach project.
6. Maximum and target were defined according to the progress of execution of
planned exploration programmes, including metres drilled, efficiency targets and
increase of the potential size of prospects previously discovered to have potential
mineralisation. A score of 108 was achieved against the plan approved at the
beginning of 2018.
Measure
2018 Threshold
(90)
2018 Target
(100)
2018 Maximum
(110)
2018
Outcome
$m
kt
$/lb
$m
1,866
693
1.83
83
2,073
737
1.72
79
2,280
759
1.67
75
2,139
725
1.72
75
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
2018 Performance
score1
100
103
97
100
110
105
104
108
104
95
107
109
105
102
-1.8
100.2
7. Performance against the global lost-time accidents frequency index with threshold
of 1.2, target of 1.0 and maximum of 0.9 accidents with lost time per million hours
worked. Outcome was 95 based on 1.1 accidents with lost time per million hours
worked in 2018.
8. Performance against targets set at the beginning of 2018 for implementation of
the diversity and inclusion strategy approved by Board in 2017. The maximum
was achievable if the quality and performance against the agreed action plan
exceeded both the CEO’s and the Remuneration and Talent Management
Committee’s expectations. The outcome was 107.
9. The control of risks relating to environmental performance across all companies
where maximum was achievable with no environmental incidents impacting on
production or the Group’s reputation and completion of the implementation of an
environmental risk mitigation plan across all companies. The outcome was 109.
10. 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 or the Group’s reputation and without costs incurred
outside the scope of the budget. There were no social incidents that impacted
on production. The outcome was 105 because Los Pelambres had a situation
that, although resolved without incident, could have led to an impact on the
Group’s reputation.
11. 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 decrease
of 1.8 to the final Group performance score for 2018 (ie 15% of 102 – 90).
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129
GOVERNANCE
2018 EXECUTIVE REMUNERATION REPORT CONTINUED
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.
The number of Performance Awards and Restricted Awards
granted 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 $981,497 in respect of the Restricted Awards
granted in 2015, 2016 and 2017, that vested and were paid in 2018
and Performance Awards granted in 2016 which include performance
elements that concluded on 31 December 2018 but that will not vest
until on or after 22 March 2019 as shown below and the details of
which are set out in more detail on page 131. These anticipated total
payments amount to 147% 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:
There is no additional holding period before these amounts are paid.
− actions by a participant that, in the reasonable opinion of the
− 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.
Committee, amount to gross misconduct that 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 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.
Number of
shares to
which the
grant relates
Date of
grant
85,559 22 March 2016
Vesting
date
22 March 2019
Face value
of award
(using market
price at date
of grant) $’000
630
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
270
770
330
Market
price at
the date
of grant
$2
End of
performance
period
7.36 31 December
2018
N/A
7.36
10.12 31 December
2019
N/A
10.12
Year of
grant1
2016
2017
Award
type
Performance
Awards
Restricted
Awards
Performance
Awards
Restricted
Awards
20183 Performance
Awards
Restricted
Awards
109,397 28 March 2018
46,885 28 March 2018
1,470
630
13.44 31 December
2020
N/A
13.44
30 March 2018
30 March 2019
30 March 2020
28 March 2021
28 March 2019
28 March 2020
28 March 2021
% of award
receivable
if Threshold
performance
achieved
0%
% of award
receivable
if Target
performance
achieved
57%
% of award
receivable
if Maximum
performance
achieved
100%
0%
100%
100%
0%
0%
0%
0%
57%
100%
100%
100%
48%
100%
100%
100%
1. 2016 awards were granted before Iván Arriagada was appointed CEO.
2. The market price used at the date of grant was the average closing share price on the five dealing days before the grant date, ending on the day before the grant date,
converted into US dollars using the exchange rate on the date immediately prior to the date of grant.
3. As noted in the Chair’s Introduction on page 119, Iván Arriagada received an LTIP grant of 325% of base salary in 2018. It is expected that an LTIP grant of 200% of base
salary will be awarded to Iván Arriagada in 2019.
130
Antofagasta plc Annual Report 2018
ANTICIPATED GROUP PERFORMANCE UNDER THE 2016 LTIP
As noted in the single figure table on page 126, performance against the Performance Awards granted in 2016 will not be finally determined
by the Committee until after the date of this report, once the Group’s 2018 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
40%
Objective
Relative total
shareholder
return2
20%
EBITDA3
5%
Mineral resources
increase
Threshold (0%)
0% vesting at
performance below
the index during the
three-year period
0% vesting at
$3,297 million or
below
0% vesting at
79.4 million tonnes
of contained copper
or below as at
31 December 2018
Measure
Target (see below)
33% vesting at
performance
equal to the
index during the
three-year period
75% vesting at
$3,708 million
Maximum (100%)
100% vesting at
performance equal
to or greater than the
index plus 5% during
the three-year period
100% vesting at
$4,120 million
Anticipated
performance
To be updated at the
vesting date
Anticipated
achievement1
0%
EBITDA for the period
was $6,543 million
100%
100%
50% vesting at 81.5
million tonnes of
contained copper
100% vesting at
83.6 million tonnes
of contained copper
Resources increased
to 85.7 million tonnes
of contained copper
Projects,
development and
sustainability
1. Centinela Second
Concentrator and
Encuentro Oxides
(four project-specific
goals4) (10%)
2. Los Pelambres
Expansion (three
specific goals5)
(10%)
3. Environmental and
Communities (four
specific goals6)
(15%)
35%
Total
At least two of
the four goals
achieved
At least three of
the four goals
achieved
All four goals achieved All four goals achieved
100%
At least one of the
three goals achieved
At least two of the
three goals
achieved
All three goals
achieved
At least two of
the four goals
achieved
At least three of
the four goals
achieved
All four goals
achieved
All three goals achieved
100%
All four goals achieved
100%
60%
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 2018 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. 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 mining operations’ accumulated EBITDA over the period from 2016-18, versus the 2016 budget figure and the 2016 internal base case
figures for 2017 and 2018. The final calculations have not been adjusted for commodity price or exchange rate fluctuations.
4. Goals were: (1) commissioning of the Encuentro Oxides project in 2017 (2) Encuentro Oxides in full production by Q3 2018 (3) Centinela Second Concentrator project
Environmental Impact Study approved in 2016 (4) Centinela Molybdenum Plant start-up in the first half of 2018.
5. Goals were: (1) Board approval of the implementation strategy for the Environmental Impact Study for the Los Pelambres Expansion in the first half of 2016
(2) Presentation of the Environmental Impact Study to the Environmental Authority in the first half of 2016 (3) Approval of the Environmental Impact Study and
commencement of the commitment phase for the project during 2017.
6. Goals were: (1) Presentation of the Environmental Impact Study for the desalination plant at Los Pelambres to the Environmental Authority in 2016 (2) Resolution of
disputes relating to the Mauro tailings dam by the end of 2018 (3) Execution of four works programmes under the “Somos Choapa” commitments by the end of 2018
(4) Implementation and advancement of an agreement with the Salamanca community in relation to water matters.
antofagasta.co.uk
131
GOVERNANCE
2018 EXECUTIVE REMUNERATION REPORT CONTINUED
ILLUSTRATION OF CEO REMUNERATION
POLICY IN 2019
A significant proportion of the remuneration available to Iván Arriagada is dependent on the performance of the Group and in 2019 his total
remuneration will consist of the same elements as it did in 2018.
The chart below outlines the CEO’s total potential remuneration in 2019 under different performance scenarios.
The figures are based on the following assumptions:
Minimum
No payout
No payout
Target
100% of
Restricted
Awards,
48% of
maximum
Performance
Awards
Maximum
100% of
Restricted
Awards,
100% of
maximum
Performance
Awards
50% of
bonus
opportunity
100% of
bonus
opportunity
Base salary plus benefits only and
excludes adjustments for inflation
Description
LTIP awards of
200% of salary
(30% Restricted
Awards, 70%
Performance
Awards)
Annual bonus,
maximum
opportunity
of 200% of base
salary
Annual base
salary of
Ch$446,960,160
($643,321) as at
1 January 2019,
plus benefits
s
t
n
e
m
e
e
l
s
t
n
e
m
e
e
l
l
e
b
a
i
r
a
v
m
r
e
t
-
g
n
o
L
l
e
b
a
i
r
a
v
l
a
u
n
n
A
s
t
n
e
m
e
e
l
d
e
x
F
i
$3.22m
39.9%
39.9%
$2.12m
38.9%
30.4%
$0.651m
100%
30.7%
20.2%
All elements and annual variable elements are estimated in Chilean
pesos using an exchange rate of $1 = Ch$695 and are therefore
subject to exchange rate fluctuations during the year.
Minimum
Target
Maximum
FIXED ELEMENTS
ANNUAL VARIABLE ELEMENTS
LONG-TERM VARIABLE ELEMENTS
2019 ANNUAL BONUS PLAN
The Board has agreed Group performance criteria for the 2019 Annual Bonus Plan as follows. The number of KPIs and weightings attributable
to each component of the 2019 Annual Bonus Plan is consistent with the 2018 Annual Bonus Plan and reflects the Committee’s view of the
balance required to successfully implement the Group’s strategy in 2019. 70% of the CEO and Executive Committee’s 2019 annual bonus will
be calculated based on the Group’s performance against these criteria in 2019.
Weighting
60%
15%
Objective
Core Business
EBITDA
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
25%
20%
20%
15%
5%
20%
5%
5%
5%
5%
132
Antofagasta plc Annual Report 2018
Measure
Threshold
Target
$m
tonnes
$/lb
$m
≤-10% The Group’s future metals price assumptions are
commercially sensitive and therefore the target for
EBITDA will not be disclosed in advance. However,
the Company will disclose the 2019 target and
outcome in the 2019 Annual Report.
750-790,000
734,000
1.77
77
1.70
74
Maximum
≥+10%
804,000
1.57
70
Measured according to KPIs and milestones. The Company will disclose
the 2019 targets and outcomes in the 2019 Annual Report.
Measured according to KPIs and milestones. The Company will disclose
the 2019 targets and outcomes in the 2019 Annual Report.
PERFORMANCE SCORE ADJUSTMENTS AND BOARD
DISCRETION
As has been the case since 2016, the final performance score under
the 2019 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 2019.
The final performance score for Core Business will also automatically
be adjusted to 90 (0% bonus) when applied to the 2019 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 2019.
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.
The 2019 Annual Bonus Plan EBITDA targets will be adjusted for
copper price and exchange rate fluctuations during 2019 and cost
targets will be adjusted for exchange rate fluctuations, any one-off
bonuses awarded as part of labour negotiations and input prices if
these prices deviate by more than 20% over the year.
2019 LTIP AWARDS
Awards will not be granted under the LTIP in 2019 until after the date
of this report and following publication of the Group’s 2018 results.
As noted on page 120, it is not currently expected that there will be
any change to the design of the LTIP in 2019 and the number of KPIs
and weightings attributable to each component of the LTIP in 2019
is expected to be consistent with the 2018 LTIP. Additionally, the 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 below. If the performance
conditions set by the Committee end up materially different from
those disclosed, the revised performance conditions will be disclosed
in the 2019 Annual Report.
Weighting
50%
Objective
Relative Total
Shareholder
Return
25%
Mineral
Resources
Increase
12.5%
12.5%
Projects
Performance
Environmental
Performance
Measure
Comparison against Euromoney Global
Mining Index with 0% vesting at
performance below the index, 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
84.2 million tonnes of contained copper,
with an anticipated Target and Threshold
of 83.0 and 81.8 million tonnes of
contained copper respectively.
Relates to the Group’s priority projects.
Relates to the Group’s environmental
performance.
antofagasta.co.uk
133
GOVERNANCE SUMMARY OF 2017 DIRECTORS’ REMUNERATION POLICY
SUMMARY OF 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 134 to 136
is provided for reference and covers elements of the policy
that apply to all Directors. It does not form part of the
2018 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.
134
Antofagasta plc Annual Report 2018
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
Benefits
Given the non-executive composition of the Board, there are no arrangements for Directors to acquire benefits through the
acquisition of shares in the Company or any of its subsidiary undertakings, to benefit through performance-related pay or to
participate in long-term incentive schemes. The Code states that remuneration for Non-Executive Directors should not include
share options or other performance-related elements.
To provide
appropriate
benefits and
reimburse
appropriate
expenses that
are incurred in
the performance
of duties of
the Directors.
Benefits include the provision of life, accident and
health insurance and may also include professional
advice and certain other minor benefits including
occasional spousal travel in connection with the
business and any Company business expenses which
are deemed to be taxable. The Company will pay any
tax payable on those benefits on behalf of Directors.
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.
The Committee retains the discretion to provide
additional insurance benefits in accordance with
Company policy, should this be deemed necessary.
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.
antofagasta.co.uk
135
GOVERNANCE
SUMMARY OF 2017 DIRECTORS’ REMUNERATION POLICY CONTINUED
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 this page.
Variable pay will not be considered and, as such, no maximum applies.
Fees will be consistent with the policy at the time of appointment.
A timely announcement with respect to any Director appointment
will be made to the regulatory news services and posted on the
Company’s website.
TERMINATION POLICY
The letters of appointment for the Non-Executive Directors do not
provide for any compensation for loss of office beyond payments
in lieu of notice, and therefore the maximum amount payable upon
termination of these letters is 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.
136
Antofagasta plc Annual Report 2018
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.
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’ 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 98 to 101.
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 decreased from $1,830.8
million in 2017 to $1,252.7 million in 2018.
The Board has recommended a final dividend of 37 cents per ordinary
share (2017 – 40.6 cents). An interim dividend of 6.8 cents was paid
on 5 October 2018 (2017 interim dividend – 10.3 cents). This gives
total dividends per share proposed in relation to 2018 of 43.8 cents
(2017 – 50.9 cents) and a total dividend amount in relation to 2018
of $431.8 million (2017 – $501.8 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 $0.1 million (2017 – $0.1 million).
Further information relating to dividends is set out in the Financial
Review on page 80 and in Note 13 to the financial statements.
POLITICAL CONTRIBUTIONS
The Group did not make political donations during the year ended
31 December 2018 (2017 – nil).
AUDITOR
The Company’s auditor, PricewaterhouseCoopers LLP, has indicated
its willingness to continue in office and a resolution seeking its
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:
− so far as they are aware, there is no relevant audit information
of which the Group’s auditor is unaware; and
− 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 2018 AGM, held on 23 May 2018, 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 ordinary 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 22 May 2019. No 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 2018 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.
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GOVERNANCE DIRECTORS’ REPORT CONTINUED
The Company was also authorised by a shareholders’ resolution
passed at the 2018 AGM to purchase up to 10% of its issued ordinary
share capital. Any shares 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 2018, are given in the Directors’
Remuneration Report. No Director had any material interest in a
contract of significance (other than a service contract – see page 124)
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 relevant 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 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.
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Antofagasta plc Annual Report 2018
SUBSTANTIAL SHAREHOLDINGS
As at 31 December 2018 and 18 March 2019, 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 subsidiaries carry out exploration and research and
development activities that are necessary to support and expand the
Group’s operations.
OTHER STATUTORY DISCLOSURES
The Corporate Governance Report on pages 84 to 136, the Statement
of Directors’ Responsibilities on page 139 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 56 to 75
Page 22
Pages 56 to 75
Pages 36 to 37
Page 48
Disclosures required pursuant to Listing Rule 9.8.4R can be found
on the following pages of the Annual Report:
Statement of interest capitalised by the
Group (LR 9.8.4(1))
Relationship agreement (LR 9.8.4(14))
By order of the Board
Location in
Annual Report
See Notes 5, 9 and 15 to
the financial statements on
pages 160 to 164, 169 and
173 and 174.
Page 91
Julian Anderson
Company Secretary
18 March 2018
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
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:
− select suitable accounting policies and then apply them consistently
− make judgements and accounting estimates that are reasonable
and prudent
− state whether 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
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 Parent Company financial statements, which have been
prepared in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards,
comprising FRS 101 “Reduced Disclosure Framework”, and
applicable law), give a true and fair view of the assets, liabilities,
financial position and profit of the Company,
− 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.
By order of the Board
Jean-Paul Luksic
Chairman
Ollie Oliveira
Senior Independent Director
unless it is inappropriate to presume that the Company will continue
in business.
18 March 2019
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.
The Directors are responsible for the maintenance and integrity of the
Company’s website. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from legislation
in other jurisdictions.
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GOVERNANCE
FINANCIAL STATEMENTS
IN THIS SECTION
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
Production statistics
Ore reserves and mineral
resources estimates
Glossary and definitions
Shareholder information
Directors and advisers
141
147
148
148
149
150
151
198
205
207
208
218
223
IBC
140
Antofagasta plc Annual Report 2018
antofagasta.co.uk
141
FINANCIAL STATEMENTS MATERIALITY
AUDIT SCOPE
MATERIALITY
AUDIT SCOPE
AREAS OF
FOCUS
AREAS OF
FOCUS
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Antofagasta plc Annual Report 2018
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF ANTOFAGASTA PLC 142 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 2018 and of the Group's profit and cash flows for the year then ended; The Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; The Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 ‘Reduced Disclosure Framework’, and applicable law); and The financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. We have audited the financial statements, included within the Annual Report and Financial Statements 2018 (the ‘Annual Report’), which comprise: the consolidated and Parent Company balance sheets as at 31 December 2018; the consolidated income statement and consolidated statement of comprehensive income, the consolidated cash flow statement, and the consolidated 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. 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 2018 to 31 December 2018. OUR AUDIT APPROACH OVERVIEW Overall Group materiality: $64 million (2017: $49 million), based on 5% of three-year average profit before tax adjusted for one off items. Overall Parent Company materiality: $14.5 million (2017: $18.5 million), based on 1% of Total Assets. 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 86% 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). Impairment assessments at Antucoya and Centinela. 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.
CAPABILITY OF THE AUDIT IN DETECTING IRREGULARITIES,
INCLUDING FRAUD
Based on our understanding of the Group and industry, we identified that
the principal risks of non-compliance with laws and regulations related to
breaches of safety and environmental regulations and unethical and
prohibited business practices. We considered the extent to which non-
compliance might have a material effect on the financial statements. We
also considered those laws and regulations that have a direct impact on the
preparation of the financial statements such as the Companies Act 2006
(’CA06’), and the UK Listing Rules. We evaluated management’s incentives
and opportunities for fraudulent manipulation of the financial statements
(including the risk of override of controls), and determined that the principal
risks were related to posting inappropriate journal entries to increase
revenue or reduce expenditure, and management bias in accounting
estimates. The Group engagement team shared this risk assessment with
the component auditors so that they could include appropriate audit
procedures in response to such risks in their work. Audit procedures
performed by the Group engagement team and/or component auditors
included:
Discussions with management, internal audit and the Group’s legal
advisors, including consideration of known or suspected instances
of non-compliance with laws and regulation and fraud;
Evaluation of management’s controls designed to prevent and
detect irregularities, in particular their anti-bribery controls;
Assessment of matters reported on the Group’s whistleblowing
helpline and the results of management’s investigation of such
matters;
Key audit matter
Impairment 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 potential impairment risk at Antucoya
from the perspective of its high cost base; and Centinela from the
perspective of its sensitivity to changes in the long term copper price
and that a significant portion of its value generation is tied up in two
significant capital projects that have 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.
This assessment included consideration of a valuation and sensitivity
analysis. This analysis requires judgement on the part of the Directors
in valuing the relevant CGUs. The Directors have applied assumptions
that a market participant would use to determine fair value, including
incorporating value from cash flows related to the planned construction
of a second concentrator at Centinela.
Refer to Note 4 Asset Sensitivities.
Challenging assumptions and judgements made by management
in their significant accounting estimates, in particular in relation to
impairment assessments at Antucoya and Centinela;
Identifying and testing journal entries, in particular any journal entries
posted with unusual account combinations
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. Also, 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.
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.
How our audit addressed the key audit matter
We considered the Directors’ impairment indicator analysis and
agree that no impairment or reversal indicators existed as at
31 December 2018. Our consideration is described below, and
incorporates consideration of sensitivity disclosures.
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 saving initiatives.
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
amount was particularly sensitive to changes in the long-term copper
price and foreign exchange assumptions and in the case of Centinela,
the expansion projects.
We formed an independent view of the copper price that a market
participant might use in a fair value less cost of disposal scenario.
We found that the Directors’ long- term copper price assumption of
$3.10/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 using
a range of higher discount rates and lower long term copper prices.
In light of the above, we reviewed the appropriateness of the related
disclosures in Note 4 of the financial statements, including the
sensitivities provided, and concluded they were appropriate.
We determined that there were no key audit matters applicable to the Parent Company to communicate in our report.
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FINANCIAL STATEMENTS
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF ANTOFAGASTA PLC CONTINUED
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.
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.
The core mining business consists of four assets: Los Pelambres;
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 S.A.) 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 risk
of impairment of Antucoya’s carrying value and the carrying value of
inventory at Zaldívar.
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 staff were seconded to PwC Chile to be an integral part of the team.
In addition the Senior Statutory Auditor visited Chile twice, 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.
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:
Overall materiality
How we determined it
Rationale for benchmark applied
Group financial statements
$64 million (2017: $49 million).
Parent Company financial statements
$14.5 million (2017: $18.5 million).
5% of three-year average profit before tax
adjusted for one off items.
1% of Total Assets.
For the Parent Company materiality, we
determined our materiality based on total assets,
which is more applicable than a performance-
related measure as the company is an
investment holding company for the Group.
For overall Group materiality, we chose to
use an underlying earnings measure as the
benchmark because an underlying measure
removes the impact of material items which
do not recur from year to year or otherwise
significantly affect the underlying trend of
performance from continuing operations.
The adoption of a multi-year average
benchmark for materiality responds to longer-
term trends in commodity markets and reduces
volatility in the measure year-on-year.
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 $40 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) (2017: $1.5 million) and $728,000 (Parent Company audit) (2017: $923,500) as well as
misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.
144
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Antofagasta plc Annual Report 2018
GOING CONCERN
In accordance with ISAs (UK) we report as follows:
Reporting obligation
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 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.
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, 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 2018 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 25 of the Annual Report that
they have carried out a robust assessment of the principal risks
Outcome
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. For example, the
terms on which the United Kingdom may withdraw from the European
Union, which is currently due to occur on 29 March 2019, are not
clear, and it is difficult to evaluate all of the potential implications on
the Company’s trade, customers, suppliers and the wider economy.
We have nothing to report.
facing the Group, including those that would threaten its business
model, future performance, solvency or liquidity.
The disclosures in the Annual Report that describe those risks and
explain how they are being managed or mitigated.
