NEWS RELEASE, 10 AUGUST 2023
HALF YEARLY FINANCIAL REPORT
FOR THE SIX MONTHS ENDED 30 JUNE 2023
EARNINGS PER SHARE INCREASE BY 27%
Antofagasta plc CEO Iván Arriagada said: “The first half of the year delivered another strong safety performance across all our operations. We continue to operate fatality free, and both leading and lagging indicators of safety are at a level ahead of last year.
“Our financial metrics over the period were also strong; revenue was 14.3% higher due to higher copper, gold and molybdenum sales volumes and higher realised by-product prices, partially offset by a 3.4% decline in copper prices.
“We are focused on cost control through our Cost and Competitiveness Programme, which so far this year has delivered $60 million in savings and productivity improvements (equivalent of 9c/lb), achieving our goal of $60 million of savings for the full year. EBITDA was 7.5% higher and profit before tax was 12.5% higher than last year. Earnings per share came in at 33.5 cents, which is an increase of 26.9% compared to last year.
“Looking ahead to the second half of the year, we expect the desalination plant will continue to ramp-up to its design capacity, which will allow increased throughput at Los Pelambres, supporting the delivery of our production and cost guidance.
“Copper is the metal of electrification and therefore an integral part of the energy transition. We believe the long-term fundamentals for copper are very strong as demand is forecast to continue to grow over the coming years, and as incremental supply remains challenged. Our focus remains on growing production through our pipeline of projects safely and competitively, which will generate value for all our stakeholders.
“Consistent with our practice of paying 35% of interim net earnings as a dividend, the Board has declared an interim dividend of 11.7 cents per share.”
HIGHLIGHTS
Financial Performance
● Revenue for the first half of 2023 was $2,890 million, 14.3% higher than in the same period in 2022, mainly because of higher copper and by-product sales volumes and higher realised by-product prices.
● EBITDA(1) was $1,331 million, 7.5% higher than in the same period last year on higher revenue, partially offset by operating costs that increased by 14.8%, mainly due to higher sales volumes, inflation and a stronger Chilean peso.
● EBITDA margin(2) was 46.1%, compared with 49.0% in H1 2022.
● The Cost and Competitiveness Programme generated savings and productivity improvements of $60 million in the first half of 2023, equivalent to 9c/lb of unit cash costs, achieving our full year target of $60 million.
● Profit before tax was $765 million, 12.5% higher than the same period in 2022.
● Continuing strong balance sheet with a net debt to EBITDA ratio at the end of the period of 0.27 times. The Company’s cash, cash equivalents and liquid investments balance as at 30 June 2023 was $2,350 million, almost unchanged from the balance of $2,391 million as at the end of 2022.
● Cash flow from operations was $1,296 million, down from $1,683 million in the first half of 2022, due to a significant positive working capital variance in H1 2022, which was not repeated in H1 2023.
● Capital expenditure of $1,022 million, which is 54% of full year guidance.
● Earnings per share of 33.5 cents, 7.1 cents higher than the same period in 2022.
● Interim dividend of 11.7 cents per share, equivalent to a pay-out ratio of 35% of underlying net earnings in line with the Company’s capital allocation framework.
Production And Cost Performance (As Previously Announced On 19 July 2023)
● Copper production in H1 2023 of 295,500 tonnes, 10.0% higher year-on-year (H1 2022: 268,600 tonnes), principally reflecting a 23.9% increase in throughput at Los Pelambres.
● Cash costs before by-product credits in H1 2023 were $2.48/lb, a year-on-year increase of 4.6% due to higher input costs and the appreciation of the Chilean peso.
● Net cash costs were $1.75/lb for the first half of the year, compared to $1.82/lb in the first half of 2022, reflecting the increase in cash costs before by-product credits being more than offset by higher by-product credits.
2023 Guidance (As Previously Announced)
● Guidance has been updated to 640-670,000 tonnes (previously 670-710,000 tonnes), because of the rescheduling of completion activities at the desalination plant and concentrator expansion at Los Pelambres and the reduced availability of water in H1 2023. The expectation is that output will increase quarter-on-quarter in H2 2023 as both projects near completion of commissioning.
● The impact of the updated production guidance is partly offset by strong cost control across the Company’s operations with full year cash costs before by-product credits now expected to be $2.30/lb (previously $2.20/lb).
● Guidance for cash costs after by-products remains unchanged at $1.65/lb, assuming no significant changes in current by-product prices and the Chilean peso exchange rate.