The Directors' explanation on page 22 of the Annual Report as
to how they have assessed the prospects of the Group, over what
period they have done so and why they consider that period to
be appropriate, and their statement as to whether they have a
reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the period of
their assessment, including any related disclosures drawing attention
to any necessary qualifications or assumptions.
We have nothing 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 139, 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 108 to 113 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)
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FINANCIAL STATEMENTS
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF ANTOFAGASTA PLC CONTINUED
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 4 years, covering the years ended 31 December 2015 to
31 December 2018.
Jason Burkitt
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
18 March 2019
RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS
AND THE AUDIT
RESPONSIBILITIES OF THE DIRECTORS FOR THE FINANCIAL STATEMENTS
As explained more fully in the Statement of Directors’ Responsibilities
set out on page 139, 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.
146
146
Antofagasta plc Annual Report 2018
FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2018
Group revenue
Total operating costs
Operating profit from subsidiaries
Net share of results from associates and joint ventures
Total profit from operations, associates and joint ventures
Investment income
Interest expense
Other finance items
Net finance expense
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
Attributable to:
Non-controlling interests
Profit for the year attributable to the owners of the parent
Basic earnings per share
From continuing operations
From discontinued operations
Total continuing and discontinued operations
Notes
5,6
5,7
5,17
7
9
5
10
5
11
30
12
12
2018
$m
2017
$m
4,733.1
4,749.4
(3,388.1)
(2,908.3)
1,345.0
22.2
1,367.2
30.1
(113.5)
(31.1)
(114.5)
1,252.7
(423.7)
829.0
51.3
880.3
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
336.6
543.7
447.1
750.6
US cents
US cents
51.5
3.6
55.1
76.1
0.1
76.2
antofagasta.co.uk
147
147
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2018
Profit for the year
Items that may be subsequently reclassified to profit or loss:
Gains on cash flow hedges – time value
Gains/(losses) on cash flow hedges – intrinsic value
Tax effects arising on cash flow hedges deferred in reserves
(Losses)/gains in fair value of cash flow hedges transferred to the income statement
Deferred tax effects arising on amounts transferred to the income statement
Share of other comprehensive losses of equity accounted units, net of tax
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
(Losses)/gains in fair value of equity investments
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
Equity holders of the Company
Note
5
24
24
24
27
17
26
18
2018
$m
2017
$m
880.3
1,197.7
6.8
1.4
–
(0.6)
–
(0.4)
7.2
3.9
–
(1.3)
2.6
9.8
–
(16.8)
(1.0)
18.0
0.3
–
0.5
5.7
(1.0)
1.4
6.1
6.6
890.1
1,204.3
30
339.3
550.8
448.8
755.5
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2018
At 1 January 2017
Profit for the year
Other comprehensive income for the year
Dividends
At 31 December 2017
Adoption of new accounting standards
Balance at 1 January 2018
Profit for the year
Other comprehensive income for the year
Transfer to non-controlling interests
Dividends
Share capital
$m
Share premium
$m
Other reserves
(Note 29)
$m
Retained earnings
(Note 29)
$m
89.8
–
–
–
89.8
–
89.8
–
–
–
–
199.2
–
–
–
199.2
–
199.2
–
–
–
–
(22.3)
–
9.8
–
(12.5)
(5.8)
(18.3)
–
3.8
–
–
6,548.6
750.6
(4.9)
(252.4)
7,041.9
1.1
7,043.0
543.7
3.3
(38.2)
(466.9)
Equity attributable
to equity
owners of
the parent
$m
6,815.3
750.6
4.9
Non-controlling
interests
$m
1,694.4
447.1
1.7
Total
equity
$m
8,509.7
1,197.7
6.6
(252.4)
(320.0)
(572.4)
7,318.4
(4.7)
7,313.7
543.7
7.1
(38.2)
(466.9)
1,823.2
(2.0)
1,821.2
336.6
2.7
38.2
(120.0)
9,141.6
(6.7)
9,134.9
880.3
9.8
–
(586.9)
At 31 December 2018
89.8
199.2
(14.5)
7,084.9
7,359.4
2,078.7
9,438.1
148
148
Antofagasta plc Annual Report 2018
CONSOLIDATED BALANCE SHEET
As at 31 December 2018
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
Equity investments
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Current tax assets
Derivative financial instruments
Liquid investments
Cash and cash equivalents
Assets 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
Trade and other payables
Liabilities in relation to joint venture
Post-employment benefit obligations
Decommissioning and restoration provisions
Deferred tax liabilities
Liabilities directly associated with assets 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
2018
$m
2017
$m
14
15
19
17
20
24
18
27
19
20
24
21
21
11
22
24
23
22
23
17
26
28
27
11
29
29
29
30
150.1
9,184.1
2.6
172.7
150.1
9,064.3
3.5
111.1
1,056.1
1,069.7
56.1
–
4.7
37.2
67.0
0.2
6.5
69.1
10,663.6
10,541.5
576.3
873.5
90.7
0.8
863.2
1,034.4
3,438.9
–
483.6
739.2
155.2
0.1
1,168.7
1,083.6
3,630.4
37.8
14,102.5
14,209.7
(646.0)
–
(608.3)
(52.8)
(753.6)
(7.1)
(609.0)
(192.4)
(1,307.1)
(1,562.1)
(1,847.9)
(7.7)
(1.0)
(107.4)
(409.8)
(983.5)
(1,955.1)
(7.4)
(2.0)
(114.0)
(433.0)
(994.1)
(3,357.3)
(3,505.6)
–
(0.4)
(4,664.4)
(5,068.1)
9,438.1
9,141.6
89.8
199.2
(14.5)
7,084.9
7,359.4
2,078.7
9,438.1
89.8
199.2
(12.5)
7,041.9
7,318.4
1,823.2
9,141.6
The financial statements on pages 147 to 197 were approved by the Board of Directors on 18 March 2019 and signed on its behalf by
Jean-Paul Luksic
Chairman
Ollie Oliveira
Senior Independent Director
antofagasta.co.uk
149
149
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2018
Cash flow from continuing operations
Interest paid
Income tax paid
Net cash from operating activities
Investing activities
Capital contribution and loan to associates and joint venture
Dividends from associates
Disposal of subsidiary and joint venture
Cash derecognised due to loss of control of subsidiary
Proceeds from sale of property, plant and equipment
Purchases of property, plant and equipment
Net decrease in liquid investments
Interest received
Net cash used in investing activities
Financing activities
Dividends paid to equity holders of the Company
Dividends paid to preference shareholders of the Company
Dividends paid to non-controlling interests
Proceeds from issue of new borrowings
Repayments of borrowings
Repayments of obligations under finance leases
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Net (decrease)/increase in cash and cash equivalents
Effect of foreign exchange rate changes
Cash and cash equivalents at end of the year
Notes
31
17
17
17
11
21
13
13
30
31
31
31
31
31
2018
$m
1,877.0
(68.2)
(498.0)
1,310.8
(8.1)
16.6
145.2
(13.2)
0.7
(872.9)
305.5
26.4
(399.8)
(466.9)
(0.1)
(120.0)
420.0
(733.8)
(33.3)
(934.1)
(23.1)
1,083.6
(23.1)
(26.1)
2017
$m
2,495.0
(59.1)
(338.4)
2,097.5
(45.4)
81.8
3.1
(2.2)
6.9
(901.3)
163.5
14.3
(679.3)
(252.3)
(0.1)
(320.0)
272.0
(725.5)
(33.5)
(1,059.4)
358.8
716.3
358.8
8.5
21,31
1,034.4
1,083.6
150
150
Antofagasta plc Annual Report 2018
The Group has also been impacted by IFRS 9’s requirements in respect of
commodity price hedging. Previously under IAS 39 the time value element
of changes in the fair value of derivative options was excluded from the
designated hedging relationship, and recognised in the income statement
within other finance items. Under IFRS 9 the time value element is now
recognised within other comprehensive income rather than the
income statement.
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 represented an
embedded derivative which was separated from the host contract (the
copper or molybdenum sales contract which was recognised at amortised
cost) and recognised at fair value through profit or loss. Under IFRS 9 the
total receivable balance is measured at fair value through profit or loss.
However, this does not result in any significant change to the overall
combined value to be recognised on the balance sheet and in the
income statement.
IFRS 9 requires a forward-looking expected credit loss (ECL) review is
required for the Group’s financial assets, other than those measured at fair
value through profit or loss. As required by IFRS 9, the Group applies the
“simplified approach” to its trade receivable balances and the “general
approach” to all other financial assets. The general approach incorporates
a review for any significant increase in counterparty credit risk since
inception. The ECL reviews include assumptions about the risk of default
and expected loss rates. For trade receivables, the assessment takes into
account the use of credit enhancements, for example, letters of credit.
The Group has applied the optional transitional provisions of IFRS 9 in
respect of the classification, measurement and impairment requirements
of the standard. Other effects of the transition to IFRS 9 are not material.
Accordingly the cumulative impact of applying IFRS 9 has been recognised
as an adjustment to equity as at 1 January 2018, with no restatement of
prior periods, with the effects as shown on the following page.
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 EVENT DURING 2018
On 11 September 2018 the Group completed the disposal of Centinela
Transmission, which holds the electricity transmission line supplying
Centinela and other external parties, for cash consideration of $117 million.
The profit on disposal, along with the net results of Centinela Transmission
prior to the disposal date, are shown in the income statement on the line
for “Profit for the period from discontinued operations”.
A) ADOPTION OF NEW ACCOUNTING STANDARDS
The Group has applied IFRS 15 Revenue from Contracts with Customers
and IFRS 9 Financial Instruments in the current period. The impact of
the implementation of these standards, and the changes to the Group’s
accounting policies resulting from these new standards is set out below:
IFRS 9 Financial Instruments
The Group has been impacted by IFRS 9’s rules in respect of the
modification of financial liabilities (for example, the refinancing of a loan
agreement). Under IAS 39 Financial Instruments for modifications which
did not have substantially different terms the Group did not recognise any
immediate change to the carrying value of the liability, or any immediate
profit or loss impact. Instead, the difference between the original and
modified cash flows was amortised over the remaining term of the
modified liability by calculating a new effective interest rate. Under IFRS 9
it is necessary to adjust the carrying value of the financial liability, based
on the present value of the modified cash flows discounted at the original
effective interest rate. Any adjustment to the carrying value of the financial
liability will result in an immediate profit or loss being recognised in the
income statement.
IFRS 9 introduces new classification categories for financial assets and
liabilities; however, this has not resulted in any significant changes in the
valuation or recognition methodology for the Group’s financial assets and
liabilities. The most relevant point is in respect of equity investments.
Previously under IAS 39 these balances were classified as Available-for-
Sale assets measured at fair value, with movements in the fair value being
recorded in other comprehensive income. Under IFRS 9 the Group
generally applies an irrevocable election for each equity investment to
designate them as Fair Value through Other Comprehensive Income
(FVOCI), resulting in a similar accounting treatment.
antofagasta.co.uk
151
151
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
1 BASIS OF PREPARATION CONTINUED
Share capital
Share premium
Other reserves
Retained earnings
Net equity
Non- controlling
interests
$m
$m
$m
$m
$m
$m
Total
$m
Balance at 31 December 2017
89.8
199.2
(12.5)
7,041.9
7,318.4
1,823.2
9,141.6
Modification of financial liabilities
Hedging – time value reclassification
Expected credit loss model
Tax impact
Total impact
–
–
–
–
–
–
–
–
–
–
–
(6.8)
–
1.0
(5.8)
(2.2)
6.8
(0.9)
(2.6)
1.1
(2.2)
–
(0.9)
(1.6)
(4.7)
(0.8)
–
(0.2)
(1.0)
(2.0)
(3.0)
–
(1.1)
(2.6)
(6.7)
Balance at 1 January 2018
89.8
199.2
(18.3)
7,043.0
7,313.7
1,821.2
9,134.9
IFRS 15 Revenue from Contracts with Customers
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 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 represents a separate performance
obligation, and is now recognised separately from the sale of the
material when the shipping service has been provided, along with the
associated costs.
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. The provisional pricing adjustments to revenue are
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.
For the Transport division, revenue in respect of its transportation and
ancillary services continue to be recognised in-line with the performance of
those services, as was the case under IAS 18, and accordingly the adoption
of IFRS 15 has not resulted in any adjustments to its revenue recognition.
The Group has applied the optional transitional provisions of IFRS 15, and
accordingly there has been no restatement of prior periods. This has not
resulted in any overall impact to net assets or retained earnings as at
1 January 2018. The impact on individual asset and liability lines at
1 January 2018 was immaterial.
The following accounting standards, amendments and interpretations
became effective in the current reporting period:
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)
152
152
Antofagasta plc Annual Report 2018
Transfers of Investment Property (Amendments to IAS 40)
Annual Improvements to three IFRS Standards 2014–2016 Cycle
IFRIC 22, Foreign Currency Transactions and Advance Consideration
Clarifications to IFRS 15 'Revenue from Contracts with Customers'
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 16 Leases
IFRS 17 Insurance Contracts
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)
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
Plan Amendment, Curtailment or Settlement (Amendments to IAS 19)
Amendments to References to the Conceptual Framework in
IFRS Standards
Definition of a Business (Amendments to IFRS 3)
The Group is continuing to evaluate in detail the potential impact of these
new interpretations, excluding IFRS 16.
IFRS 16 Leases
Adoption of this standard is mandatory in 2019. The standard has been
endorsed by the EU.
IFRS 16 Leases will result in most of the Group’s existing operating leases
being accounted for similarly to finance leases under the current IAS 17,
resulting in the recognition of additional assets within property, plant and
equipment in respect of the right of use of the lease assets, and additional
lease liabilities. The operating lease charges currently reflected within
operating expenses (and EBITDA) will be eliminated, and instead
depreciation and finance charges will be recognised in respect of the lease
assets and liabilities. The Group expects to apply the optional transitional
provisions of IFRS 16 which will result in the initial impact of the new
standard being recognised as an adjustment to the balance sheet as
at 1 January 2019, with no restatement of the comparative period.
The Group also expects to apply the transition option to recognise the right
of use assets as at 1 January 2019 at amounts equal to the corresponding
lease liabilities, and consequently it is expected that there will be no overall
impact on net assets or retained earnings as at 1 January 2019.
The Group has completed a detailed contract review process to identify all
relevant leases, including those effectively embedded within wider service
contracts, and has calculated the impact of the implementation of IFRS 16 in
respect of these leases. The Group has also completed the implementation
of the necessary changes to its accounting systems and processes to apply
the requirements of IFRS 16 from 1 January 2019 onwards.
It is expected that the implementation of IFRS 16 on 1 January 2019 will
result in the recognition of additional lease assets within property, plant
and equipment and additional lease liabilities as at 1 January 2019 of
approximately $130 million in each case. Additionally, it is expected that
during 2019 relevant contracts will be renewed or replaced, and it is
estimated that this could result in additional lease assets and liabilities of
approximately $60 million being recognised during 2019, resulting in total
lease assets and liabilities at the end of 2019 of approximately $190 million.
Based on the operating leases in place at 31 December 2018, and
anticipated renewals and replacements of those leases, it is currently
estimated that the new standard will result in a decrease in annual
operating expenses before depreciation (and therefore an increase in
EBITDA) of approximately $66 million, an increase in annual depreciation
of approximately $61 million, an increase in finance costs of approximately
$7 million, and a net impact on profit before tax of less than $5 million.
2 PRINCIPAL ACCOUNTING POLICIES
A) ACCOUNTING CONVENTION
These financial statements have been prepared under the historical cost
convention as modified by the use of fair values to measure certain
financial instruments, principally provisionally priced sales as explained in
Note 2(F) and financial derivative contracts as explained in Note 2(W).
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. 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 (ie 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 IFRS 9 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)
(ii)
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.
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.
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CONTINUED
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, ie 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.
Revenue is recognised when the Group satisfies a performance obligation
by transferring a promised good or service (ie an asset) to a customer. An
asset is transferred when (or as) the customer obtains control of that asset.
For the Group’s mining products the customer generally gains control over
the material when it has been loaded at the port of loading, and so this is
the point of revenue recognition. 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. The shipping service represents a separate
performance obligation, and is recognised separately from the sale of the
material when the shipping service has been provided, along with the
associated costs. Shipment revenue is recognised at the contracted price
as this reflects the stand-alone selling price.
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. For sales contracts
which contain provisional pricing mechanisms the total receivable balance
is measured at fair value through profit or loss. Gains and losses from the
marking-to market of open sales are recognised through adjustments to
other incomer as part of revenues in the income statement and to trade
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receivables in the balance sheet. The fair value calculations are based on
forward prices at the period end for copper concentrate and cathode sales,
and period-end average prices for molybdenum concentrate sales due to
the absence of a futures market.
For the Transport division, revenue in respect of its transportation
and ancillary services are recognised in-line with the performance of
those services.
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 equity 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 IFRS 9.
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 (ie 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.
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 and 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.
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 property, plant
and equipment. The capitalised costs will then be amortised on a unit of
production basis, in proportion to the volume of ore extracted compared
with the total ore contained in the component of the pit to which the
stripping campaign relates.
INTANGIBLE ASSETS
J)
Intangible assets with finite useful lives that are acquired separately are
carried at cost less accumulated amortisation and accumulated impairment
losses. 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 and 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. Gains or losses arising from
derecognition of an intangible asset, measured as the difference between
the net disposal proceeds and the carrying amount of the asset, are
recognised in profit or loss when the asset is derecognised.
K) PROPERTY, PLANT AND EQUIPMENT
The costs of mining properties and leases, which include the costs
of acquiring and developing mining properties and mineral rights, are
capitalised as property, plant and equipment in the year in which they are
incurred, when a mining project is considered to be commercially viable
(normally when the project has completed a pre-feasibility study, and the
start of a feasibility study has been approved). The cost of property, plant
and equipment comprises the purchase price and any costs directly
attributable to bringing the asset to the location and condition necessary
for it to be capable of operating in the manner intended. Once a project has
been established as commercially viable, related development expenditure
is capitalised. This includes costs incurred in preparing the site for mining
operations, including pre-stripping costs. Capitalisation ceases when the
mine is capable of commercial production, with the exception of
development costs which give rise to a future benefit.
Interest on borrowings related to construction or development of projects
is capitalised, until such time as the assets are substantially ready for their
intended use or sale which, in the case of mining properties, is when they
are capable of commercial production.
L) DEPRECIATION OF PROPERTY, PLANT AND
EQUIPMENT
Depreciation of an asset begins when it is available for use, ie 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.
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CONTINUED
(iii) Buildings and infrastructure – straight-line basis over 10 to
25 years.
(iv) Railway track (including trackside equipment) – straight-line basis
over 20 to 25 years.
(v) Wagons and rolling stock – straight-line basis over 10 to 20 years.
(vi) Machinery, equipment and other assets – are depreciated on a
unit of production basis, in proportion to the volume of ore/material
processed or on a straight-line basis over 5 to 20 years.
(vii) Assets under construction – no depreciation until asset is available
for use.
(viii) Assets held under finance lease – are depreciated over the shorter
of the lease term and their useful life.
(ix) Stripping cost – 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 (Note 2I).
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, 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.
N) INVENTORY
Inventory consists of raw materials and consumables, work-in-progress
and finished goods. Work-in-progress represents material that is in the
process of being converted into finished goods. The conversion process for
mining operations depends on the nature of the copper ore.
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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
in the production process; and
an appropriate portion of production overheads.
Stockpiles represent ore that is extracted and is available for further
processing. Costs directly attributable to the extraction of ore are
generally allocated as part of production 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 (ie 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)
(ii)
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;
deferred tax is not provided on the initial recognition of an asset or
liability in a transaction that does not affect accounting profit or taxable
profit and is not a business combination; nor is deferred tax provided
on subsequent changes in the carrying value of such assets and
liabilities, for example where they are depreciated; and
(iii)
the initial recognition of any goodwill.
Deferred tax assets are recognised only to the extent that it is probable that
they will be recovered through sufficient future taxable profit. The carrying
amount of deferred tax assets is reviewed at each balance sheet date.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised. Deferred tax is
charged or credited in the income statement, except when it relates to
items charged or credited directly to equity, in which case the deferred tax
is also taken directly to equity.
P) PROVISIONS
Provisions are recognised when the Group has a present obligation (legal
or constructive) as a result of a past event, it is probable that the Group will
be required to settle the obligation and a reliable estimate can be made of
the amount of the obligation.
The amount recognised as a provision is the best estimate of the
consideration required to settle the present obligation at the end of
the reporting period, taking into account the risks and uncertainties
surrounding the obligation. When a provision is measured using the
cash flows estimated to settle the present obligation, its carrying amount
is the present value of those cash flows (when the effect of the time value
of money is material).
When some or all of the economic benefits required to settle a provision
are expected to be recovered from a third party, a receivable is recognised
as an asset if it is virtually certain that reimbursement will be received and
the amount of the receivable can be measured reliably.
Q) PROVISIONS FOR DECOMMISSIONING AND
RESTORATION COSTS
An obligation to incur decommissioning and restoration costs occurs
when environmental disturbance is caused by the development or ongoing
production of a mining property. Costs are estimated on the basis of a
formal closure plan and are subject to regular formal review.
Such costs arising from the installation of plant and other site preparation
work, discounted to their net present value, are provided and capitalised
at the start of each project, as soon as the obligation to incur such costs
arises. These decommissioning costs are charged against profits over
the life of the mine, through depreciation of the asset and unwinding or
amortisation of the discount on the provision. Depreciation is included
in operating costs while the unwinding of the discount is included as
financing costs. Changes in the measurement of a liability relating to the
decommissioning of plant or other site preparation work are added to, or
deducted from, the cost of the related asset in the current year.
The costs for restoration of site damage, which is created on an ongoing
basis during production, are provided for at their net present values and
charged against operating profits as extraction progresses. Changes in the
measurement of a liability relating to site damage created during production
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.
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 –
ie when the obligation specified in the contract has been discharged,
cancelled or expired.
(i)
Investments – Equity investments which are not subsidiaries,
associates or joint ventures are recognised at fair value. The Group
generally applies an irrevocable election for each equity investment to
designate them as Fair Value through Other Comprehensive Income
(FVOCI). Dividends from equity investments are recognised in the
income statement when the right to receive payment is established.
(ii) Trade and other receivables – As explained above, for sales
contracts which contain provisional pricing mechanism the total
receivable balance is measured at fair value through profit or loss.
Other receivable balances are recognised at amortised cost.
(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.
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FINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
2 PRINCIPAL ACCOUNTING POLICIES
CONTINUED
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 periodically uses derivative financial instruments to reduce
exposure to foreign exchange, interest rate and commodity price
movements. The Group does not use such derivative instruments
for trading purposes. The Group has applied the hedge accounting
provisions of IFRS 9 Financial Instruments. The effective portion of
changes in the fair value of derivative financial instruments that are
designated and qualify as hedges of future cash flows have been
recognised directly in equity, with such amounts subsequently
recognised in profit or loss in the period when the hedged item
affects profit or loss. Any ineffective portion is recognised immediately
in profit or loss. Realised gains and losses on commodity derivatives
recognised in profit or loss are recorded within revenue. The time
value element of changes in the fair value of derivative options is
recognised within other comprehensive income.
(vii)
Financial assets with embedded derivatives are considered in
their entirety when determining the appropriate classification and
measurement. 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. Derivatives embedded in
financial liabilities are treated as separate derivatives when their
risks and characteristics are not closely related to those of the host
contract and the host contract is not measured at fair value. Changes
in fair value are reported in profit or loss for the year.
Impairment of financial assets – The Group applies the forward-
looking expected credit loss model to its financial assets, other than
those measured at fair value through profit or loss. The Group applies
the IFRS 9 “simplified approach” to its trade receivables, measuring
the loss allowance at the lifetime expected credit loss. For other
financial assets, where the credit risk has not increased significantly
since initial recognition, the loss allowance is measured at the
12 month expected credit loss. If there has been a significant increase
in credit risk, the loss allowance is measured at the lifetime expected
credit loss. Increases or decrease to the credit loss allowance are
recognised immediately in profit or loss.
X) EXCEPTIONAL ITEMS
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.
Y) ROUNDING
All amounts disclosed in the financial statements and notes have been
rounded off to the nearest million dollars unless otherwise stated.
These policies have been consistently applied to all the years presented,
unless otherwise stated.
3 CRITICAL ACCOUNTING JUDGEMENTS
AND KEY SOURCES OF ESTIMATION
UNCERTAINTY
Determining many of the amounts included in the financial statements
involves the use of judgement and/or estimation. These judgements and
estimates are based on management’s best knowledge of the relevant
facts and circumstances having regard to prior experience, but actual
results may differ from the amounts included in the financial statements.
Information about such judgements and estimates is included in the
principal accounting policies in Note 2 or the other notes to the financial
statements, and the key areas are set out below.
A) 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 when the mining
project is considered to be commercially viable. 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. 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.
As at 31 December 2018 $226.2 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. Should the Group ultimately take the decision
to abandon any of these projects, and not continue with their
development, then it is likely that the corresponding element of
the capitalised feasibility study costs would need to be impaired.
The capitalisation of the construction and commissioning costs for a
new mining operation ceases, and depreciation commences, when
the operation is in the condition necessary for it to be capable of
operating in the manner intended (which is termed as achieving
commercial production).
The determination of the commercial production date requires
judgement which involves the consideration of a number of relevant
factors, including the successful completion of commissioning tests
and the processing and production levels achieved compared with
expected design capacity.
(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. 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. 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.
As set out in Note 27, the Group has recognised $37.2 million of
deferred tax assets as at 31 December 2018, with the majority of
these deferred tax assets relating to short-term timing differences
and provisions. The Group had unused tax losses of $207.1 million
available for offset against future profits. A deferred tax asset of
$0.3 million has been recognised in respect of $1.1 million of
these losses,
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Antofagasta plc Annual Report 2018
with no deferred tax asset recognised in respect of the remaining
$206.0 million of tax losses. If the Group’s assessment as to the
recoverability of those tax losses were to change, then potentially
additional deferred tax assets of up to $55.0 million could
be recognised.
No deferred tax liability is recognised in respect of the undistributed
earnings of subsidiaries where it is not likely that those profits will be
distributed in the foreseeable future. When determining whether it
is likely that distributions will be made in the foreseeable future, and
what is the appropriate foreseeable future period for this purpose, the
Group considers factors such as the predictability of the likely future
Group dividends, taking into account the Group’s dividend policy and
the level of potential volatility of the Group’s future earnings, as well
as the current level of distributable reserves at the Antofagasta plc
entity level. As set out in Note 27, at 31 December 2018 deferred
withholding tax liabilities of $11.3 million have been recognised, which
relate to undistributed earnings of subsidiaries where it is considered
likely that the corresponding profits will be distributed in the
foreseeable future. The value of the remaining undistributed earnings
of subsidiaries for which deferred tax liabilities have not been
recognised was $5,080.0 million.
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) 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 valuations and sensitivities of the Group’s mining
operations are included in Note 4, including quantitative
sensitivity analyses.
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.
(ii)
Inventory valuation
The valuation of work in progress inventories involves a number of
estimates, including the average ore grade, volume and density of ore
stockpiles, and the total recoveries and the speed of recovery in
respect of material on the leach piles. Evaluating the net realisable
value of the inventories also requires an estimate of the likely future
copper price for the periods when it is expected that the inventories
will be completed and sold. As set out in Note 19, the value of work
in progress inventory at 31 December 2018 was $435.5 million.
(iii) 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 2018 was
$760.5 million, and so as a very simplistic sensitivity, a 10%
adjustment and the useful economic lives of all of the Group’s
property, plant equipment would result in an impact of approximately
$75 million on the annual depreciation charge.
(iv) 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 2018 was
$409.8 million.
4 ASSET SENSITIVITIES
Other asset sensitivities
There were no indicators of potential impairment, or reversal of previous
impairments, for the Group’s operations at the 2018 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.
antofagasta.co.uk
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159
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
4 ASSET SENSITIVITIES CONTINUED
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 the US dollar/Chilean peso
exchange rate. 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 $3.10/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. In the case of Centinela,
a significant element of the valuation relates to the planned construction
of the second concentrator, and a substantial change in the plans for that
development could have a considerable impact on the valuation.
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 still showed positive headroom in this alternative
down-side scenario, and Zaldívar indicated a break-even position.
However the Antucoya valuation indicated a potential deficit of $110 million
and the Centinela valuation indicated a potential deficit of $770 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. In particular, given that
copper exports account for over 50% of Chile’s exports, movements in the
US dollar/Chilean peso exchange rate are highly correlated to the copper
price, and a decrease in the copper price is likely to result in a weakening
of the Chilean peso, with a resulting reduction in the Group’s operating
costs and capital expenditure. These likely cost reductions, as well as
potential operational changes which could be made in a weaker copper
price environment, could partly mitigate the impact of the lower copper
price modelled in these estimated potential sensitivities.
5 SEGMENT INFORMATION
The Group’s reportable segments are as follows:
Los Pelambres
Centinela
Antucoya
Zaldívar
Exploration and evaluation
Corporate and other items
Transport division
For management purposes, the Group is organised into two business
divisions based on their products – Mining and Transport. The mining
division is split further for management reporting purposes to show results
by mine and exploration activity.
Los Pelambres produces primarily copper concentrate and molybdenum
as a by-product. Centinela produces copper concentrate containing gold as
a by-product, molybdenum concentrates and copper cathodes. Antucoya
and Zaldívar produce copper cathodes. The transport division provides
rail cargo and road cargo transport together with a number of ancillary
services. All the operations are based in Chile. The Exploration and
evaluation segment incurs exploration and evaluation expenses. “Corporate
and other items” comprises costs incurred by the Company, Antofagasta
Minerals 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 assessing performance. Segment
performance is evaluated based on the operating profit of each of
the segments.
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Antofagasta plc Annual Report 2018
A) SEGMENT REVENUES AND RESULTS
FOR THE YEAR ENDED 31 DECEMBER 2018
Los Pelambres
$m
Centinela
$m
Antucoya
$m
Zaldívar
$m
Exploration and
evaluation2
$m
Corporate
and other items
$m
Mining
$m
Transport division
$m
Revenue
Operating cost excluding depreciation
Depreciation and amortisation
Loss 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
2,493.5
1,609.2
(1,065.9)
(243.3)
(10.5)
(964.2)
(415.4)
–
1,173.8
229.6
–
6.0
(5.8)
(13.2)
1,160.8
(371.8)
789.0
–
789.0
(315.5)
–
5.1
(35.5)
(7.8)
191.4
(18.7)
172.7
51.3
224.0
(35.8)
457.6
(316.0)
(78.7)
–
62.9
–
1.2
(49.6)
(3.1)
11.4
0.9
12.3
–
12.3
14.7
Profit/(losses) attributable to the owners of
the parent
473.5
188.2
27.0
–
–
–
–
–
14.2
–
–
–
14.2
–
14.2
–
14.2
–
14.2
–
(97.6)
–
–
–
4,560.3
(61.4)
(2,505.1)
(7.2)
(744.6)
–
(10.5)
(97.6)
(68.6)
1,300.1
–
–
–
–
(97.6)
–
(97.6)
–
(97.6)
–
(97.6)
(2.9)
17.0
(20.5)
0.4
11.3
29.3
(111.4)
(23.7)
(74.6)
1,205.6
(20.1)
(409.7)
(94.7)
–
(94.7)
795.9
51.3
847.2
–
(336.6)
(94.7)
510.6
172.8
(109.2)
(15.9)
(2.8)
44.9
10.9
0.8
(2.1)
(7.4)
47.1
(14.0)
33.1
–
33.1
–
33.1
Total
$m
4,733.1
(2,614.3)
(760.5)
(13.3)
1,345.0
22.2
30.1
(113.5)
(31.1)
1,252.7
(423.7)
829.0
51.3
880.3
(336.6)
543.7
1,427.6
645.0
141.6
87.4
(97.6)
(64.6)
2,139.4
88.9
2,228.3
EBITDA1
Additions to non-current assets
Capital expenditure
Segment assets and liabilities
Segment assets
Deferred tax assets
Investment in associates and joint venture
364.8
535.2
65.7
4,003.7
5,283.8
1,942.0
–
–
29.0
–
–
–
–
–
–
996.4
–
–
–
–
–
–
4.5
970.2
67.7
1,037.9
1,439.2
12,668.7
340.5
13,009.2
5.3
–
34.3
996.4
2.9
59.7
37.2
1,056.1
(632.2)
(4,545.1)
(119.3)
(4,664.4)
Segment liabilities
(1,218.0)
(1,746.1)
(948.8)
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 $81.0 million.
antofagasta.co.uk
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161
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
5 SEGMENT INFORMATION CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2017
Los Pelambres
$m
Centinela
$m
Antucoya
$m
Zaldívar
$m
Exploration and
evaluation2
$m
Corporate
and other items
$m
Mining
$m
Transport division
$m
Revenue
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 Venture
2,423.9
1,645.8
(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)
72.6
207.3
263.6
619.2
78.2
3,687.5
5,479.2
1,712.0
–
–
–
–
0.5
–
Segment liabilities
(1,387.0)
(1,943.0)
(960.1)
–
–
–
–
–
58.5
–
–
–
58.5
–
58.5
–
58.5
–
58.5
134.2
–
–
–
982.1
–
–
(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
(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
–
–
–
–
(68.8)
–
(68.8)
–
(68.8)
–
(68.8)
(68.8)
–
9.5
–
–
8.4
969.4
32.1
1,001.5
1,810.4
12,698.6
64.8
22.1
65.3
1,004.2
372.3
3.8
65.5
13,070.9
69.1
1,069.7
(4.5)
(657.1)
(4,951.7)
(116.4)
(5,068.1)
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
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
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.
NOTES TO SEGMENT REVENUES AND RESULTS
(i)
Inter-segment revenues are eliminated on consolidation. Revenue from the Transport division segment is stated after eliminating
inter-segmental sales to the mining division of nil (year ended 31 December 2017 – $0.3 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 Transport division segment include $54.6 million (31 December 2017 – $60.1 million) relating to the Group’s 40% interest in
Inversiones Hornitos SA (“Inversiones Hornitos”), which owns the 165MW Hornitos thermoelectric power plant in Mejillones in Chile’s Antofagasta
Region and $5.1million (31 December 2017 – $5.3 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. Further details of these investments are set out in Note 17.
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Antofagasta plc Annual Report 2018
B) ENTITY-WIDE DISCLOSURES
REVENUE BY PRODUCT1
Copper
Los Pelambres
Centinela concentrate
Centinela cathodes
Antucoya
Gold
Los Pelambres
Centinela
Molybdenum
Los Pelambres
Centinela
Silver
Los Pelambres
Centinela
Total
Transport division
REVENUE BY LOCATION OF CUSTOMER1
Europe
United Kingdom
Switzerland
Spain
Germany
Rest of Europe
Latin America
Chile
Rest of Latin America
North America
United States
Asia
Japan
China
Singapore
South Korea
Rest of Asia
2018
$m
2017
$m
2,040.3
827.9
589.4
457.6
78.6
169.4
340.2
7.8
34.4
14.7
4,560.3
172.8
4,733.1
2018
$m
125.3
587.0
152.9
117.3
131.7
248.1
73.9
2,149.0
1,037.0
378.6
508.6
68.7
209.7
168.5
–
37.7
20.5
4,578.3
171.1
4,749.4
2017
$m
46.6
835.1
163.5
139.4
114.2
206.9
125.2
199.4
207.4
1,413.0
1,698.2
481.2
633.9
322.0
247.4
484.8
124.8
372.1
231.2
4,733.1
4,749.4
INFORMATION ABOUT MAJOR CUSTOMERS
In the year ended 31 December 2018 the Group’s mining revenue included $678.1 million related to one large customer that individually accounted for
more than 10% of the Group’s revenue (year ended 31 December 2017 – one large customer representing $823.4 million).
1. Figures include both revenue from the sale of products and the associated income from the provision of shipping services.
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FINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
5 SEGMENT INFORMATION CONTINUED
NON-CURRENT ASSETS BY LOCATION OF ASSETS
Chile
USA
Other
2018
$m
2017
$m
10,449.0
10,250.2
172.6
0.1
215.4
0.1
10,621.7
10,465.7
The above non-current assets disclosed by location of assets exclude financial instruments, equity investments and deferred tax assets.
6 REVENUE
Copper and molybdenum concentrate sale contracts and copper cathode sale contracts generally provide for provisional pricing of sales at the time
of shipment, with final pricing being based on the monthly average London Metal Exchange copper price or monthly average molybdenum price for
specified future periods. This normally ranges from one to four months after shipment to the customer. For sales contracts which contain provisional
pricing mechanisms the total receivable balance is measured at fair value through profit or loss. Gains and losses from the mark-to-market of open sales
are recognised through adjustments to revenue in the income statement and to trade receivables in the balance sheet. The Group determines mark-to-
market prices using forward prices at each period-end for copper concentrate and cathode sales, and period-end month average prices for molybdenum
concentrate sales due to the absence of a futures market in the market price references for that commodity in the majority of the Group’s contracts.
An analysis of the Group’s revenue is as follows:
Revenue from contracts with customers
Sale of products
Rendering of transport services
Shipping services
Provisional pricing adjustments in respect of concentrate and cathode sales
Total revenue
2018
$m
2017
$m
4,660.5
172.8
74.4
(174.6)
4,221.9
141.8
66.4
319.3
4,733.1
4,749.4
The categories of revenue which are principally affected by different economic factors are the individual product types. A summary of revenue by product
is set out in Note 5.
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 that follow.
Copper and molybdenum concentrate sales are stated net of deductions for tolling charges, as shown in the tables that follow.
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Antofagasta plc Annual Report 2018
FOR THE YEAR ENDED 31 DECEMBER 20181
Provisionally invoiced gross sales
2,325.7
957.3
599.1
465.0
79.6
171.1
358.6
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
Settlement of sales invoiced in the current year
Mark-to-market adjustments at the end of
the current year
(54.1)
(20.0)
(1.7)
(2.7)
14.2
8.8
0.6
1.6
(39.9)
(11.2)
(1.1)
(1.1)
(59.8)
(23.6)
(83.4)
(26.3)
(7.9)
(6.2)
(9.5)
(0.7)
(0.7)
(35.8)
(8.6)
(6.9)
Total effect of adjustments to
current year invoices
Total pricing adjustments
(123.3)
(47.0)
Realised losses on commodity derivatives
Revenue before deducting tolling charges
Tolling charges
Revenue net of tolling charges
–
2,202.4
(162.1)
2,040.3
–
910.3
(82.4)
827.9
FOR THE YEAR ENDED 31 DECEMBER 2017
(9.7)
–
(8.0)
0.6
589.4
457.6
–
–
589.4
457.6
–
0.4
0.4
(1.2)
–
(1.2)
(0.8)
–
78.8
(0.3)
78.5
(0.2)
(4.6)
(0.2)
18.9
(0.4)
14.3
(1.3)
0.7
(0.6)
(1.0)
–
170.1
(0.6)
169.5
0.2
0.7
0.9
15.2
–
373.8
(33.6)
340.2
Provisionally invoiced gross sales
Effects of pricing adjustments to
previous year invoices
Reversal of mark-to-market adjustments at the
end of the previous year
Settlement of sales invoiced in the
previous year
Total effect of adjustments to previous
year invoices in the current year
Effects of pricing adjustments to
current year invoices
Settlement of sales invoiced in the current year
Mark-to-market adjustments at the end of
the current year
Total effect of adjustments to
current year invoices
Total pricing adjustments
Realised losses on commodity derivatives
Revenue before deducting tolling charges
Tolling charges
Revenue net of tolling charges
Los Pelambres
Copper concentrate
$m
Centinela
Copper concentrate
$m
2,138.9
1,031.1
Centinela
Copper
cathodes
$m
385.9
Antucoya
Copper
cathodes
$m
Los Pelambres
Gold in concentrate
$m
Centinela
Gold in concentrate
$m
Los Pelambres
Molybdenum
concentrate
$m
502.7
70.4
209.6
173.6
(28.0)
(15.3)
0.4
0.6
–
53.3
25.3
110.2
54.1
164.3
189.6
–
2,328.5
(179.5)
2,149.0
37.6
–
0.7
22.3
0.4
1.3
61.7
20.1
81.8
104.1
–
3.9
1.7
5.6
6.0
(13.3)
5.7
2.7
8.4
9.7
(3.8)
1,135.2
378.6
508.6
(98.2)
–
–
1,037.0
378.6
508.6
(0.9)
(0.9)
(0.6)
–
(0.6)
(1.5)
–
68.9
(0.2)
68.7
1.3
(2.2)
(0.9)
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
1. Figures include both revenue from the sale of products and the associated income from the provision of shipping services.
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FINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
6 REVENUE CONTINUED
(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
(II) COPPER CATHODES
2018
2017
Tonnes
177,400
160,900
$/lb
$/lb
2.71
2.79
3.28
3.07
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
(III) GOLD CONCENTRATES
Tonnes
$/lb
$/lb
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
Ounces
$/oz
$/oz
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
Tonnes
$/lb
$/lb
2018
14,300
2.70
2.75
2018
22,100
1.284
1.253
2018
3,600
12.1
12.1
2017
14,700
3.27
3.14
2017
7,100
1,300
1,268
2017
2,400
9.4
8.5
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
2018
$m
(23.6)
0.7
(9.5)
0.7
(0.7)
(0.7)
(33.1)
2017
$m
54.1
4.7
20.1
0.2
1.7
2.7
83.5
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Antofagasta plc Annual Report 2018
7 PROFIT BEFORE TAX
Operating profit from subsidiaries and total profit from operations and associates and joint ventures is derived from Group revenue by deducting operating
costs as follows:
Group revenue
Cost of sales
Gross profit
Administrative and distribution expenses
Other operating income
Other operating expenses
Operating profit from subsidiaries
Equity accounting results
Net share of results from associates and joint venture
Total profit from operations, associates and joint venture
2018
$m
2017
$m
4,733.1
4,749.4
(2,826.4)
(2,356.4)
1,906.7
(417.6)
21.8
(165.9)
1,345.0
22.2
22.2
2,393.0
(414.1)
26.0
(163.8)
1,841.1
59.7
59.7
1,367.2
1,900.8
Other operating expenses comprise $14.8 million of costs relating to the decommissioning and restoration provisions (2017 – $39.8 million),
$97.6 million of Exploration and evaluation expenditure (2017 – $68.8 million) and $53.5 million of Other expenses (2017 – $55.2 million).
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
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
Other assurance services
Corporate finance services not covered above
Other non-audit services
2018
$m
(18.2)
(0.7)
(731.5)
(29.0)
(13.3)
(1,955.2)
(447.8)
(14.8)
(18.7)
(97.6)
(1.7)
2017
$m
17.1
0.7
(553.5)
(27.6)
(8.3)
(1,697.0)
(433.2)
(39.8)
(31.9)
(68.8)
(1.8)
2018
$000
2017
$000
1,020
1,003
374
252
76
–
–
12
315
268
45
46
65
118
1,734
1,860
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 110. No services were provided pursuant to
contingent fee arrangements.
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167
FINANCIAL 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 and Corporate
Transport division
2018
Number
907
2,047
4
786
56
433
4
3
4,240
1,371
5,611
2017
Number
900
2,044
5
737
49
447
5
4
4,191
1,219
5,410
(i)
(ii)
(iii)
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.
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
2018
$m
(423.0)
(24.8)
(447.8)
2017
$m
(411.9)
(21.3)
(433.2)
The comparative 2017 total employee costs have been restated to $433.2 million (from $417.8 million) to correctly reflect the full impact of the employee
severance provision expense.
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
2018
$m
(18.4)
(18.4)
2017
$m
(18.7)
(18.7)
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 118.
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Antofagasta plc Annual Report 2018
9 NET FINANCE EXPENSE
Investment income
Interest income
Fair value through profit or loss
Interest expense
Interest expense
Other finance items
Time value effect of options
Unwinding of discount on provisions
Preference dividends
Foreign exchange
Net finance expense
2018
$m
9.9
20.2
30.1
(113.6)
(113.6)
–
(12.7)
(0.1)
(18.2)
(31.0)
2017
$m
9.2
14.6
23.8
(91.5)
(91.5)
(7.8)
(11.6)
(0.1)
17.2
(2.3)
(114.5)
(70.0)
During 2018, amounts capitalised and consequently not included within the above table were as follows: $4.5 million at Centinela (year ended
31 December 2017 – $8.8 million) and $0.9 million at Los Pelambres (year ended 31 December 2017 – $1.3 million).
The fair value through profit or loss line represents the fair value gains relating to liquid investments.
10 INCOME TAX EXPENSE
The tax charge for the year comprised the following:
Current tax charge
Corporate tax (principally first category tax in Chile)
Mining tax (royalty)
Withholding tax
Exchange losses on corporate tax balances
Deferred tax charge
Corporate tax (principally first category tax in Chile)
Mining tax (royalty)
Total tax charge
2018
$m
2017
$m
(321.2)
(376.6)
(78.1)
(4.5)
(0.7)
(69.1)
(64.8)
0.7
(404.5)
(509.8)
(14.6)
(4.6)
(19.2)
(423.7)
(114.6)
(9.2)
(123.8)
(633.6)
The rate of first category (ie corporate) tax in Chile is 27.0% (2017 – 25.5%).
In addition to first category tax and the mining tax, the Group incurs withholding taxes on any remittance of profits from Chile. Withholding tax is levied
on remittances of profits from Chile at 35% less first category (ie corporation) tax already paid in respect of the profits to which the remittances relate.
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FINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
10 INCOME TAX EXPENSE CONTINUED
The Group’s mining operations are also subject to a mining tax (royalty). Production from Los Pelambres, Antucoya, Encuentro (oxides), the
Tesoro North East pit and the Run-of-Mine processing at Centinela Cathodes is subject to a rate of between 5–14%, depending on the level of
operating profit margin, and production from Centinela Concentrates and the Tesoro Central and Mirador pits is subject to a rate of 5% of taxable
operating profit. In 2018 production from Los Pelambres and the Tesoro Central and Mirador pits had been subject to a rate of 4%.
Profit before tax
Tax at the Chilean corporate tax rate of 27% (2017 – 25.5%)
Items not deductible from first category tax
Effect of increase in future first category tax rates on deferred tax balances
Adjustment in respect of prior years
Deduction of mining tax (royalty) as an allowable expense in determination of first
category tax
Credit of tax losses absorbed from dividends of the year
Mining tax (royalty)
Withholding tax
Tax effect of share of profit of associates and joint ventures
(Unrecognised tax losses)/reversal of previously unrecognised tax losses
Net other items
Tax expense and effective tax rate for the year
$m
1,252.7
(338.2)
(10.8)
–
2.6
21.1
–
(82.5)
(4.5)
3.0
(13.8)
(0.6)
(423.7)
2018
%
–
27.0
0.9
–
(0.2)
(1.7)
–
6.5
0.4
(0.2)
1.1
–
33.8
$m
1,830.8
(466.9)
(26.7)
(0.6)
(35.4)
17.4
(4.3)
(78.3)
(64.8)
15.2
9.9
0.9
(633.6)
2017
%
–
25.5
1.5
–
1.9
(1.0)
0.2
4.3
3.5
(0.8)
(0.5)
–
34.6
The effective tax rate varied from the statutory rate principally due to the mining tax (royalty) (impact of $82.5 million/6.5%) and items not deductible for
Chilean corporate tax purposes, principally the funding of expenses outside of Chile (impact of $10.8 million/0.9%), partly offset by the deduction of the
mining tax (royalty) which is an allowable expense when determining the Chilean corporate tax charge (impact of $21.1 million/1.7%) 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 $3.0 million/0.2%).
The main factors which could impact the sustainability of the Group’s existing effective tax rate are:
the level of future distributions made by the Group’s Chilean subsidiaries out of Chile, which could result in increased withholding tax charges.
the impact of expenses which are not deductible for Chilean first category tax. Some of these expenses are relatively fixed costs, and so the relative
impact of these expenses on the Group’s effective tax rate will vary depending on the Group’s total profit before tax in a particular year.
There are no significant tax uncertainties which would require critical judgements, estimates or potential provisions.
11 DISCONTINUED OPERATIONS
(I) PROFIT FOR THE PERIOD FROM DISCONTINUED OPERATIONS
On 11 September 2018 the Group completed the disposal of Centinela Transmisión, which holds the electricity transmission line supplying Centinela and
other external parties, for a cash consideration of $117 million. The profit on disposal has been calculated as follows:
Proceeds on disposal, cash and cash equivalent
Assets of disposal group classified as held for sale
Property, plant and equipment
Cash and cash equivalents
Deferred tax assets
Trade and other receivables
Trade and other payables
Current tax liabilities
Deferred tax assets
Total carrying amount disposed (Net asset)
Transaction cost
Profit on disposal of discontinued operations (Before tax)
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Antofagasta plc Annual Report 2018
2018
$m
117.2
33.9
13.2
0.3
3.7
(2.4)
(1.1)
(7.4)
40.2
(1.0)
76.0
2017
$m
–
33.2
2.2
–
2.2
–
–
0.2
37.8
–
0.5
The net results of Centinela Transmisión are shown as a discontinued operation in the income statement. The net results reflect the following elements:
Revenue
Total operating costs
Net finance income
Profit after tax of discontinued operations
Tax
Profit from the year from discontinued operations
Profit on disposal of discontinued operations
Attributable tax expenses
Net profit attributable to discontinued operations
Cash and cash equivalents received as consideration for disposal
Net cash disposed of
Net cash inflow arising on disposal
4.8
(1.6)
(0.3)
2.9
(0.8)
2.1
76.0
(26.8)
51.3
117.2
(13.2)
104.0
3.4
(2.8)
–
0.6
(0.1)
0.5
–
–
–
–
–
–
During the period, Centinela Transmisión., contributed $0.6 million (2017 – $0.6 million) to the Group´s net cash flow from operating activities, $1.5 million
(2017 – nil) in respect to net cash used in investing activities and paid $10.7 million (2017 – $0.1 million) in net cash provided in financing activities.
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
2018
$m
543.7
2017
$m
750.6
2018
Number
2017
Number
985,856,695 985,856,695
2018
cents
51.5
3.6
55.1
2017
cents
76.1
0.1
76.2
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 attributable to equity holders of the Company
Profit from continuing operations
Ordinary shares
$m
$m
2018
543.7
(35.9)
2017
750.6
(0.5)
$m
507.8
Number 985,856,695 985,856,695
750.1
Basic earnings per share from continuing operations
cents
51.5
76.1
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FINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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
2018
$m
2017
$m
2018
cents
per share
2017
cents
per share
399.9
150.8
40.6
15.3
67.0
466.9
101.5
252.3
6.8
47.4
10.3
25.6
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
2018
$m
2017
$m
364.8
364.8
400.3
400.3
2018
cents
per share
37.0
37.0
2017
cents
per share
40.6
40.6
This gives total dividends proposed in relation to 2018 (including the interim dividend) of 43.8 cents per share or $431.8 million (2017 – 50.9 cents
per share or $501.8 million).
In accordance with IAS 32, preference dividends have been included within interest expense (see Note 9) and amounted to $0.1 million
(2017 – $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 137.
14 INTANGIBLE ASSETS
Cost
At 1 January 2017
Additions
Disposals
Foreign currency exchange difference
At 31 December 2017
Additions
Disposals
Foreign currency exchange difference
At 31 December 2018
$m
150.1
–
–
–
150.1
–
–
–
150.1
The $150.1 million intangible asset reflects the value of Twin Metals’ mining licence assets included within the 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.
172
172
Antofagasta plc Annual Report 2018
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
4,810.8
75.2
120.1
15 PROPERTY, PLANT AND EQUIPMENT
Cost
At 1 January 2017
Additions
Additions – capitalised depreciation
Adjustment to capitalised decommissioning provisions
Capitalisation of interest
Capitalisation of critical spare parts
Reclassifications
Asset disposals
Assets transferred to disposal group classified as held for
sale
At 31 December 2017
Additions
Additions – capitalised depreciation
Adjustment to capitalised decommissioning provisions
Capitalisation of interest
Capitalisation of critical spare parts
Reclassifications
Asset disposals
Assets transferred to disposal group classified as held for
sale
Land
$m
53.4
1.5
–
–
–
–
–
–
–
54.9
0.9
–
–
–
–
–
–
–
640.1
2.3
–
–
–
–
–
(0.2)
–
642.2
20.1
–
–
–
–
–
–
–
642.5
370.6
58.6
–
–
–
–
–
–
1,071.7
351.3
48.4
–
–
–
–
–
–
At 31 December 2018
55.8
662.3
1,471.4
5,321.1
–
–
(3.7)
–
0.9
111.6
–
(14.5)
–
–
–
–
–
1.1
–
–
4,905.1
76.3
5.8
–
(24.0)
–
–
434.2
–
–
–
–
–
–
–
8.2
(0.4)
–
84.1
(388.5)
(42.9)
–
–
(10.6)
–
–
(159.2)
(45.7)
(1,648.9)
(25.0)
(195.0)
(2.8)
–
–
–
–
–
–
–
(83.4)
–
12.1
–
–
–
–
–
(442.0)
(48.3)
(204.9)
(237.0)
(1,915.2)
(27.8)
(230.3)
(2.9)
–
–
–
–
–
–
–
–
–
–
–
–
4.9
–
0.5
–
–
–
0.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Accumulated depreciation and impairment
At 1 January 2017
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
Charge for the year
Depreciation capitalised in inventories
Depreciation capitalised in property, plant and equipment
Reclassification
Asset disposals
Assets transferred to disposal group classified as held for
sale
At 31 December 2018
Net book value
At 31 December 2018
At 31 December 2017
Assets under finance leases included in the totals
above
Net book value
At 31 December 2018
At 31 December 2017
–
–
–
–
–
0.6
(0.2)
–
120.5
–
–
–
–
–
29.5
(3.9)
–
146.1
(70.6)
(8.1)
–
–
–
0.3
–
(78.4)
(7.5)
–
–
–
1.6
–
6,360.9
52.7
–
–
10.2
9.2
135.6
(10.5)
(39.4)
6,518.7
92.6
–
–
5.4
11.1
501.2
(5.6)
–
7,123.4
(2,834.5)
(287.4)
(1.4)
(58.6)
94.0
3.1
8.6
(3,076.2)
(235.1)
(86.4)
(48.4)
(4.9)
2.7
0.1
1,161.2
13,864.2
515.8
–
–
–
–
(248.9)
942.9
58.6
(3.7)
10.2
10.1
–
(8.7)
(19.6)
–
(53.9)
1,419.4
14,808.8
518.8
–
–
–
–
(973.1)
989.5
48.4
(24.0)
5.4
11.1
–
(8.6)
(18.5)
(1.3)
(1.3)
955.2
15,819.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(5,126.7)
(581.9)
(1.4)
(58.6)
–
3.4
20.7
(5,744.5)
(761.1)
(86.4)
(48.4)
–
4.5
0.6
(6,635.3)
(490.3)
(441.9)
(2,140.1)
(30.5)
(84.3)
(3,448.2)
55.8
54.9
172.0
1,029.5
200.2
866.8
3,181.0
2,989.9
53.6
48.5
–
–
–
–
–
–
25.0
25.4
–
–
61.8
42.1
–
–
3,675.2
3,442.5
955.2
9,184.1
1,419.4
9,064.3
153.0
87.0
–
–
178.0
112.4
antofagasta.co.uk
173
173
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
15 PROPERTY, PLANT AND EQUIPMENT CONTINUED
The Group has pledged assets with a carrying value of $1,650.0 million (2017 – $1,650.0 million) as security against bank loans provided to the Group.
At 31 December 2018 the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to
$561.4 million (2017 – $174.5 million) of which $185.5 million was related to Los Pelambres and $108.4 million to Centinela.
Compensation from insurance companies related to property, plant and equipment included in the consolidated income statement was $0.4 million in 2018
(2017 – nil).
The average interest rate for the amounts capitalised was 2.9% (2017 – 1.9%).
At 31 December 2018, assets capitalised relating to the decommissioning provision were $115.3 million (at 31 December 2017 – $146.5 million).
Depreciation capitalised in property, plant and equipment of $48.4 million related to the depreciation of assets used in mine development (operating
stripping) at Centinela, Los Pelambres and Antucoya (at 31 December 2017 – $58.6 million).
16 INVESTMENTS IN SUBSIDIARIES
The subsidiaries of the Group, the percentage of equity owned and the main country of operation are set out below. These interests are consolidated
within these financial statements.
Country of 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
Antofagasta Minerals SA
Alfa Estates Limited
Energía Andina Geothermal SpA
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
Franconia Minerals (US) 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 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
El Tesoro (SPV Bermuda) Limited
Country of
incorporation
UK
UK
UK
Bermuda
Chile
Chile
Chile
Chile
Jersey
Chile
Jersey
UK
USA
Canada
UK
USA
USA
USA
USA
USA
USA
USA
USA
Jersey
Jersey
Australia
Australia
Australia
Australia
Peru
Jersey
Jersey
USA
USA
Chile
UK
Chile
Bermuda
Chile
Chile
Chile
Chile
Jersey
Chile
Jersey
UK
USA
Canada
UK
USA
USA
USA
USA
USA
USA
USA
USA
Jersey
Jersey
Australia
Australia
Australia
Australia
Peru
Jersey
Jersey
Chile
USA
Bermuda
Bermuda
174
174
Antofagasta plc Annual Report 2018
1
1
1
4
2
2
2
2
3
2
3
1
5
7
1
6
6
6
13
14
13
13
13
3
3
3
9
9
9
10
3
3
5
15
4
Railway
Investment
Investment
Insurance
Mining
Mining
Mining
Mining
Investment
Energy
Investment
Investment
Investment
Investment
Investment
Investment
Mining
Mining
Investment
Investment
Investment
Investment
Investment
Investment
Mining
Investment
Mining
Mining
Mining
Mining
Investment
Investment
Investment
Investment
Investment
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%
Morrisville Holdings Co
Antofagasta Minerals Canada
Antofagasta Minerals (Changai) Co. Limited
Andes Investments Company (Jersey) Limited
Bolivian Rail Investors Co Inc
Blue Ocean Overseas Inc
Inversiones Ferrobol Limitada
Inversiones Los Pelambres Chile Limitada.
Equatorial Resources SpA
Minera Santa Margarita de Astillas SCM
Minera Penacho Blanco SA
Michilla Costa SpA
Pampa Fenix SA
Minera Mulpun Limitada
Fundación Minera Los Pelambres
Inversiones Punta de Rieles Limitada
Ferrocarril Antofagasta a Bolivia
(Permanent Establishment)
Inversiones Chilean Northern Mines Limitada
The Andes Trust Chile SA
Forestal SA
Servicios de Transportes Integrados Limitada
Inversiones Train Limitada
Servicios Logisticos Capricornio Limitada
Embarcadores Limitada
Servicios Logisticos Baquedano Limitada
FCAB Ingenieria y Servicios Limitada
Emisa Antofagasta SA
Registered offices:
Country of
incorporation
BVI
Canada
China
Jersey
USA
BVI
Bolivia
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Country of operations
Registered office
Nature of business
Economic interest
BVI
Canada
China
Jersey
USA
BVI
Bolivia
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
Chile
8
9
16
3
5
8
11
2
2
2
2
2
2
2
2
12
12
12
12
12
12
12
12
12
12
12
12
Investment
Mining
Agency
Investment
Investment
Investment
Investment
Investment
Investment
Mining
Mining
Logistics
Investment
Mining
Community
development
Investment
Railway
Investment
Investment
Forestry
Road transport
Investment
Transport
Transport
Transport
Transport
Transport
100%
100%
100%
100%
100%
100%
100%
100%
100%
75.5%
66.6%
99.9%
90.0%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
1209 Orange Street, Wilmington, DE 19801, USA
1. Cleveland House, 33 King Street, London, SW1Y 6RJ, UK
2. Avenida Apoquindo N° 4001, Piso 18, Las Condes, Santiago, Chile
3. 22 Grenville Street, St Helier, Jersey, JE4 8PX3, Channel Islands
4. Crawford House, 50 Cedar Avenue, Hamilton HM 11, Bermuda
5.
6. 6040 Earle Brown Drive, 480 Brooklyn Center, MN 55430, USA
161 Bay Street, Suite 4320, Toronto, Ontario, M5J 2S1, Canada
7.
8. PO Box 958, Road Town, Tortola VG1110, British Virgin Islands
9. Riparian Plaza, Level 28, 71 Eagle Street, Brisbane, Qld 4001, Australia
10. Avenida 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. 1010 Dale Street N, St Paul, MN 55117-5603, USA
15. 2711 Centerville Road, Suite 400, Wilmington, DE 19808, USA
16. Unit 3309, IFC 2, 8 Century Avenue, Shanghai, China
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%. Antofagasta plc holds 100% of both the ordinary and preference share.
The proportion of the voting rights is proportional with the economic interest for the companies listed above.
antofagasta.co.uk
175
175
FINANCIAL 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
Disposal
Gains/(losses) in fair value of cash flow hedges deferred in
reserves of associates
Derecognition of investment in associate upon
reclassification to subsidiary
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
Profit on disposal
Purchase price adjustment
Inversiones
Hornitos
2018
$m
60.1
–
–
–
–
–
15.4
(4.3)
11.1
(16.6)
54.6
–
ATI
2018
$m
5.3
–
–
–
–
–
(0.2)
–
(0.2)
–
5.1
–
11.1
(0.2)
–
–
–
–
Net share of results from associates and joint ventures
11.1
(0.2)
El Arrayan
2018
$m
22.0
–
–
(20.3)
(0.4)
–
(0.7)
(0.6)
(1.3)
–
–
–
(1.3)
5.8
–
4.5
Minera
Zaldívar
2018
$m
982.1
–
–
–
–
–
26.3
(12.0)
14.3
–
996.4
–
14.3
–
(0.4)
13.9
Balance at the beginning of the year
Obligations on behalf of JV
Capital contribution
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
2017
$m
71.3
–
–
–
14.3
(3.7)
10.6
(21.8)
60.1
60.1
–
ATI
2017
$m
6.5
–
–
–
(1.5)
0.3
(1.2)
–
5.3
5.3
–
El Arrayan
2017
$m
22.0
–
–
–
0.1
(0.1)
–
–
22.0
22.0
–
Minera
Zaldívar
2017
$m
983.6
–
–
–
77.5
(19.0)
58.5
(60.0)
982.1
982.1
–
Share of income/(loss) before tax
Net share of results from associates and joint
ventures
10.6
(1.2)
10.6
(1.2)
–
–
58.5
58.5
The investments which are included in the $1,056.1 million balances at 31 December 2018 are set out below:
Investment in associates
Energía
Andina
2018
$m
0.2
–
–
–
–
(0.2)
–
–
–
–
–
–
–
–
–
–
Energía
Andina
2017
$m
3.2
–
0.1
(3.1)
–
–
–
–
0.2
0.2
–
–
–
Tethyan
Copper
2018
$m
–
(2.0)
8.1
–
–
–
(7.1)
–
(7.1)
–
–
Total
2018
$m
1,069.7
(2.0)
8.1
(20.3)
(0.4)
(0.2)
33.7
(16.9)
16.8
(16.6)
1,056.1
(1.0)
(1.0)
(7.1)
–
–
(7.1)
Tethyan
Copper
2017
$m
16.8
5.8
(0.4)
22.2
Total
2017
$m
–
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
1,069.7
(2.0)
(2.0)
(8.2)
59.7
(8.2)
59.7
(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.
176
176
Antofagasta plc Annual Report 2018
(iii) The Group´s former 30% interest in El Arrayan, which operates an 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. In August 2018, the Group disposed of its interest in El Arrayan for
cash consideration of $28.0 million, resulting in a profit on disposal of $5.8 million.
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) During 2018 the Group acquired the remaining 49.9% interest in Energia Andina from Origin Geothermal Chile Limitada and accordingly Energia
Andina became a subsidiary of the Group during the year.
(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 currently 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
Total comprehensive income/(expense)
Cash and cash equivalents
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Revenue
Profit/(loss) from continuing operations
Total comprehensive income/(expense)
Inversiones
Hornitos
2018
$m
0.7
38.6
274.8
(31.2)
(156.6)
151.1
27.6
27.6
ATI
2017
$m
0.8
11.7
127.6
(31.5)
(92.6)
41.8
(3.9)
(3.9)
ATI
2018
$m
0.3
11.3
119.7
(34.2)
(82.2)
46.2
(0.5)
(0.5)
El Arrayan
2017
$m
6.0
9.0
244.0
(12.0)
(182.0)
33.0
0.1
0.1
Total
2018
$m
1.0
49.9
394.5
(65.4)
(238.8)
197.3
27.1
27.1
Total
2017
$m
19.4
57.8
655.1
(80.7)
(435.9)
239.5
24.1
24.1
Inversiones Hornitos
2017
$m
12.6
37.1
283.5
(37.2)
(161.3)
164.7
26.5
26.5
antofagasta.co.uk
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177
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
17 INVESTMENT IN ASSOCIATES AND JOINT VENTURES CONTINUED
Summarised financial information for the joint ventures is as follows:
Cash and cash equivalent
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Revenue
Profit/(loss) after tax from continuing and discontinued operations
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
Total comprehensive income/(expense)
Minera
Zaldívar
2018
$m
124.0
602.6
1,921.0
(102.5)
(547.6)
599.5
28.4
28.4
Tethyan Copper
2018
$m
3.2
–
0.2
(5.1)
(0.1)
–
(14.1)
(14.1)
Minera
Zaldívar
2017
$m
75.6
574.3
1,569.7
(109.5)
(114.6)
654.7
116.9
116.9
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)
Total
2018
$m
127.2
602.6
1,921.2
(107.6)
(547.7)
599.5
14.3
14.3
Total
2017
$m
75.9
572.7
1,570.9
(116.2)
(140.7)
649.0
98.6
98.6
The above 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 EQUITY INVESTMENTS
Balance at the beginning of the year
Movement in fair value
Foreign currency exchange differences
Balance at the end of the year
2018
$m
6.5
(1.3)
(0.5)
4.7
2017
$m
4.6
1.4
0.5
6.5
Equity 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.
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178
Antofagasta plc Annual Report 2018
19 INVENTORIES
Current
Raw materials and consumables
Work in progress
Finished goods
Non-current
Work in progress
Total
2018
$m
227.0
262.8
86.5
576.3
172.7
749.0
2017
$m
198.3
218.7
66.6
483.6
111.1
594.7
During 2018 a net realisable value (“NRV”) adjustment of $1.1 million has been recognised (2017 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
2018
$m
475.5
398.0
873.5
2017
$m
588.8
150.4
739.2
2018
$m
–
56.1
56.1
2017
$m
–
67.0
67.0
2018
$m
475.5
454.1
929.6
Total
2017
$m
588.8
217.4
806.2
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 36 days (2017 –
45 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 at 31 December 2018 include a short-term VAT receivable of $265 million, which was refunded to the
Group in January 2019.
Movements in the provision for doubtful debts were as follows:
Balance at the beginning of the year
Adoption of new accounting standards
Expected credit loss
Amounts written off
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:
2018
$m
(2.3)
(0.7)
(1.7)
–
–
0.1
(4.6)
2018
2017
Neither
past due
nor impaired
$m
907.4
780.2
Past due but not impaired
Up to
3 months
past due
$m
16.9
17.4
3-6 months
past due
$m
0.2
0.4
More than
6 months
past due
$m
5.1
8.2
2017
$m
(1.1)
–
(1.1)
–
–
(0.1)
(2.3)
Total
$m
929.6
806.2
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.
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FINANCIAL 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 2018 and 2017 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
A-
BBB+
BBB-
Subtotal
Cash at bank1
Total cash, cash equivalents and liquid investments
1. Cash at bank is held with investment grade financial institutions.
There have been no impairments recognised in respect of cash or cash equivalents as at 31 December 2018 (31 December 2017 nil)
2018
$m
1,034.4
863.2
1,897.6
2017
$m
1,083.6
1,168.7
2,252.3
2018
$m
1,861.9
29.3
1.2
5.2
2017
$m
2,095.4
153.1
0.8
3.0
1,897.6
2,252.3
2018
$m
1,326.8
22.8
9.7
19.5
15.6
128.8
29.0
4.6
7.0
1,563.8
333.8
1,897.6
2017
$m
1,260.6
8.2
34.4
47.0
108.8
10.5
–
–
–
1,469.5
782.8
2,252.3
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Antofagasta plc Annual Report 2018
22 BORROWINGS
A) ANALYSIS BY TYPE OF BORROWING
Borrowings may be analysed by business segment and type as follows:
Los Pelambres
Short-term loan
Finance leases
Centinela
Senior loan
Subordinated debt
Short-term loan
Antucoya
Senior loan
Subordinated debt
Short-term loan
Finance leases
Corporate and other items
Senior loan
Finance leases
Transport division
Senior loan
Finance leases
Preference shares
Total
Notes
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
(xii)
(xiii)
(xiv)
2018
$m
2017
$m
(100.0)
(114.1)
(445.1)
(207.1)
(200.0)
(349.3)
(368.3)
(75.0)
(35.2)
(500.1)
(22.1)
(74.2)
(0.4)
(3.0)
(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)
(2,493.9)
(2,708.7)
(i)
(ii)
(iii)
(iv)
(v)
(vi)
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 weighted
average spread of 0.28%.
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 6 years.
Senior loan at Centinela represents US dollar denominated syndicated loans. These loans are for a remaining duration of 1.2 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. At 31 December 2018
we are in compliance with all covenants.
Subordinated debt is US dollar denominated, provided to Centinela by Marubeni Corporation with a remaining duration of 3 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.
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 plus a
weighted average spread of 0.18%.
Senior loan at Antucoya represents US dollar denominated syndicated loans. These loans are for a remaining duration of 6.5 years and have an interest rate of LIBOR six-month rate
plus 2.49%.
(vii) Subordinated debt is US dollar denominated, provided to Antucoya by Marubeni Corporate with a remaining duration of 7 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 are 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 0.53%.
(ix)
(x)
(xi)
(xii)
Finance leases at Antucoya are US dollar denominated, with a maximum remaining duration of 5 years and with an average interest rate of approximately LIBOR six-month rate
plus 1.41%.
Senior loan at Corporate (Antofagasta plc) of $500.0 million has an interest rate of LIBOR six-month rate plus 1.5%, and has a remaining duration of 2.2 years.
Finance leases at Corporate and other items are denominated in Unidades de Fomento (ie inflation-linked Chilean pesos) and have a remaining duration of 10 years and are at fixed
rates with an average interest rate of 5.29%.
Long-term loans at Transport division are US dollar denominated, with a remaining duration of 5 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 2018 the current notional amount hedged was $30.0 million.
(xiii) Finance leases at Transport division are Chilean peso denominated, with a maximum remaining duration of 1 year 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 2018. 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.
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181
FINANCIAL 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 2018
Corporate loans
Other loans (including short-term loans)
Finance leases
Preference shares
At 31 December 2017
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 2018
Corporate loans
Other loans (including short-term loans)
Finance leases
Preference shares
At 31 December 2017
Corporate loans
Other loans (including short-term loans)
Finance leases
Preference shares
Chilean
pesos
$m
–
–
(114.8)
–
(114.8)
Chilean
pesos
$m
–
–
(27.4)
–
(27.4)
Sterling
$m
US dollars
$m
2018
Total
$m
–
–
–
(3.0)
(3.0)
Sterling
$m
–
–
–
(3.0)
(3.0)
(1,368.7)
(1,368.7)
(950.4)
(57.0)
–
(950.4)
(171.8)
(3.0)
(2,376.1)
(2,493.9)
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)
Fixed
$m
–
–
(103.1)
(3.0)
Floating
$m
2018
Total
$m
(1,368.7)
(1,368.7)
(950.4)
(68.7)
–
(950.4)
(171.8)
(3.0)
(106.1)
(2,387.8)
(2,493.9)
Fixed
$m
–
–
(27.4)
(3.0)
(30.4)
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)
The above floating rate corporate loans include the long-term loans at the Transport division segment, where the Group has used interest rate swaps
to swap the floating rate interest for fixed rate interest. At 31 December 2018 the current notional amount hedged of the long-term loans at the
Transport division segment was $30.0 million (2017 – $60.0 million).
182
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Antofagasta plc Annual Report 2018
D) MATURITY PROFILE
The maturity profile of the Group’s borrowings is as follows:
At 31 December 2018
Corporate loans
Other loans
Finance leases
Preference shares
At 31 December 2017
Corporate loans
Other loans
Finance leases
Preference shares
Within
1 year
$m
(232.2)
(375.0)
(38.8)
–
Between
1-2 years
$m
(225.5)
–
Between
2-5 years
$m
(833.9)
After
5 years
$m
2018
Total
$m
(77.1)
(1,368.7)
–
(575.4)
(26.3)
(94.4)
–
–
(12.3)
(3.0)
(950.4)
(171.8)
(3.0)
(646.0)
(251.8)
(928.3)
(667.8)
(2,493.9)
Within
1 year
$m
(260.2)
(472.0)
(21.4)
–
Between
1-2 years
$m
(230.9)
–
(26.9)
–
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)
(753.6)
(257.8)
(517.0)
(1,180.3)
(2,708.7)
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 payments
Less amounts representing finance charges
Present value of minimum lease payments
2018
$m
(44.3)
(32.4)
(103.5)
(13.6)
(193.8)
22.0
(171.8)
All leases are on a fixed payment basis and no arrangements have been entered into for contingent rental payments.
23 TRADE AND OTHER PAYABLES
Trade creditors
Other creditors and accruals
Due in one year
Due after one year
2018
$m
(463.7)
(144.6)
(608.3)
2017
$m
(515.1)
(93.9)
(609.0)
2018
$m
–
(7.7)
(7.7)
2017
$m
–
(7.4)
(7.4)
2018
$m
(463.7)
(152.3)
(616.0)
2017
$m
(24.7)
(30.0)
(50.6)
(23.4)
(128.7)
13.8
(114.9)
Total
2017
$m
(515.1)
(101.3)
(616.4)
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 26 days (2017 – 30 days).
At 31 December 2018, the other creditors and accruals include $24.0 million (2017 – $9.1 million) relating to prepayments.
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183
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
24 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
A) CATEGORIES OF FINANCIAL INSTRUMENTS
The carrying value of financial assets and financial liabilities is shown below:
At fair value through profit and loss
At fair value through other
comprehensive income
Held at amortised cost
Financial assets
Derivative financial assets
Equity investments
Loans and receivables
Cash and cash equivalents
Liquid investments
Financial liabilities
Derivative financial liabilities
Trade and other payables
Borrowings and leases
Financial assets
Derivative financial assets
Equity investments
Loans and receivables
Cash and cash equivalents
Liquid investments
Financial liabilities
Derivative financial liabilities
Trade and other payables
Borrowings and leases
–
4.7
–
–
–
–
6.5
–
–
–
19.4
929.6
1,034.4
1,034.4
–
863.2
4.7
1,453.8
2,832.7
–
–
–
–
–
–
(581.5)
(616.0)
(2,493.9)
(2,493.9)
(3,075.4)
(3,109.9)
2018
Total
0.8
4.7
2017
Total
0.3
6.5
–
–
–
–
722.7
806.2
1,083.6
1,083.6
–
1,168.7
6.5
1,806.3
3,065.3
–
–
–
–
–
(7.1)
(612.3)
(612.3)
(2,712.8)
(2,712.8)
(3,325.1)
(3,332.2)
0.8
–
510.2
–
863.2
1,374.2
–
(34.5)
–
(34.5)
0.3
–
83.5
–
1,168.7
1,252.5
(7.1)
–
–
(7.1)
At fair value through profit and loss
Available-for-sale Held at amortised cost
B) FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial assets
Derivative financial assets (a)
Equity investments (b)
Loans and receivables (c)
Liquid investment (d)
Financial liabilities
Derivative financial liabilities (a)
Trade and other payables
184
184
Antofagasta plc Annual Report 2018
Level 1
$m
–
4.7
–
863.2
867.9
–
–
–
Level 2
$m
0.8
–
510.2
–
511.0
–
(34.5)
(34.5)
Level 3
$m
–
–
–
–
–
–
–
–
Total
2018
$m
0.8
4.7
510.2
863.2
1,378.9
–
(34.5)
(34.5)
Financial assets
Derivative financial assets (a)
Equity investments (b)
Loans and receivables (c)
Liquid investment (d)
Financial liabilities
Derivative financial liabilities (a)
Trade and other payables
Level 1
$m
–
6.5
–
1,168.7
1,175.2
–
–
–
Level 2
$m
0.3
–
83.5
–
83.8
(7.1)
–
(7.1)
Level 3
$m
–
–
–
–
–
–
–
–
Total
2017
$m
0.3
6.5
83.5
1,168.7
1,259.0
(7.1)
–
(7.1)
Recurring fair value measurements are those that are required in the balance sheet at the end of each reporting year.
(a) Derivatives in designated hedge accounting relationships are valued using a discounted cash flow analysis valuation model, which includes observable credit spreads and using the
applicable yield curve for the duration of the instruments for non-optional derivatives, and option pricing models for optional derivatives. These are level 2 inputs as described below.
Hedging instruments relate to cathodes options outstanding at 31 December 2018 with a nominal amount of $7.0 million.
(b) Equity investments are investments in shares on active markets and are valued using unadjusted quoted market values of the shares at the financial reporting date. These are level 1 inputs
as described below.
(c) Provisionally priced metal sales for the period are marked-to-market at the end of the period. Gains and losses from the marking-to-market of open sales are recognised through
adjustments to revenue in the income statement and trade receivables in the balance sheet. Forward prices at the end of the period are used for copper sales while period-end average
prices are used for molybdenum concentrate sales. These are level 2 inputs as described below.
(d) Liquid investments are highly liquid current asset investments that are valued using market prices at the period end. These are level 1 inputs as described below.
The inputs to the valuation techniques described above are categorised into three levels, giving the highest priority to unadjusted quoted prices in active
markets (level 1) and the lowest priority to unobservable inputs (level 3 inputs):
Level 1 fair value measurement inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 fair value measurement inputs are derived from inputs other than quoted market prices included in level 1 that are observable for the asset or
liability, either directly or indirectly.
Level 3 fair value measurement inputs are unobservable inputs for the asset or liability.
The degree to which inputs into the valuation techniques used to measure the financial assets and liabilities are observable and the significance of these
inputs in the valuation are considered in determining whether any transfers between levels have occurred. In the year ended 31 December 2018, there
were no transfers between levels in the hierarchy.
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 periodically uses derivative financial instruments, to reduce its exposure to commodity price, foreign exchange
and interest rate movements. The Group does not use such derivative instruments for speculative trading purposes.
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. The Internal Audit department 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 2018, sales of copper and
molybdenum concentrate and copper cathodes represented 90.1% of Group revenue and therefore revenues and earnings depend significantly on
LME and realised copper prices.
The Group periodically 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).
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185
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
24 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT CONTINUED
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 market price as at the reporting date will affect the final pricing adjustment to sales that remain open at that date, impacting
the trade receivables balance and consequently the income statement. A movement in the copper market 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 market price as at the reporting date had increased by 10 c/lb, profit attributable to the owners of the parent would have increased
by $46.9 million (2017 – increase by $16.8 million).
If the copper market price as at the reporting date had decreased by 10 c/lb, profit attributable to the owners of the parent would have decreased
by $47.0 million (2017 – decrease by $16.9 million) In addition, a movement in the average copper price during the year would impact revenue
and earnings. A 10 c/lb change in the average copper price during the year would have affected profit attributable to the owners of the parent by
$80.0 million (2017 – $67.0 million) and earnings per share by 8.1 cents (2017 – 6.8 cents), based on production volumes in 2018, without taking
into account the effects of provisional pricing and hedging activity. A $1 /lb change in the average molybdenum price for the year would have affected
profit attributable to the owners of the parent by $12.0 million (2017 – $9.8 million), and earnings per share by 1.2 cents (2017 – 1.0 cents), based on
production volumes in 2018, and without taking into account the effects of provisional pricing. A $100 /oz change in the average gold price for the year
would have affected profit attributable to the owners of the parent by $6.7 million (2017 – $9.4million), and earnings per share by 0.7 cents (2017 –
1.0 cents), based on production volumes in 2018, 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 goods 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.
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 148.
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 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
increased by $5.8 million (2017 – decrease of $9.2 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 decreased by $7.2 million (2017 – increase of $11.4 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 24(D).
The 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 $2.1 million (2017 – 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.
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(IV) OTHER PRICE RISK
The Group is exposed to equity price risk on its equity investments.
Equity price sensitivity
The sensitivity analysis below shows the impact of a movement in the equity values of the equity investment financial assets held as at the reporting date.
If the value of the equity investments had increased by 10% as at the reporting date, equity would have increased by $0.5 million (2017 – increase
of $0.7 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 grid 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 56 to 69.
(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.
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).
The Group review of the expected credit loss of employee receivables which mainly considered the recovery rate of receivables due from former
employees. The expected credit losses of the other non-trade receivables are immaterial to the Group.
(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 1 year, project
financing (senior debt) at Centinela, repayable over approximately 1 year, project financing (senior debt) at Antucoya repayable over approximately
6.5 years, long-term subordinated debt at Antucoya repayable over approximately 7 years, and a corporate loan at Antofagasta plc repayable over
approximately 2.2 years. The loans are subject to financial covenants which require that specified net debt to EBITDA and EBITDA to finance expense
ratios are maintained.
At the end of 2018 the Group was in a net debt position (2017 – net debt position), as disclosed in Note 31(C). 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 22(D). Details of undrawn committed
borrowing facilities are also given in Note 22.
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FINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
24 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT CONTINUED
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 2018
Corporate loans
Other loans (including short-term loans)
Finance leases
Preference shares*
Trade and other payables
At 31 December 2017
Corporate loans
Other loans (including short-term loans)
Finance leases
Preference shares*
Trade and other payables
Derivative financial instruments
Less than
6 months
$m
(156.3)
(158.4)
(27.7)
–
(607.0)
(949.4)
Less than
6 months
$m
(205.8)
(191.5)
(11.2)
–
(606.1)
(1.5)
Between
6 months
to 1 year
$m
(137.5)
(220.8)
(16.1)
–
(1.3)
Between
1-2 years
$m
After
2 years
$m
2018
Total
$m
(263.1)
(954.6)
(1,511.5)
–
(32.4)
(3.0)
(7.7)
(575.4)
(117.1)
–
–
(954.6)
(193.3)
(3.0)
(616.0)
(375.2)
(306.3)
(1,647.6)
(3,278.4)
Between
6 months
to 1 year
$m
(102.6)
(285.4)
(11.2)
–
(2.8)
(5.5)
Between
1-2 years
$m
(274.8)
–
(29.8)
(3.0)
(6.1)
(0.1)
After
2 years
$m
(1,157.7)
(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)
* 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 $596.3 million at 31 December 2018 (2017 – net debt $456.4 million), as well as gross cash (defined as cash, cash equivalents and liquid investments)
which was $1,897.6 million at 31 December 2018 (2017 – $2,252.3 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.
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24 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT CONTINUED
D) DERIVATIVE FINANCIAL INSTRUMENTS
The Group periodically uses derivative financial instruments, to reduce its exposure to commodity price, foreign exchange and interest rate movements.
The Group does not use such derivative instruments for speculative trading purposes.
The Group has applied the hedge accounting provisions of IFRS 9 “Financial Instruments”. 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 recognised within other comprehensive income. 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.
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.
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
Discount rate
2018
$10.2
34.02%
3 years
4.38%
2.18%
2017
$9.20
25.60%
3 years
2.18%
1.19%
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.
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FINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
25 LONG-TERM INCENTIVE PLAN CONTINUED
The number of awards outstanding at the end of the year is as follows:
Outstanding at 1 January 2018
Granted during the year
Cancelled during the year
Payments during the year
Outstanding at 31 December 2018
Number of awards that have vested
Restricted Awards
Performance
Awards
506,517
1,438,554
296,030
496,962
(25,642)
(55,212)
(271,801)
(365,261)
505,104
1,515,043
308,675
–
The Group has recorded a liability for $9.1 million at 31 December 2018, of which $4.1 million is due after more than one year (31 December 2017 –
$11.4 million of which $5.9 million was due after more than one year) and total expenses of $3.9 million for the year (2017 – expense of $10.1 million).
The intrinsic value is $9.1 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 2018 was
$0.5 million (2017 – $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 payment 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 payment 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 payment obligation. Actuarial gains and losses are immediately recognised in other comprehensive income.
The most recent valuation was carried out in 2018 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
Movements in the present value of severance provisions were as follows:
Balance at the beginning of the year
Current service cost
Actuarial gains
Interest cost
Paid in the year
Foreign currency exchange difference
Balance at the end of the year
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Antofagasta plc Annual Report 2018
2018
5.0%
1.5%
6.0%
2018
$m
(18.7)
(5.0)
13.0
(10.7)
2018
$m
(114.0)
(18.7)
3.9
(5.0)
13.4
13.0
2017
4.9%
1.5%
6.5%
2017
$m
(31.9)
(4.5)
(8.1)
(44.5)
2017
$m
(92.2)
(31.9)
5.7
(4.5)
17.0
(8.1)
(107.4)
(114.0)
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
31 December 2018
4.99%
20–year Chilean
Central Bank Bonds
Governmental
AA–/AA+
Secondary
Chilean peso
14 November 2018
Bloomberg
31 December 2017
4.87%
20–year Chilean
Central Bank Bonds
Governmental
AA–/AA+
Secondary
Chilean peso
27 November 2017
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 2014 to 2018.
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
2014 to 2018.
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 has 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 $7.0 million. If the discount rate is 100 basis points lower
the defined benefit obligation would increase by $8.1 million.
If the expected salary growth increases by 1% the defined benefit obligation would increase by $6.0 million. If the expected salary growth decreases by
1% the defined benefit obligation would decrease by $5.8 million.
If the staff turnover increases by 1% the defined benefit obligation would decrease by less than $0.1 million. If the staff turnover decreases by 1% the
defined benefit obligation would increase by less than $1.8 million.
27 DEFERRED TAX ASSETS AND LIABILITIES
At 1 January 2017
(Charge)/credit to income
Reclassification
Charge deferred in equity
At 1 January 2018
(Charge)/credit to income
Charge deferred in equity
Reclassifications
At 31 December 2018
Accelerated
capital
allowances
$m
Temporary
differences
on provisions
$m
Withholding
tax
$m
Short-term
differences
$m
Mining tax
(Royalty)
$m
Tax losses
$m
(984.6)
(2.7)
–
–
(987.3)
(70.0)
–
–
(1,057.3)
220.6
(99.1)
(1.8)
(1.8)
117.9
71.4
0.9
–
190.2
(11.3)
–
–
–
(11.3)
–
–
–
(11.3)
56.7
2.1
–
0.5
59.3
(15.6)
(1.6)
(2.1)
40.0
(80.2)
(24.1)
–
–
(104.3)
(4.6)
0.7
–
(108.2)
0.7
–
–
–
0.7
(0.4)
–
–
0.3
Total
$m
(798.1)
(123.8)
(1.8)
(1.3)
(925.0)
(19.2)
–
(2.1)
(946.3)
The charge to the income statement of $19.2 million (2017 – $123.8 million) includes a credit for foreign exchange differences of $0.1 million (2017 –
includes a credit of $0.1million).
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FINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
27 DEFERRED TAX ASSETS AND LIABILITIES CONTINUED
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
2018
$m
37.2
(983.5)
(946.3)
2017
$m
69.1
(994.1)
(925.0)
At 31 December 2018, the Group had unused tax losses of $207.1 million (2017 – $86.1 million) available for offset against future profits. A deferred tax
asset of $0.3 million has been recognised in respect of $1.1 million of these losses as at 31 December 2018 (31 December 2017 – $0.7 million in respect of
$2.6 million of the losses). No deferred tax asset has been recognised in respect of the remaining $206.0 million of tax losses (2017 – $83.5 million of tax
losses). These losses may be carried forward indefinitely.
At 31 December 2018 deferred withholding tax liabilities of $11.3 million have been recognised (31 December 2017 – $11.3 million) which relate to
undistributed earnings of subsidiaries where it is considered likely that the corresponding profits will be distributed in the foreseeable future. The value
of the remaining undistributed earnings of subsidiaries, for which deferred tax liabilities have not been recognised, because the Group is in a position to
control the timing of the distributions and it is likely that distributions will not be made in the foreseeable future, was $5,080 million (31 December 2017 –
$5,303.4 million).
Temporary differences arising in connection with interests in associates are insignificant.
The deferred tax balance of $946.3 million (2017 – $925.0 million) includes $967.1 million (2017 – $1,041.2 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 Income Taxes.
28 DECOMMISSIONING AND 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
Foreign currency exchange difference
Balance at the end of the year
2018
$m
(433.0)
(14.8)
(7.6)
24.0
–
21.6
–
2017
$m
(392.1)
(39.8)
(7.2)
3.5
0.1
2.6
(0.1)
(409.8)
(433.0)
Decommissioning and restoration costs relate to the Group’s mining operations. Costs are estimated on the basis of a formal closure plan and are subject
to regular independent formal review. It is estimated that the provision will be utilised from 2024 until 2064 based on current mine plans.
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
2018
Number
2017
Number
2018
$m
2017
$m
1,300,000,000
1,300,000,000
118.9
118.9
2018
Number
2017
Number
2018
$m
2017
$m
985,856,695
985,856,695
89.8
89.8
The Company has one class of ordinary shares which carry no right to fixed income. Each ordinary share carries one vote at any general meeting.
There were no changes in the authorised or issued share capital of the Company in either 2017 or 2018. Details of the Company’s preference share
capital, which is included within borrowings in accordance with IAS 32 Financial Instruments, are given in Note 22A(xiv).
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Antofagasta plc Annual Report 2018
(II) OTHER RESERVES AND RETAINED EARNINGS
Details of the share premium account, hedging, fair value and translation reserves and retained earnings for both 2018 and 2017 are included within the
consolidated statement of changes in equity on page 148.
Hedging reserves1
At 31 December 2017/2016
Adoption of new accounting standards
At 1 January
Parent and subsidiaries net cash flow hedge fair value gains/(losses)
Parent and subsidiaries net cash flow hedge (gains)/losses transferred to the income statement
Reclassification2
Tax on the above
At 31 December
Equity investment revaluation reserve3
At 1 January
(Losses) / Gains on equity investment
At 31 December
Foreign currency translation reserves4
At 1 January
Currency translation reclassified on disposal
At 31 December
Total other reserves per balance sheet
Retained earnings
At 1 January
Adoption of new accounting standards
Parent and subsidiaries’ profit for the period
Equity accounted units’ profit/(loss) after tax for the period
Actuarial gains 5
Transfer to non-controlling interest 6
Reclassification 2
Tax relating to components of other comprehensive income
Total comprehensive income for the year
Dividends paid
At 31 December
2018
$m
(0.4)
(5.8)
(6.2)
5.5
(0.4)
–
–
(1.1)
(9.8)
(1.3)
(11.1)
(2.3)
–
(2.3)
(14.5)
2017
$m
(8.8)
–
(8.8)
(16.8)
18.0
8.0
(0.8)
(0.4)
(11.2)
1.4
(9.8)
(2.3)
–
(2.3)
(12.5)
7,041.9
1.1
521.5
22.2
3.3
(38.2)
–
–
6,548.6
–
690.9
59.7
5.8
–
(9.6)
(1.1)
7,551.8
7,294.3
(466.9)
7,084.9
(252.4)
7,041.9
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. Mainly compromises an $8.0 million reclassification between the hedging reserve and retained earnings in the prior year.
3. The equity investments revaluation reserves record fair value gains or losses relating to equity investments, as described in Note 18.
4. 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.
5. Actuarial gains or losses relating to long–term employee benefits, as described in Note 26.
6. Mainly reflect the net assets attributable to NCIs accounts increase as a result of the Centinela and Encuentro merge.
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FINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
30 NON-CONTROLLING INTERESTS
The non-controlling interests of the Group during 2018 and 2017 are as follows:
Los Pelambres
Centinela
Antucoya
Total
Los Pelambres
Centinela
Antucoya
Total
Non-controlling
Interest
%
40.0
30.0
30.0
Country
Chile
Chile
Chile
At
1 January 2018
$m
Adoption of new
accounting
standards
$m
Share of
profit/(losses)
for the financial
year
$m
925.1
942.3
(44.2)
1,823.2
–
0.9
(2.9)
(2.0)
315.4
35.9
(14.7)
336.6
Share of
dividends
$m
(120.0)
–
–
(120.0)
Transfer from
retained
earnings
$m
Hedging and
actuarial
gains/(losses)
$m
At
31 December
2018
$m
(13.7)
53.2
(1.3)
38.2
(0.9)
2.1
1.5
2.7
1,105.9
1,034.4
(61.6)
2,078.7
Non-controlling
Interest
%
40.0
30.0
30.0
Country
Chile
Chile
Chile
At
1 January 2017
$m
Share of profit
for the financial year
$m
901.1
848.5
(55.2)
1,694.4
342.1
93.7
11.3
447.1
Share of dividends
$m
(320.0)
–
–
(320.0)
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 2018 and 2017 is set out below:
Non-controlling interest (%)
Cash and cash equivalents
Current assets
Non-current assets
Current liabilities
Non-current 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 equivalents
Current assets
Non-current assets
Current liabilities
Non-current 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
2018
$m
40.0%
459.9
460.3
3,478.8
(379.3)
(1,254.7)
940.2
(345.4)
(368.7)
Los Pelambres
2017
$m
40.0%
241.8
457.4
2,981.7
(584.6)
(827.4)
1,277.0
(272.8)
(908.7)
Hedging and
actuarial gains
$m
At
31 December 2017
$m
1.9
0.1
(0.3)
1.7
Centinela
2018
$m
30.0%
179.7
1,282.6
5,452.6
(955.0)
925.1
942.3
(44.2)
1,823.2
Antucoya
2018
$m
30.0%
148.3
467.4
1,857.0
(459.0)
(2,610.5)
(2,220.1)
207.5
(399.8)
(150.0)
Centinela
2017
$m
30.0%
353.0
809.2
4,770.1
(862.4)
(1,773.1)
68.1
(573.6)
(150.0)
80.8
(42.1)
(45.2)
Antucoya
2017
$m
30.0%
158.9
207.5
1,366.5
(198.5)
(1,686.8)
240.7
(75.7)
(160.5)
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 (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.
(iii) There are some subsidiaries with a non controlling interest portion not included in this note, portions are not material to the Group.
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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
Depreciation and amortisation
Net loss on disposals
Net share of results from associates and joint ventures
Net finance expense
(Increase)/decrease in inventories
Decrease/(increase) in debtors
Increase in creditors
Increase in provisions
Cash flow from continuing operations
2018
$m
2017
$m
1,252.7
1,830.8
760.5
13.3
(22.2)
114.5
(81.7)
(151.5)
(7.0)
(1.6)
581.1
8.3
(59.7)
70.0
(55.0)
5.9
61.6
52.0
1,877.0
2,495.0
The working capital increase was mainly due to a one-off short-term VAT payment of $265 million made in December 2018, which was reclaimed and
refunded to the Group in January 2019. This resulted in a temporary increase in receivables as at 31 December 2018, resulting in a negative cash flow
impact for 2018. There will be a corresponding decrease in receivables and a positive cash flow impact in 2019. Accordingly, there is nil net cumulative
impact in respect of this transaction over the period from Q4 2018 to Q1 2019.
B) ANALYSIS OF CHANGES IN NET DEBT
Adoption of
new
accounting
standards
$m
At
1 January
2018
$m
Cash
flow
$m
Reclassification
to disposal
group
$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
1,083.6
(9.9)
(13.2)
–
1,168.7
(306.3)
–
0.8
2,252.3
(316.2)
(13.2)
0.8
Borrowings due within one year
–
(732.2)
247.0
Borrowings due after one year
(2.5)
(1,858.6)
66.8
Finance leases due within one year
Finance leases due after one year
Preference shares
Total borrowings
Net (debt)/cash
–
–
–
(21.5)
(93.4)
(3.0)
–
33.3
–
(2.5)
(2,708.7)
347.1
(2.5)
(456.4)
30.9
(13.2)
0.8
(94.6)
–
–
–
–
–
–
(94.6)
–
(94.6)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(5.9)
(5.9)
–
–
–
–
(33.7)
–
–
–
(33.7)
(33.7)
Movement
between
maturity
categories
$m
–
–
–
(122.0)
122.0
(17.3)
At
31
December
2018
$m
Other
$m
Exchange
$m
–
–
–
–
–
–
(26.1)
1,034.4
–
863.2
(26.1)
1,897.6
–
–
–
(607.2)
(1,711.9)
(38.8)
17.3
(5.3)
9.7
(133.0)
–
–
–
–
(5.3)
(5.3)
–
(3.0)
9.7
(2,493.9)
(16.4)
(596.3)
At
1 January
2017
$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
Other
$m
Exchange
$m
At
31 December
2017
$m
Cash and cash equivalents
716.3
361.0
Liquid investments
1,332.2
(166.1)
(2.2)
–
–
2.6
Total cash and cash equivalents
and liquid investments
2,048.5
194.9
(2.2)
2.6
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
Finance leases due after one year
Preference shares
Total borrowings
Net (debt)/cash
(22.5)
(82.6)
(2.5)
1.3
32.2
0.1
(3,120.2)
487.1
–
–
–
–
–
–
–
–
–
–
–
–
(1,071.7)
682.0
(2.2)
2.6
–
–
–
–
–
–
(34.1)
–
(34.1)
(34.1)
–
–
–
–
–
–
–
–
(3.9)
(27.8)
–
–
–
(3.9)
(3.9)
–
–
–
(27.8)
(27.8)
–
–
–
(185.5)
185.5
–
–
–
–
–
–
–
–
–
–
(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)
antofagasta.co.uk
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FINANCIAL 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
2018
$m
1,897.6
(2,493.9)
(596.3)
2017
$m
2,252.3
(2,708.7)
(456.4)
2018
$m
172.4
2017
$m
140.6
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
2018
$m
47.6
95.0
–
2017
$m
94.1
78.3
–
142.6
172.4
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 US dollars and sterling at the period-end rates of exchange.
Results denominated in foreign currencies have been translated into US dollars at the average rate for each period.
Year-end rates
Average rates
2018
2017
$1.2700=£1;
$1 = Ch$694.77
$1.2667=£1;
$1 = Ch$640.62
$1.3535 = £1;
$1 = Ch$614.75
$1.2878 = £1;
$1 = Ch$649.19
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, who 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 $2.8 million (2017 – $0.6 million) during the year on deposits with Banco de Chile SA, a subsidiary of Quiñenco.
Deposit balances at the end of the year were $47.0 million (2017 – $18.0 million);
– the Group earned interest income of $1.4 million (2017 – $0.4 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 $6.5 million (2017 – $16.5 million);
– the Group made purchases of fuel from ENEX SA, a subsidiary of Quiñenco, of $221.6 million (2017 – $185.3 million). The balance due to ENEX SA
at the end of the year was nil (2017 – 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 $1.2 million (2017 –$0.6 million).
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Antofagasta plc Annual Report 2018
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 E. Abaroa Foundation, in which members
of the Luksic family are interested. During the year ended 31 December 2018 the Group incurred $0.2 million (year ended 31 December 2017 –
$0.6 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 2018 the Group contributed $8.1 million (2017 – $9.3 million) to Tethyan.
E) COMPAÑIA MINERA ZALDÍVAR SPA
The Group has a 50% interest in 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 $3.6 million (2017 – $5.2 million). During 2018 the Group has not received dividends from Minera Zaldívar (2017 – $60.0 million).
INVERSIONES HORNITOS SA
F)
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 $162.2 million
(year ended 31 December 2017 – $175.2 million) to Inversiones Hornitos in relation to the energy supply contract at Centinela. During 2018 the Group
received dividends from Inversiones Hornitos SA of $16.6 million (2017 – $21.8 million).
G) DIRECTORS AND OTHER KEY MANAGEMENT PERSONNEL
Information relating to Directors’ remuneration and interests is given in the Remuneration Report on page 118. 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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FINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
36 ANTOFAGASTA PLC – BALANCE SHEET OF THE PARENT COMPANY AND RELATED
NOTES
Balance Sheet of The Parent Company at 31 December 2018 is as follow:
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
Profit for the year attributable to the owners
Other changes in retained earnings
Total equity
Note
36D
36D
36E
2018
$m
2017
$m
538.6
500.0
0.3
538.6
500.0
0.3
1,038.9
1,038.9
59.0
255.8
106.2
421.0
57.5
378.5
372.1
808.1
1,459.9
1,847.0
(306.8)
(9.4)
(316.2)
(500.1)
(500.1)
(816.3)
(304.1)
(11.0)
(315.1)
(497.4)
(497.4)
(812.5)
643.6
1,034.5
89.8
199.2
745.5
76.0
(466.9)
354.6
643.6
89.8
199.2
651.9
346.0
(252.4)
745.5
1,034.5
The financial statements on page 198 were approved by the Board of Directors on 18 March 2019 and signed on its behalf by
Jean-Paul Luksic
Chairman
Ollie Oliveira
Senior Independent Director
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Antofagasta plc Annual Report 2018
PARENT COMPANY STATEMENT OF CHANGES IN EQUITY
At 1 January 2017
Comprehensive profit for the year
Dividends
At 31 December 2017
Comprehensive profit for the year
Dividends
At 31 December 2018
Share capital
$m
Share premium
$m
Retained earnings
$m
89.8
199.2
–
–
–
–
89.8
199.2
–
–
–
–
89.8
199.2
651.9
346.0
(252.4)
745.5
76.0
(466.9)
354.6
Total equity
$m
940.9
346.0
(252.4)
1,034.5
76.0
(466.9)
643.6
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:
(vii) paragraph 79(a)(iv) of IAS 1, ‘Presentation of financial statements’
(viii) paragraph 73(e) of IAS 16, ‘Property, plant and equipment’
(ix) 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 $76.0 million (2017 – $346.0 million).
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199
FINANCIAL 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, 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, in the period in which they are formally approved for payment. Accordingly,
an interim dividend is recognised when paid and a final dividend is recognised when approved by shareholders.
D)
INVESTMENTS IN SUBSIDIARIES
Investments in subsidiaries represent equity holdings in subsidiaries and long-term amounts owed by subsidiaries. Such investments are valued at cost
less any impairment provisions. Investments are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may
not be recoverable. The recoverable amount of the investment is the higher of fair value less cost to dispose 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 (2017 – 5).
B) AGGREGATE REMUNERATION
The aggregate remuneration of the employees mentioned above was as follows:
Wages and salaries
Social security costs
Pension contributions
2018
$m
1.9
0.3
0.1
2.3
2017
$m
1.3
0.2
0.1
1.6
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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Antofagasta plc Annual Report 2018
36D SUBSIDIARIES
A)
INVESTMENT IN SUBSIDIARIES
Shares in subsidiaries at cost
Amounts owed by subsidiaries due after more than one year
1 January 2018
New shares in subsidiaries
31 December 2018
2018
$m
60.6
478.0
538.6
Loans
$m
478.0
–
478.0
2017
$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 (2017 – $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 2018, an amount of $500.0 million was owed to the Company by an indirect subsidiary, pursuant to a 10-year loan agreement. There
have been no impairments recognised in respect of subsidiary receivables as at 31 December 2018.
C)
TRADE AND OTHER RECEIVABLES – AMOUNTS OWED BY SUBSIDIARIES DUE WITHIN ONE YEAR
At 31 December 2018, amounts owed by subsidiaries due within one year were $52.6 million (2017 – $54.2 million). There have been no impairments
recognised in respect of subsidiary receivables as at 31 December 2018.
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 2018 and 31 December 2017. As explained in Note 22B, the preference shares are recorded 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.
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FINANCIAL 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 statements. Set out below are definitions of these alternative
performance measures, explanations as to why they are considered to be relevant and useful, and reconciliations to the IFRS figures.
A) UNDERLYING EARNINGS PER SHARE
Underlying earnings per share is earnings per share from continuing operations, excluding exceptional items. This measure is reconciled to earnings per
share from continuing and discontinued operations (including exceptional items) on the face of the income statement. This measure is considered to be
useful as it provides an indication of the earnings generated by the ongoing businesses of the Group, excluding the impact of exceptional items which
are 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 2018
Los Pelambres
$m
Centinela
$m
Antucoya
$m
Zaldívar
$m
Exploration and
evaluation
$m
Corporate and
other items
$m
Mining
$m
Transport division
$m
(97.6)
(68.6)
1,300.1
–
–
7.2
–
744.6
10.5
(97.6)
(61.4) 2,055.2
–
(3.2)
84.2
44.9
15.9
2.8
63.6
25.3
Total
$m
1,345.0
760.5
13.3
2,118.8
109.5
(97.6)
(64.6) 2,139.4
88.9
2,228.3
Exploration and
evaluation
$m
Corporate
and other items
$m
(68.8)
–
–
(76.6)
6.7
(0.9)
Mining
$m
1,782.2
564.6
8.4
(68.8)
(70.8)
2,355.2
–
–
–
–
134.2
134.2
–
(68.8)
(0.9)
(71.7)
133.3
2,488.5
Transport division
$m
58.9
16.5
(0.1)
75.3
22.8
98.1
Total
$m
1,841.1
581.1
8.3
2,430.5
156.1
2,586.6
Operating profit
Depreciation and amortisation
(Loss)/gain on disposals
EBITDA from subsidiaries
Proportional share of the EBITDA
from associates and JV
1,173.8
243.3
10.5
229.6
415.4
–
62.9
78.7
–
1,427.6
645.0
141.6
–
–
–
EBITDA
1,427.6
645.0
141.6
–
–
–
–
87.4
87.4
For the year ended 31 December 2017
Los Pelambres
$m
Centinela
$m
Antucoya
$m
Zaldívar
$m
Operating profit
Depreciation and amortisation
Gain on disposals
EBITDA from subsidiaries
Proportional share of the EBITDA
from associates and JV
EBITDA
1,217.3
205.2
5.6
1,428.1
–
1,428.1
579.1
276.6
3.7
859.4
–
859.4
131.2
76.1
–
207.3
–
207.3
202
202
Antofagasta plc Annual Report 2018
C) CASH COSTS
Cash costs are a measure of the cost of operating production expressed in terms of cents per pound of payable copper produced.
This is considered to be a useful and relevant measure as it is a standard industry measure applied by most major copper mining companies which
reflects the direct costs involved in producing each pound of copper. It therefore allows a straightforward comparison of the unit production cost of
different mines, and allows an assessment of the position of a mine on the industry cost curve. It also provides a simple indication of the profitability of
a mine when compared against the price of copper (per lb).
Reconciliation of cash costs excluding tolling charges and by-product revenue:
Total Group operating cost (Note 5)
Zaldívar operating costs
Less:
Depreciation and amortisation (Note 5)
Loss on disposal (Note 5)
Elimination of non-mining operations:
Corporate and other items – Total operating cost (Note 5)
Exploration and evaluation – Total operating cost (Note 5)
Transport division – Total operating cost (Note 5)
Closure provision and other expenses not included within cash costs
Inventory variation
Total cost relevant to the mining operations’ cash costs
Copper production volumes – 2018/2017 (tonnes)
Cash costs excluding tolling charges and by-product revenue ($ / tonne)
Cash costs excluding tolling charges and by-product revenue ($ / lb)
Reconciliation of cash costs before deducting by-product revenue:
Tolling charges – copper – Los Pelambres (Note 6)
Tolling charges – copper – Centinela (Note 6)
Tolling charges – copper – total
2018
$m
2017
$m
3,388.1
202.3
(760.5)
(13.3)
(61.4)
(97.6)
(109.2)
(78.8)
(0.5)
2,908.3
184.0
(581.1)
(8.3)
(70.8)
(68.8)
(95.8)
(88.0)
11.9
2,469.1
2,191.4
725,300
704,300
3,404
1.55
162.1
82.4
244.5
3,111
1.41
179.5
98.2
277.7
Copper production volumes – 2017/2016 (tonnes)
725,300
657,700
Tolling charges ($ / tonne)
Tolling charges ($ / lb)
Cash costs excluding tolling charges and by-product revenue ($ / lb)
Tolling charges ($ / lb)
Cash costs before deducting by-products revenue ($ / lb)
337
0.17
1.55
0.17
1.72
394
0.19
1.41
0.19
1.60
antofagasta.co.uk
203
203
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS CONTINUED
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
37 ALTERNATIVE PERFORMANCE MEASURES CONTINUED
CASH COSTS (CONTINUED)
Reconciliation of cash costs (net of by-product revenue):
Gold revenue – Los Pelambres (Note 5)
Gold revenue – Centinela (Note 5)
Molybdenum revenue – Los Pelambres (Note 5)
Molybdenum revenue – Centinela (Note 5)
Silver revenue – Los Pelambres (Note 5)
Silver revenue – Centinela (Note 5)
Total by-product revenue
2018
$m
78.6
169.4
340.2
7.8
34.4
14.7
645.1
2017
$m
68.7
209.7
168.5
–
37.7
20.5
505.1
Copper production volumes – 2018/2017 (tonnes)
725,300
704,300
By-product revenues ($ / tonne)
By-product revenues ($ / lb)
Cash costs before deducting by-product revenue ($ / lb)
By-product revenue ($ / lb)
Cash costs (net of by-product revenue) ($ / lb)
889
0.43
1.72
(0.43)
1.29
717
0.35
1.60
(0.35)
1.25
The totals in the tables above may include some small apparent differences as the specific individual figures have not been rounded.
204
204
Antofagasta plc Annual Report 2018
FIVE YEAR SUMMARY
Consolidated balance sheet1
Intangible asset
Property plant and equipment
Investment property
Inventories
Investment in associates and joint ventures
Trade and other receivables
Derivative financial instruments
Equity investments
Deferred tax assets
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Share capital
Share premium
Reserves (retained earnings and hedging, translation and fair value reserves)
Equity attributable to equity holders of the Company
Non-controlling interests
Consolidated income statement1
Group revenue
2018
$m
2017
$m
2016
$m
2015
$m
2014
$m
150.1
150.1
150.1
150.1
118.6
9,184.1
9,064.3
8,737.5
8,601.1
8,227.1
2.6
172.7
3.5
111.1
2.6
157.3
1,056.1
1,069.7
1,086.6
56.1
–
4.7
37.2
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
10,663.6
10,541.5
10,288.4
10,583.9
9,153.9
3,438.9
(1,307.1)
3,668.2
3,435.4
2,953.2
3,661.2
(1,562.1)
(1,554.0)
(1,438.6)
(1,163.4)
(3,357.3)
(3,506.0)
(3,660.1)
(3,581.7)
(3,617.4)
9,438.1
9,141.6
8,509.7
8,519.3
8,034.7
89.8
199.2
7,070.4
7,359.4
2,078.7
9,438.1
89.8
199.2
7,029.4
7,318.4
1,823.2
9,141.6
89.8
199.2
6,526.3
6,815.3
1,694.4
8,509.7
89.8
199.2
6,357.1
6,646.1
1,873.2
8,519.3
89.8
199.2
5,884.7
6,173.7
1,861.0
8,034.7
2018
$m
2017
$m
2016
$m
2015
$m
2014
$m
4,733.1
4,749.4
3,621.7
3,225.7
4,810.2
Total profit from operations and associates
1,367.2
1,900.8
355.7
283.2
1,608.5
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)
1,252.7
(423.7)
829.0
1,830.8
(633.6)
1,197.2
284.6
(108.6)
176.0
242.8
(154.4)
1,558.5
(703.6)
88.4
854.9
51.3
0.5
880.3
1,197.7
38.3
214.3
613.3
701.7
(4.2)
850.7
(336.6)
543.7
(447.1)
750.6
(56.3)
158.0
(93.5)
(390.9)
608.2
459.8
EBITDA
2,228.3
2,586.6
1,626.1
910.1
2,102.9
Earnings per share
Basic and diluted earnings per share
1. These numbers have been restated for prior years.
2018
cents
2017
cents
2016
cents
2015
cents
2014
cents
55.1
76.2
16.0
61.7
46.6
antofagasta.co.uk
205
205
FINANCIAL STATEMENTS
FIVE YEAR SUMMARY CONTINUED
Dividends per share proposed in relation to the year
Ordinary dividends (interim and final)
2018
cents
43.8
43.8
2017
cents
50.9
50.9
2016
cents
18.4
18.4
2015
cents
3.1
3.1
2014
cents
21.5
21.5
Dividends per share paid in the year and deducted from equity
47.4
25.6
3.1
12.9
97.8
Consolidated cash flow statement
Cash flow from continuing operations
Interest paid
Income tax paid
Net cash from operating activities
2018
$m
2017
$m
2016
$m
2015
$m
2014
$m
1,877.0
2,495.0
1,457.3
858.3
2,507.8
(68.2)
(498.0)
(59.1)
(46.3)
(338.4)
(272.6)
(38.6)
(427.1)
(45.4)
(641.5)
1,310.8
(2,097.5)
1,138.4
392.6
1,820.9
Investing activities
Acquisition and disposal of subsidiaries, joint venture and associates
Dividends from associates
Equity 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
145.2
16.6
284.2
(872.2)
26.4
3.1
30.0
(29.9)
–
81.8
115.9
(894.4)
14.3
10.2
(425.2)
(794.6)
14.4
12.1
414.8
(1,046.9)
20.0
372.7
(1,613.7)
11.0
16.5
(399.8)
(679.3)
(1,165.2)
(638.9)
(1,204.5)
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
(466.9)
(120.1)
(347.1)
(252.3)
(320.1)
(487.0)
(934.1)
(1,059.4)
(30.6)
(260.0)
214.3
(76.3)
(127.2)
(80.0)
452.0
244.8
(964.2)
(412.4)
1,019.4
(357.2)
Net (decrease)/increase in cash and cash equivalents
(23.1)
358.8
(103.1)
(1.5)
259.2
Consolidated net cash
Cash, cash equivalents and liquid investments
1,897.6
2,252.3
2,048.5
1,731.6
2,374.5
2018
$m
2017
$m
2016
$m
2015
$m
2014
$m
Short-term borrowings
Medium and long-term borrowings
(646.0)
(753.6)
(836.8)
(758.9)
(284.5)
(1,847.9)
(1,955.1)
(2,283.4)
(1,996.2)
(2,091.6)
(2,493.9)
(2,708.7)
(3,120.2)
(2,755.1)
(2,376.1)
Net (debt)/cash at the year-end
(596.3)
(456.4)
(1,071.7)
(1,023.5)
(1.6)
206
206
Antofagasta plc Annual Report 2018
PRODUCTION STATISTICS
Production and sales volumes, realised prices and cash costs by mine
Copper
Los Pelambres
Centinela
Antucoya
Zaldívar (attributable basis – 50%)
Group total
Group weighted average (net cash costs)
Group weighted average (excluding tolling charges and
before by-products)
Group weighted average (before by-product credits)
Cash costs at Los Pelambres comprises
Cash costs before by-product credits
By-product credits (principally molybdenum and gold)
Net cash costs
Cash cost at Centinela comprises
Cash costs before by-product credits
By-product credits (principally gold)
Net cash costs
LME average
Gold
Los Pelambres
Centinela Concentrates
Group total
Market average price
Molybdenum
Los Pelambres
Centinela
Group total / average realised price
Market average price
Production
2018
‘000
tonnes
2017
‘000
tonnes
357.8
248.0
72.2
47.3
343.8
228.3
80.5
51.7
Sales
2017
‘000
tonnes
344.8
232.2
80.8
51.3
2018
‘000
tonnes
358.9
240.9
71.3
46.5
725.3
704.3
717.6
709.1
Net cash costs
Realised prices
2018
‘000
$/lb
0.91
1.51
1.99
1.94
1.29
1.55
1.72
2017
‘000
$/lb
1.02
1.37
1.68
1.62
2018
‘000
$/lb
2.78
2.82
2.91
–
2017
‘000
$/lb
3.06
2.96
2.86
–
1.25
2.81
3.00
1.41
1.60
1.52
1.44
(0.61)
(0.42)
0.91
1.02
1.89
1.81
(0.38)
(0.45)
1.51
1.36
Production
2017
‘000
tonnes
2018
‘000
tonnes
2018
‘000
tonnes
Sales
2017
‘000
tonnes
Realised prices
2018
‘000
$/lb
2017
‘000
$/lb
2.96
2.80
‘000
ounces
‘000
ounces
‘000
ounces
‘000
ounces
$/oz
$/oz
63.2
146.9
210.1
55.4
157.0
212.4
62.6
135.5
198.1
54.3
163.9
218.2
‘000
tonnes
13.3
0.3
13.6
‘000
tonnes
10.5
–
10.5
‘000
tonnes
‘000
tonnes
13.6
0.4
14.0
9.6
–
9.6
1,260
1,255
1,256
1,270
$/lb
12.5
10.6
12.4
11.9
1,270
1,284
1,280
1,258
$/lb
8.7
–
8.7
8.2
antofagasta.co.uk
207
207
FINANCIAL STATEMENTS
ORE RESERVES AND MINERAL RESOURCES ESTIMATES
At 31 December 2018
INTRODUCTION
The ore reserves and mineral resources estimates presented in
this report comply with the requirements of the Australasian Code
for Reporting of Exploration Results, Mineral Resources and Ore
Reserves 2012 edition (the JORC Code) which has been used by the
Group as minimum standard for the preparation and disclosure of the
information contained herein. The definitions and categories of Ore
Reserves and Mineral Resources are set out below.
The information on ore reserves and mineral resources was
prepared by or under the supervision of Competent Persons as
defined in the JORC Code. The Competent Persons have sufficient
experience relevant to the style of mineralisation and type of deposit
under consideration and to the activity which they are undertaking.
The Competent Persons consent to the inclusion in this report of
the matters based on their information in the form and context in
which it appears. The Competent Person for Exploration Results and
Mineral Resources is Osvaldo Gálvez (CP, Chile), Assistant 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 216 to 217. The totals in the table may include
some small apparent differences as the specific individual figures have
not been rounded.
DEFINITIONS AND CATEGORIES OF ORE RESERVES
AND MINERAL RESOURCES
A ‘Mineral Resource’ is a concentration or occurrence of material
of intrinsic economic interest in or on the Earth’s crust in such form,
quality and quantity that there are reasonable prospects for eventual
economic extraction. The location, quantity, grade, geological
characteristics and continuity of a Mineral Resource are known,
estimated or interpreted from specific geological evidence and
knowledge. Mineral Resources are sub-divided, in order of
increasing geological confidence, into Inferred, Indicated and
Measured categories.
An ‘Inferred Mineral Resource’ is that part of a Mineral Resource
for which tonnage, grade and mineral content can be estimated with
a low level of confidence. It is inferred from geological evidence and
assumed but not verified geological and/or grade continuity. It is
based on information gathered through appropriate techniques from
locations such as outcrops, trenches, pits, workings and drill holes
which may be limited or of uncertain quality and reliability.
An ‘Indicated Mineral Resource’ is that part of a Mineral Resource
for which tonnage, densities, shape, physical characteristics, grade
and mineral content can be estimated with a reasonable level
of confidence. It is based on exploration, sampling and testing
information gathered through appropriate techniques from locations
such as outcrops, trenches, pits, workings and drill holes. The
locations are too widely or inappropriately spaced to confirm
geological and/or grade continuity but are spaced closely enough
for continuity to be assumed.
A ‘Measured Mineral Resource’ is that part of a Mineral Resource
for which tonnage, densities, shape, physical characteristics, grade
and mineral content can be estimated with a high level of confidence.
It is based on detailed and reliable exploration, sampling and testing
information gathered through appropriate techniques from locations
such as outcrops, trenches, pits, workings and drill holes. The
locations are spaced closely enough to confirm geological and
grade continuity.
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.
208
Antofagasta plc Annual Report 2018
TONNAGE
(MILLIONS OF TONNES)
2018
2017
2018
COPPER
(%)
2017
MOLYBDENUM
(%)
GOLD
(G/TONNE)
ATTRIBUTABLE TONNAGE
(MILLIONS OF TONNES)
2018
2017
2018
2017
2018
2017
ORE RESERVES ESTIMATES
GROUP SUBSIDIARIES
Ore reserves
Los Pelambres
(see note (a))
Proved
Probable
Total
Centinela (see note (b))
732.7
399.5
719.6
473.8
1,132.2
1,193.4
Centinela Cathodes (oxides)
Proved
134.3
Probable
191.8
Subtotal
Centinela Concentrates (sulphides)
Proved
326.0
565.9
Probable
Subtotal
Proved
Probable
Total
1,279.2
1,845.2
700.2
1,471.0
2,171.2
Encuentro Oxides (see note (c))
Proved
Probable
Total
Antucoya (see note (d))
Proved
Probable
Total
–
–
–
346.6
294.1
640.7
36.4
155.1
191.5
573.9
1,299.5
1,873.4
610.3
1,454.6
2,064.9
101.5
10.7
112.2
336.9
339.5
676.4
0.61
0.59
0.60
0.52
0.32
0.40
0.48
0.40
0.42
0.49
0.39
0.42
–
–
–
0.36
0.31
0.34
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
Total Group Subsidiaries
3,944.1
4,046.8
0.46
0.46
TONNAGE
(MILLIONS OF TONNES)
GROUP JOINT VENTURES
2018
2017
2018
Zaldívar (see note (n))
Proved
Probable
Total Group Joint Ventures
252.8
214.7
467.5
265.0
163.5
428.5
0.46
0.47
0.46
COPPER
(%)
2017
0.49
0.54
0.51
Total Group
4,411.6
4,475.3
0.46
0.47
0.020
0.018
0.019
0.021
0.017
0.020
–
–
–
–
–
–
0.012
0.012
0.012
0.012
0.012
0.012
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.05
0.04
0.05
–
–
–
0.19
0.12
0.14
–
–
–
–
–
–
–
–
–
–
0.05
0.05
0.05
–
–
–
0.19
0.12
0.14
–
–
–
–
–
–
–
–
–
–
439.6
239.7
679.3
94.0
134.2
228.2
396.2
895.5
1,291.6
490.1
1,029.7
1,519.8
–
–
–
242.6
205.9
448.5
431.8
284.3
716.0
25.5
108.6
134.0
401.7
909.6
1,311.4
427.2
1,018.2
1,445.4
101.5
10.7
112.2
235.8
237.6
473.4
2,647.6
2,747.1
MOLYBDENUM
(%)
GOLD
(G/TONNE)
ATTRIBUTABLE TONNAGE
(MILLIONS OF TONNES)
2018
2017
2018
2017
2018
2017
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
126.4
107.4
233.7
132.5
81.8
214.2
2,881.4
2,961.3
antofagasta.co.uk
209
FINANCIAL STATEMENTS ORE RESERVES AND MINERAL RESOURCES ESTIMATES CONTINUED
At 31 December 2018
MINERAL RESOURCES ESTIMATES (INCLUDING ORE RESERVES)
GROUP SUBSIDIARIES
Los Pelambres (see note (a))
TONNAGE
(MILLIONS OF TONNES)
2018
2017
2018
COPPER
(%)
2017
MOLYBDENUM
(%)
GOLD
(G/TONNE)
ATTRIBUTABLE TONNAGE
(MILLIONS OF TONNES)
2018
2017
2018
2017
2018
2017
Sulphides
Measured
1,200.8
Indicated
2,093.6
Measured + Indicated 3,294.4
Inferred
2,819.0
6,113.4
Total
Los Pelambres Total
Measured
Indicated
Measured + Indicated
Inferred
Total
Centinela (see note (b))
1,200.8
2,093.6
3,294.4
2,819.0
6,113.4
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
217.4
305.8
523.2
28.6
551.8
Centinela Cathodes (Oxides)
Measured
Indicated
Measured + Indicated
Inferred
Subtotal
Centinela Concentrates (Sulphides)
Measured
956.1
Indicated
2,032.7
Measured + Indicated 2,988.8
Inferred
973.2
3,962.0
Subtotal
Centinela Total
Measured
Indicated
Measured + Indicated
Inferred
Total
Encuentro (see note (c))
1,173.5
2,338.6
3,512.1
1,001.8
4,513.9
46.0
242.1
288.1
19.3
307.5
583.6
1,619.3
2,202.9
974.8
3,177.7
629.7
1,861.3
2,491.0
994.1
3,485.2
Oxides
Measured
Indicated
Measured + Indicated
Inferred
Subtotal
Sulphides
Measured
Indicated
Measured + Indicated
Inferred
Subtotal
Encuentro Total
Measured
Indicated
Measured + Indicated
Inferred
Total
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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
0.58
0.52
0.54
0.46
0.50
0.58
0.52
0.54
0.46
0.50
0.50
0.33
0.40
0.36
0.40
0.49
0.38
0.42
0.32
0.39
0.49
0.37
0.41
0.32
0.39
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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
0.020
0.016
0.017
0.016
0.017
0.020
0.016
0.017
0.016
0.017
–
–
–
–
–
0.021
0.015
0.017
0.015
0.016
0.021
0.015
0.017
0.015
0.016
–
–
–
–
–
0.013
0.012
0.013
0.011
0.012
0.011
0.012
0.012
0.011
0.011
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.015
0.014
0.015
0.012
0.015
–
–
–
–
–
0.05
0.05
0.05
0.06
0.05
0.05
0.05
0.05
0.06
0.05
–
–
–
–
–
0.19
0.12
0.15
0.10
0.13
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.05
0.05
0.05
0.06
0.05
0.05
0.05
0.05
0.06
0.05
–
–
–
–
–
0.19
0.12
0.14
0.09
0.12
–
–
–
–
–
–
–
–
–
–
0.21
0.13
0.17
0.16
0.17
–
–
–
–
–
720.5
1,256.1
1,976.6
1,691.4
3,668.0
720.5
1,256.1
1,976.6
1,691.4
3,668.0
152.2
214.1
366.3
20.0
386.3
669.3
1,422.9
2,092.2
681.3
2,773.4
821.5
1,637.0
2,458.4
701.3
3,159.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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
32.2
169.5
201.7
13.5
215.2
408.5
1,133.5
1,542.0
682.4
2,224.4
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
210
Antofagasta plc Annual Report 2018
GROUP SUBSIDIARIES
Antucoya (see note (d))
TONNAGE
(MILLIONS OF TONNES)
2018
2017
2018
COPPER
(%)
2017
MOLYBDENUM
(%)
GOLD
(G/TONNE)
ATTRIBUTABLE TONNAGE
(MILLIONS OF TONNES)
2018
2017
2018
2017
2018
2017
Oxides
Measured
Indicated
Measured + Indicated
Inferred
Total
407.1
418.9
825.9
427.8
1,253.7
Antucoya Total
Measured
Indicated
Measured + Indicated
Inferred
Total
Polo Sur (see note (e))
Oxides
Measured
Indicated
Measured + Indicated
Inferred
Subtotal
Sulphides
Measured
Indicated
Measured + Indicated
Inferred
Subtotal
Polo Sur Total
Measured
Indicated
Measured + Indicated
Inferred
Total
Penacho Blanco (see note (f))
407.1
418.9
825.9
427.8
1,253.7
–
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
Oxides
Measured
Indicated
Measured + Indicated
Inferred
Subtotal
Sulphides
Measured
Indicated
Measured + Indicated
Inferred
Subtotal
Penacho Blanco Total
Measured
Indicated
Measured + Indicated
Inferred
Total
–
–
–
18.3
18.3
–
–
–
321.9
321.9
–
–
–
340.2
340.2
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
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
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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.05
0.05
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.05
0.05
–
–
–
–
–
285.0
293.2
578.1
299.5
877.6
285.0
293.2
578.1
299.5
877.6
–
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
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
antofagasta.co.uk
211
FINANCIAL STATEMENTS
ORE RESERVES AND MINERAL RESOURCES ESTIMATES CONTINUED
At 31 December 2018
MINERAL RESOURCES ESTIMATES (INCLUDING ORE RESERVES) CONTINUED
GROUP SUBSIDIARIES
Mirador (see note (g))
Oxides
Measured
Indicated
Measured + Indicated
Inferred
Subtotal
Sulphides
Measured
Indicated
Measured + Indicated
Inferred
Subtotal
Mirador Total
Measured
Indicated
Measured + Indicated
Inferred
Total
Llano (see note (h))
Oxides
Measured
Indicated
Measured + Indicated
Inferred
Subtotal
Llano Total
Measured
Indicated
Measured + Indicated
Inferred
Total
Paleocanal (see note (i))
Oxides
Measured
Indicated
Measured + Indicated
Inferred
Subtotal
Paleocanal Total
Measured
Indicated
Measured + Indicated
Inferred
Total
TONNAGE
(MILLIONS OF TONNES)
2018
2017
2018
COPPER
(%)
2017
MOLYBDENUM
(%)
GOLD
(G/TONNE)
ATTRIBUTABLE TONNAGE
(MILLIONS OF TONNES)
2018
2017
2018
2017
2018
2017
3.3
24.1
27.4
8.5
35.9
31.2
16.8
48.0
2.5
50.5
34.5
40.9
75.5
11.0
86.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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
0.47
0.32
0.34
0.26
0.32
0.35
0.28
0.32
0.26
0.32
0.36
0.30
0.33
0.26
0.32
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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
–
–
–
–
–
–
–
–
–
–
0.006
0.008
0.007
0.008
0.007
0.006
0.008
0.007
0.008
0.007
–
–
–
–
–
0.13
0.08
0.11
0.06
0.11
–
–
–
–
–
0.13
0.08
0.11
0.06
0.11
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.6
18.8
21.4
6.6
28.0
31.2
16.8
48.0
2.5
50.5
33.8
35.6
69.4
9.1
78.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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
212
Antofagasta plc Annual Report 2018
GROUP SUBSIDIARIES
Los Volcanes (see note (j))
Oxides
Measured
Indicated
Measured + Indicated
Inferred
Subtotal
Sulphides
Measured
Indicated
Measured + Indicated
Inferred
Subtotal
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
TONNAGE
(MILLIONS OF TONNES)
2018
2017
2018
COPPER
(%)
2017
MOLYBDENUM
(%)
GOLD
(G/TONNE)
ATTRIBUTABLE TONNAGE
(MILLIONS OF TONNES)
2018
2017
2018
2017
2018
2017
–
–
–
30.8
30.8
–
–
–
1,873.4
1,873.4
–
–
–
1,904.2
1,904.2
–
–
–
30.8
30.8
–
–
–
1,873.4
1,873.4
–
–
–
1,904.2
1,904.2
–
–
–
87.2
87.2
–
–
–
87.2
87.2
–
–
–
52.0
52.0
–
–
–
52.0
52.0
–
–
–
87.2
87.2
–
–
–
87.2
87.2
–
–
–
52.0
52.0
–
–
–
52.0
52.0
–
–
–
0.31
0.31
–
–
–
0.50
0.50
–
–
–
0.50
0.50
–
–
–
0.49
0.49
–
–
–
0.49
0.49
–
–
–
0.69
0.69
–
–
–
0.69
0.69
–
–
–
0.31
0.31
–
–
–
0.50
0.50
–
–
–
0.50
0.50
–
–
–
0.49
0.49
–
–
–
0.49
0.49
–
–
–
0.69
0.69
–
–
–
0.69
0.69
–
–
–
–
–
–
–
–
–
–
–
–
–
0.011
0.011
–
–
–
0.011
0.011
–
–
–
–
–
–
–
–
0.03
0.03
–
–
–
–
–
–
–
–
0.03
0.03
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
15.7
15.7
–
–
–
955.4
955.4
–
–
–
971.1
971.1
–
–
–
44.5
44.5
–
–
–
44.5
44.5
–
–
–
52.0
52.0
–
–
–
52.0
52.0
–
–
–
15.7
15.7
–
–
–
955.4
955.4
–
–
–
971.1
971.1
–
–
–
44.5
44.5
–
–
–
44.5
44.5
–
–
–
52.0
52.0
–
–
–
52.0
52.0
antofagasta.co.uk
213
FINANCIAL STATEMENTS
ORE RESERVES AND MINERAL RESOURCES ESTIMATES CONTINUED
At 31 December 2018
MINERAL RESOURCES ESTIMATES (INCLUDING ORE RESERVES) CONTINUED
GROUP SUBSIDIARIES
Twin Metals (see note (m))
TONNAGE
(MILLIONS OF TONNES)
2018
2017
2018
COPPER
(%)
2017
Maturi
Measured
Indicated
Measured + Indicated
Inferred
Subtotal
Maturi Southwest
Measured
Indicated
Measured + Indicated
Inferred
Subtotal
Birch Lake
Measured
Indicated
Measured + Indicated
Inferred
Subtotal
Spruce Road
Measured
Indicated
Measured + Indicated
Inferred
Subtotal
291.4
818.3
1,109.7
534.1
1,643.8
279.5
745.5
1,025.0
481.4
1,506.4
–
93.1
93.1
29.3
122.4
–
90.4
90.4
217.0
307.4
–
–
–
435.5
435.5
–
93.1
93.1
29.3
122.4
–
90.4
90.4
217.0
307.4
–
–
–
435.5
435.5
Twin Metals Total
Measured
Indicated
Measured + Indicated
Inferred
Total
Group subsidiaries
Measured + Indicated
Inferred
Group subsidiaries total
291.4
1,001.8
1,293.2
1,215.9
2,509.1
279.5
929.1
1,208.6
1,163.1
2,371.7
9,791.9
8,582.7
18,374.6
9,880.4
8,467.4
18,347.8
0.63
0.57
0.59
0.50
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
0.57
0.47
0.52
0.47
0.43
0.45
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
NICKEL
(%)
2017
0.20
0.19
0.19
0.16
0.18
–
0.17
0.17
0.15
0.17
–
0.16
0.16
0.15
0.15
–
–
–
0.16
0.16
0.20
0.19
0.19
0.16
0.17
–
–
–
TPM
(G/TONNE AU+PT+PD)
ATTRIBUTABLE TONNAGE
(MILLIONS OF TONNES)
2018
2017
2018
2017
0.57
0.57
0.57
0.57
0.57
–
0.31
0.31
0.26
0.30
–
0.87
0.87
0.64
0.70
–
–
–
–
–
0.57
0.57
0.57
0.37
0.47
–
–
–
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
–
–
–
–
–
224.6
771.6
996.1
483.2
1,479.3
215.3
712.5
927.7
433.6
1,361.3
–
65.2
65.2
20.5
85.7
–
63.3
63.3
151.9
215.2
–
–
–
304.8
304.8
–
65.2
65.2
20.5
85.7
–
63.3
63.3
151.9
215.2
–
–
–
304.8
304.8
0.57
0.59
0.58
0.34
0.46
224.6
900.0
1,124.6
960.4
2,085.0
215.3
840.9
1,056.2
910.8
1,967.0
6,998.1
5,626.4
–
7,361.8
5,571.6
–
– 12,624.5 12,933.4
2018
0.20
0.18
0.19
0.16
0.18
–
0.17
0.17
0.15
0.17
–
0.16
0.16
0.15
0.15
–
–
–
0.16
0.16
0.20
0.18
0.18
0.16
0.17
–
–
–
214
Antofagasta plc Annual Report 2018
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
544.2
230.7
774.9
43.7
818.6
544.2
230.7
774.9
43.7
818.6
432.4
171.8
604.2
8.8
613.0
432.4
171.8
604.2
8.8
613.0
TOTAL GROUP
Measured + Indicated
Inferred
Total
2018
10,566.8
8,626.4
19,193.2
2017
10,484.6
8,476.2
18,960.8
TONNAGE
(MILLIONS OF TONNES)
2018
2017
2018
COPPER
(%)
2017
MOLYBDENUM
(%)
GOLD
(G/TONNE)
ATTRIBUTABLE TONNAGE
(MILLIONS OF TONNES)
2018
2017
2018
2017
2018
2017
0.43
0.38
0.41
0.25
0.41
0.43
0.38
0.41
0.25
0.41
2018
0.46
0.43
0.45
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
–
–
–
–
–
–
–
–
–
–
2018
–
–
–
–
–
–
–
–
–
–
–
–
–
2017
–
–
–
–
–
–
–
–
–
–
–
–
–
2018
–
–
–
–
–
–
–
–
–
–
–
–
–
272.1
115.4
387.4
21.9
409.3
272.1
115.4
387.4
21.9
409.3
216.2
85.9
302.1
4.4
306.5
216.2
85.9
302.1
4.4
306.5
2018
7,385.6
5,648.3
2017
2017
7,663.9
–
5,576.0
–
– 13,033.8 13,239.9
antofagasta.co.uk
215
FINANCIAL STATEMENTS
ORE RESERVES AND MINERAL RESOURCES ESTIMATES CONTINUED
At 31 December 2018
NOTES TO ORE RESERVES AND
MINERAL RESOURCES ESTIMATES
The ore reserves mentioned in this report were determined
considering specific cut-off grades for each mine and using a long-
term copper price of $3.10/lb ($3.00 in 2017), $9.00/lb molybdenum
(unchanged from 2017) and $1,300/oz gold ($1,250 in 2017), 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 2017).
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.
External audits are also done on resources and reserves for any
material changes (incorporation of a significant amount 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 Los Pelambres, Centinela, Zaldívar 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 2018 the mineral resource model has been updated
with 38 drill holes for a total of 10,900 metres. The decrease of
63 million tonnes in ore reserves is due 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 increased overall by a net
89 million tonnes, including depletion, with the greatest difference
in Inferred resources, which increased by 149 million tonnes due
to modifications in optimisation strategy.
B) CENTINELA (CONCENTRATES AND 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. For 2018 there
has been a change in ownership for three deposits, with the Group
portion transferred to Centinela ownership: the entire Encuentro
deposit (both oxides and sulphides); the Group portion of Paleocanal
(now referred to as Tesoro Sur); and oxides contained in Phase 4
of Mirador. 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 grades used for the Centinela Cathodes ore reserves is
as follows: Tesoro Central and Mirador Oxides deposits, 0.20% copper
(down from 0.41% and 0.30% respectively in 2017). These changes
in cut-off grades reflect results of ongoing metallurgical testwork
on lower grade material. For these oxide deposits, the cut-off grade
for mineral resources is 0.15%. The cut-off grade applied to oxides
contained in the Esperanza, Esperanza Sur and Encuentro deposits is
0.20% copper for ore reserves and 0.15% copper for mineral resources.
The Centinela Cathodes ore reserves have increased by a net
135 million tonnes, due in large part to the incorporation into Centinela
ownership of 98 million tonnes of Encuentro Oxides. The remaining
increase in Centinela Cathodes ore reserves is a combination of lower
cut-off grade in Tesoro Central and additional oxide ore reserves in
Esperanza Sur. Centinela Cathodes ore reserves are made up of
209 million tonnes at 0.48% copper of heap leach ore and 117 million
tonnes at 0.27% copper of ROM ore. Centinela Cathodes mineral
resources increased by a net 244 million tonnes, also due mostly to
the incorporation into Centinela ownership of 165 million tonnes from
Encuentro Oxides, but also positively impacted by the incorporation
into Centinela ownership of 21 million tonnes from Tesoro Sur
(ex-Paleocanal) and 9 million tonnes from Phase 4 Mirador.
Additionally, due to the high proportion of Centinela ownership
in the Llano deposit (97% approx), resources of 40 million tonnes
have now been consolidated into the Centinela Cathodes section.
Centinela Concentrates ore reserves have decreased by a net
28 million tonnes, including depletion of 46 million tonnes, which
was partially offset by an increase in Esperanza Sur ore reserves.
Centinela Sulphides mineral resources increased by a net 784 million
tonnes, due to the incorporation of 919 million tonnes of Encuentro
Sulphides into Centinela ownership, more than offsetting a decrease
of 135 million tonnes in Esperanza and Esperanza Sur. The decrease
in Esperanza and Esperanza Sur resources is due to updates to the
economic parameters and cost model in the period in addition to
depletion of 50 million tonnes.
C) ENCUENTRO
The entire Encuentro deposit (both oxides and sulphides) was
acquired by Centinela in 2018 and, now incorporated into the
Centinela section.
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. For 2018 the mineral resource model has been updated
with 36 drill holes for a total of 4,500 metres. Ore reserves have
decreased by 36 million tonnes and mineral resources by 38 million
tonnes, mainly due to depletion, but also impacted by updates to the
resource model.
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 2018 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 2018 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 mineral resources for Mirador
Oxides, subject to the agreement with Centinela, are included in the
Centinela Cathodes/Oxides sections. 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 2018 Mirador Oxides mineral
resources have decreased by 9 million tonnes due to the transfer of
ownership of Phase 4 to Centinela.
216
Antofagasta plc Annual Report 2018
N) ZALDÍVAR
Zaldívar is 50% owned by the Group. Cut-off grades are calculated
using an economic formula which is equivalent to approximately
0.20% copper. For 2018 no new drill holes have been incorporated
in the mineral resource model, but adjustments have been made
using blast hole information. Ore reserves have increased by 39 million
tonnes with depletion more than offset by the inclusion of 89 million
tonnes of low grade sulphide Dump Leach ore in the estimate.
Mineral resources have increased by a net 206 million tonnes,
including depletion, principally due to inclusion of potential
Dump Leach ore in the pit optimisation process.
The final pit phase (Phase 13), which represents approximately
18% of current ore reserves, impacts a portion of Minera Escondida
mine property, as well as infrastructure owned by third parties
(road, railway, powerline and pipelines). Mining of the final pit phase
is subject to agreements or easements to access these areas and
relocate this infrastructure.
O) ANTOMIN 2 AND ANTOMIN INVESTORS
The Group has an approximately 51% interest in two indirect
subsidiaries, Antomin 2 Limited (“Antomin 2”) and Antomin Investors
Limited (“Antomin Investors”), which own a number of copper
exploration properties in Chile’s Antofagasta Region and Coquimbo
Region. These include, among others, Penacho Blanco, Los Volcanes
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 34C to the financial statements.
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 2018, due to the high proportion
of Centinela ownership in the Llano deposit (97% approx), these
resources are now incorporated into the Centinela Oxides section.
I) PALEOCANAL
The Paleocanal deposit was covered by AMSA and Centinela mining
tenements shared in different proportions, with the Group owning
89.2% of the resource in 2017. The cut-off grade applied to the
determination of mineral resources is 0.15% copper. For 2018
ownership of the Paleocanal mineral resources (now referred
to as Tesoro Sur in the Centinela Cathodes/Oxides notes) has
been transferred to Centinela, and are now incorporated into the
Centinela Oxides section.
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 2018 the mineral resource model has not been updated.
K) BRUJULINA
Brujulina is 51% owned by the Group. The cut-off grade applied to
the determination of mineral resources is 0.30% copper. For 2018
the mineral resource model has not been updated.
L) SIERRA
Sierra is 100% owned by the Group. The cut-off grade applied to the
determination of mineral resources is 0.30% copper. For 2018 the
mineral resource model has not been updated.
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
83.1% of the resource. For 2018 the resource estimate increased
by 137 million tonnes due to re-evaluation of the categorisation criteria
in the Maturi deposit.
The cut-off grade applied to the determination of mineral resources
is 0.3% copper, which when combined with credits from nickel,
platinum, palladium and gold, is deemed appropriate for an
underground operation. In the resource table ‘TPM’ (Total Precious
Metals) refers to the sum of platinum, palladium and gold values in
grammes per tonne. The TPM value of 0.57 g/tonne for the Maturi
resource estimate is made up of 0.15 g/tonne platinum, 0.34 g/tonne
palladium and 0.08 g/tonne gold. The TPM value of 0.30 g/tonne for
the Maturi Southwest resource estimate is made up of 0.08 g/tonne
platinum, 0.17 g/tonne palladium and 0.05 g/tonne gold. The TPM
value of 0.70 g/tonne for the Birch Lake resource estimate is made
up of 0.19 g/tonne platinum, 0.41 g/tonne palladium and 0.10 g/tonne
gold. The Spruce Road resource estimate does not include TPM
values as they were not assayed.
On 22 December 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.
As expected, on 2 May 2018 the BLM reinstated the federal mineral
leases MNES-1352 and MNES-1353 and the renewal process is ongoing.
antofagasta.co.uk
217
FINANCIAL STATEMENTS GLOSSARY AND DEFINITIONS
BUSINESS, FINANCIAL
AND ACCOUNTING
AIFR
AMSA
Annual Report
Antucoya
ATI
Australian dollars
Banco de Chile
Barrick Gold
Capex
Cash costs
CDP
Centinela
All Injury Frequency Rate.
Antofagasta Minerals S.A., a wholly-owned
subsidiary of the Group incorporated in
Chile, which acts as the corporate centre
for the mining division.
The Annual Report and Financial
Statements of Antofagasta plc.
Minera Antucoya S.A., a 70%-owned
subsidiary of the Group incorporated
in Chile.
Antofagasta Terminal Internacional S.A.,
a 30%-owned associate of the Group
incorporated in Chile that operates the
port in the city of Antofagasta.
Australian currency.
A commercial bank that is a subsidiary
of Quiñenco.
Barrick Gold Corporation, incorporated in
Canada. Joint venture partner of the Group
in 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.
Carbon Disclosure Project.
Minera Centinela S.A., a 70%-owned
subsidiary of the Group incorporated in
Chile that holds the Centinela Concentrates
(formerly Esperanza) and Centinela
Cathodes (formerly El Tesoro) operations.
Centinela Mining
District
CGU
Chilean peso
Comex
Companies Act 2006
Company
Continental water
Corporate Governance
Code
Directors
Duluth
EBITDA
EIA
El Arrayán
Encuentro
Energía Andina
EPS
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.
Antofagasta plc.
Water that comes from the interior of land
masses including rain, snow, streams,
rivers, lakes and groundwater.
The UK Corporate Governance Code is a set
of principles of good corporate governance,
most of which have their own more detailed
provisions published by the Financial
Reporting Council, most recently updated
in 2016. A later update was published in
2018 and applies to accounting periods
beginning on or after 1 January 2019.
The Directors of the Company.
Duluth Metals Limited, a wholly-owned
subsidiary of Antofagasta plc acquired on
28 January 2015 through which the Group
holds the Twin Metals Project.
Earnings Before Interest, Tax, Depreciation
and Amortisation.
Environmental Impact Assessment.
Parque Eólico el Arrayán SpA, a
30%-owned associate of the Group that
operates a wind-power plant providing up
to 40MW of electricity to Los Pelambres.
Copper oxide and sulphide prospect in the
Centinela Mining District.
Energía Andina S.A., a 50%-owned joint
venture entity of the Group incorporated
in Chile.
Earnings per share.
218
Antofagasta plc Annual Report 2018
Esperanza Sur
EU
FCA
FCAB
FTSE All-Share Index
GAAP
GHG
Government
Group
Hedge accounting
IAS
IASB
ICMM
IFRIC
IFRS
Inversiones Hornitos
Copper deposit in the Centinela Mining
District.
European Union.
Financial Conduct Authority. UK regulatory
body.
Ferrocarril de Antofagasta a Bolivia, the
corporate name of the Group’s transport
division.
A market-capitalisation weighted index
representing the performance of all eligible
companies listed on the London Stock
Exchange’s main market.
Generally Accepted Accounting Practice or
Generally Accepted Accounting Principles, a
collection of commonly-followed accounting
rules and standards for financial reporting.
Greenhouse Gas.
The Government of the Republic of Chile.
Antofagasta plc and its subsidiary
companies and joint ventures.
Accounting treatment for derivative
financial instruments permitted under IAS
39 “Financial Instruments: Recognition and
Measurement“, which recognises the
offsetting effects on profit or loss of
changes in the fair values of a hedging
instrument and the hedged item.
International Accounting Standards.
International Accounting Standards Board.
International Council on Metals and Mining.
International Financial Reporting
Interpretations Committee.
International Financial Reporting Standards.
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.
IVA
Key Management
Personnel
KPI
LBMA
LIBOR
LME
Los Pelambres
LSE
LTIFR
LTIP
Marubeni
Michilla
PEP
Platts
PPA
Impuesto al Valor Agregado, or Chilean
Value Added Tax (Chilean VAT).
Persons with authority and responsibility
for planning, directing and controlling the
activities of the Group.
Key performance indicator.
London Bullion Market Association.
London Inter Bank Offered Rate.
London Metal Exchange.
Minera Los Pelambres S.A., a 60%-owned
subsidiary of the Group incorporated
in Chile.
London Stock Exchange.
Lost Time Injury Frequency Rate.
Long Term Incentive Plan in which the
Group’s CEO, Executive Committee
members and the other senior
managers participate.
Marubeni Corporation, the Group’s 30%
minority partner in Centinela and Antucoya.
Minera Michilla S.A., a 99.9%-owned
subsidiary of the Group incorporated in
Chile which was closed at the end of 2015
and sold in November 2016.
Politically Exposed Person, an individual
who holds or has held a prominent public
position in a national or international
organisation within the last year.
A provider of energy and metals
information and source of benchmark
price assessments.
Power Purchase Agreement.
antofagasta.co.uk
219
FINANCIAL STATEMENTS GLOSSARY AND DEFINITIONS CONTINUED
Provisional pricing
Quiñenco
Ramsar Convention
RCA
Realised prices
Run-of-river
A sales term in several copper and
molybdenum concentrate sale agreements
and cathodes sale agreements that provides
for provisional pricing of sales at the time of
shipment, with final pricing being based on
the monthly average LME copper price or
monthly average molybdenum price for
specific future periods, normally ranging
from 30 to 180 days after delivery to the
customer. For the purposes of IAS 39,
the provisional sale is considered to contain
an embedded derivative (ie the forward
contract for which the provisional sale is
subsequently adjusted) that is separated
from the host contract (ie the sale of metals
contained in the concentrate or cathode at
the provisional invoice price less tolling
charges deducted).
Quiñenco S.A., a Chilean financial and
industrial group listed on the Santiago
Stock Exchange and controlled by a
foundation in which the Luksic family
are interested.
International treaty for the conservation
and sustainable utilisation of wetlands.
Resolucion de Calificación Ambiental,
Environmental Approval Resolution.
Effective sale price achieved comparing
revenues (grossed up for tolling charges
for concentrate) with sales volumes.
A type of hydroelectric plant using the flow
of a river as it occurs and having little or no
reservoir capacity.
SERNAGEOMIN
SHFE
SONAMI
Sterling
SVS
Tesoro Central and
Tesoro Noreste
Tethyan
TSR
Twin Metals Minnesota
Project
UK
UKLA
US
US dollar
Zaldívar
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.
220
Antofagasta plc Annual Report 2018
MINING INDUSTRY
Brownfield project
By-products (credits in
copper concentrates)
Concentrate
Contained copper
Copper cathode
Cut-off grade
Flotation
Grade A copper
cathode
Greenfield project
A development or exploration project in 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 by electrowinning.
The lowest grade of mineralised material
considered economic to process and used
in the calculation of ore reserves and
mineral resources.
A process of separation by which chemicals
in solution are added to materials, some of
which are attracted to bubbles and float,
while others sink. This results in the
production of concentrate.
Highest-quality copper cathode (LME
registered and certified in the case of
Centinela Cathodes).
The development or exploration of a new
project at a previously undeveloped site.
Heap-leaching or
leaching
JORC
ktpd
Life-of-Mine (“LOM”)
Mineral resources
MW
Net cash cost
Open pit
Ore
Ore grade
Ore reserves
A process for the recovery of copper from
ore, generally oxides. The crushed material is
laid on a slightly sloping, impermeable pad
and leached by uniformly trickling (gravity
fed) chemical solution through the beds to
ponds. The metal is then recovered from the
solution through the SX-EW process.
The Australasian Joint Ore Reserves
Committee.
Thousand tonnes per day.
The remaining life of a mine expressed in
years, calculated by reference to scheduled
production rates (ie comparing the rate at
which ore is expected to be extracted from
the mine to current defined reserves).
Material of intrinsic economic interest
occurring in such form and quantity that
there are reasonable prospects for eventual
economic extraction. Mineral resources are
stated inclusive of ore reserves, as defined
by JORC.
Megawatts (one million watts).
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.
antofagasta.co.uk
221
FINANCIAL STATEMENTS GLOSSARY AND DEFINITIONS CONTINUED
Oxide and sulphide ores Different kinds of ore containing copper.
SX-EW
Oxide ore occurs on the weathered surface
of ore-rich lodes and normally results in the
production of cathode copper through a
heap-leaching process. Sulphide ore comes
from an unweathered parent ores process
and normally results in the production of
concentrate through a flotation process
which then requires smelting and refining
to produce cathode copper.
The proportion or quantity of contained
copper for which payment is received after
metallurgical deduction.
A large body of rock which contains
disseminated chalcopyrite and other sulphide
minerals. Such a deposit is mined in bulk
on a large scale, generally in open pits, for
copper and its by-product molybdenum.
A process for the recovery of copper from
ore, typically used for low-grade ores.
The mined, uncrushed ore is leached with
a chemical solution. The metal is then
recovered from the solution through the
SX-EW process.
Material extracted and piled for future use.
Payable copper
Porphyry
Run-of-Mine (“ROM”)
Stockpile
Tailings dam
TC/RCs
Tolling charges
Tonne
tpd
Underground mine
Solvent extraction and electrowinning. A
process for extracting metal from an ore
and producing pure metal. First the metal
is leached into solution, the resulting solution
is then purified in the solvent-extraction
process before being treated in an
electrochemical process (electrowinning)
to recover cathode copper.
Construction used to deposit the rock
waste which remains as a result of the
concentrating process after the recoverable
minerals have been extracted in
concentrate form.
Treatment and refining charges, being terms
used to set the smelting and refining charge
or margin for processing copper concentrate
and normally set either on an annual or
spot basis.
Charges or margins for converting
concentrate into finished metal. These
include TC/RCs, price participation and price
sharing for copper concentrate and roasting
charges for molybdenum concentrate.
Metric tonne.
Tonnes per day, normally with reference to
the quantity of ore processed over a given
period of time expressed as a daily average.
Natural or man-made excavation under the
surface of the ground.
222
Antofagasta plc Annual Report 2018
SHAREHOLDER INFORMATION
CURRENCY ABBREVIATIONS
DIVIDENDS
$
$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 dollars
Chilean peso
Thousand Chilean pesos
Million Chilean pesos
Australian dollars
Thousand Australian dollars
Million Australian dollars
DEFINITIONS AND
CONVERSION OF
WEIGHTS AND MEASURES
lb
oz
’000 m3
’000 tonnes
1 kilogramme
1 tonne
1 kilometre
1 troy ounce
Pound
A troy ounce
Thousand cubic metres
Thousand metric tonnes
2.2046 pounds
204.6 pounds or 1,000 kilogrammes
0.6214 miles
31.1 grammes
CHEMICAL SYMBOLS
Cu
Mo
Au
Ag
Copper
Molybdenum
Gold
Silver
Details of dividends proposed in relation to the year are given
in the Directors’ Report on page 137, and in Note 13 to the
Financial Statements.
If approved at the Annual General Meeting, the final dividend of
37.0 cents will be paid on 24 May 2019 to ordinary shareholders
that are on the register at the close of business on 26 April 2019.
Shareholders can elect (on or before 29 April 2019) 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 2 May 2019.
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 22 May 2019. 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.
antofagasta.co.uk
223
FINANCIAL STATEMENTS SHAREHOLDER INFORMATION CONTINUED
SHAREHOLDER CALENDAR 2019
23 January 2019
19 March 2019
24 April 2019
25 April 2019
26 April 2019
29 April 2019
2 May 2019
22 May 2019
24 May 2019
24 July 2019
22 August 2019
5 September 2019
6 September 2019
9 September 2019
12 September 2019
4 October 2019
23 October 2019
22 January 2020
Q4 2018 Production Report
FY 2018 Results Announcement
Q1 2019 Production Report
2018 Final Dividend – Ex Dividend date
2018 Final Dividend – Record date
2018 Final Dividend – Final date for receipt
of Currency Elections
2018 Final Dividend – Pound Sterling/
Euro Rate set
Annual General Meeting
2018 Final Dividend – Payment date
Q2 2019 Production Report
HY 2019 Results Announcement
2019 Interim Dividend – Ex Dividend date
2019 Interim Dividend – Record date
2019 Interim Dividend – Final date for
receipt of Currency Elections
2019 Interim Dividend – Pound Sterling/
Euro Rate set
2019 Interim Dividend – Payment date
Q3 2019 Production Report
Q4 2019 Production Report
Dates are provisional and subject to change.
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.
224
Antofagasta plc Annual Report 2018
DIRECTORS AND ADVISERS
DIRECTORS
Jean-Paul Luksic
Manuel Lino Silva De Sousa-Oliveira
(Ollie Oliveira)
Gonzalo Menéndez
Ramón Jara
Juan Claro
William Hayes
Tim Baker
Andrónico Luksic C
Vivianne Blanlot
Jorge Bande
Francisca Castro
Chairman
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
COMPANY SECRETARY
Julian Anderson
AUDITOR
PricewaterhouseCoopers LLP
SOLICITORS
Clifford Chance LLP
FINANCIAL ADVISERS
N M Rothschild & Sons
STOCKBROKERS
J.P. Morgan Cazenove
Citigroup Global Markets Limited
For up-to-date investor information including our past financial
results, visit:
+ Group website:
www.antofagasta.co.uk
+ Investors:
www.antofagasta.co.uk/investors
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Antofagasta plc
Cleveland House
33 King Street
London
SW1Y 6RJ
United Kingdom