● Capital expenditure guidance is also unchanged at $1.9 billion assuming no further appreciation of the Chilean peso. Opportunities to accelerate the execution of selected development projects will continue to be evaluated, considering the return profiles of the individual options.
● The Group has now achieved its full year Cost and Competitiveness Programme savings and productivity improvement target of at least $60 million.
Growth Projects (As Previously Announced)
● The desalination plant for Los Pelambres is nearing the end of its commissioning phase. The plant achieved an average production rate of 160 litres per second of desalinated water in June 2023, and is expected to continue to ramp-up production during H2 2023.
● At the concentrator expansion project at Los Pelambres, pre-operational testing work started during Q2 2023, alongside the commissioning of some ancillary sections of the project and the connection of the main facilities to the national grid. Commissioning is expected to be completed in H2 2023.
● An updated study into the development of the Centinela Second Concentrator project is expected to be submitted to the Board for consideration by the end of the year.
● The expansion at Centinela would increase production by an average of 170,000 tonnes per annum of copper equivalent, taking advantage of the large resource base in the Centinela district. This expansion is expected to move Centinela into the first quartile of the net of by-products cost curve.
Sustainability
● There were no fatalities in H1 2023 (FY 2022: zero), and safety indicators remain strong, with a year-to-date lost time injury frequency rate (“LTIFR”) of 0.58 (FY 2022: 0.84).
● As previously reported, the Company (as well as other named defendants) submitted a response contradicting the allegations made by the Consejo de Defensa del Estado (“CDE”), an independent governmental agency that represents the interests of the Chilean state, who previously filed a claim against Minera Escondida, Albemarle and Zaldívar, alleging that their extraction of water from the Monturaqui-Negrillar-Tilopozo aquifer over the years has impacted the underground water level. The litigation remains outstanding as well as conversations among the parties regarding a potential settlement.
● Currently, Zaldívar is permitted to extract water and mine until 2025 and 2024 respectively. To ensure the continuity of this operation, in March 2023 Zaldívar submitted a Declaration of Environmental Impact (“DIA”), a more limited scope and simplified procedure than an Environmental Impact Assessment (“EIA”). The DIA submitted requests that the mining permit be extended from 2024 to 2025, to expire at the same date as the current water permit. After this, and after withdrawing an earlier EIA application filed in 2018 which remained unresolved, in June 2023 Zaldívar submitted an EIA application to extend its mining and water environmental permits through to 2051. This EIA includes a proposal to develop the primary sulphide ore deposit, extending the current life of mine and requiring estimated investments over the mine life of $1.2 billion, and a conversion of the water source for Zaldívar to either seawater or water from third parties, following a transition period during which the current continental water extraction permit is extended from 2025 to 2028.
● With the continuing drought in central Chile and changes in the Water Code in 2022, discussions were held with stakeholders in the Choapa Valley about water distribution arrangements in the area and an agreement has been reached with local communities. The relevant water authority is now in the process of reviewing this proposal. This ongoing process involves no material change to the current availability of continental water at Los Pelambres.
Legislative
● In May 2023, both the Chilean Senate and lower house of Congress approved the proposed revision to Chile’s mining royalty bill, with Presidential approval confirmed in August 2023. The terms include a 1% ad valorem royalty on copper sales, and a royalty ranging from 8% to 26% on operating profits depending on each mining operation’s level of profitability, combined with a provision establishing that total taxation (including corporate income, the new royalty tax and tax on dividends) should not exceed 46.5% of profitability. This new law will come into effect at the beginning of 2024. Since Centinela and Antucoya have tax stability agreements, the new royalty rates will only apply from 2030. There will be a one-off non-cash adjustment to the deferred tax balances of each of the Group’s mining operations reflecting the impact of the change in the 31 December 2023 results.
● The process to approve a new constitution in Chile continues. In May 2023, the members of the Constitutional Council that will draft the revised constitution were elected. The Council is expected to agree a final draft of the revised constitution in Q4 2023, before it is presented for approval in a national referendum on 17 December 2023.
Other
● As previously announced, following confirmation by the Australian Tax Office that the proceeds from the sale of the Group’s interest in Reko Diq ($945 million) were not taxable, the funds were distributed to the Company during H1 2023. The Company will apply its capital allocation model to determine the final use of the proceeds.
● On 20 July 2023, the Company released its second annual Tax Payments Report. The report provides detailed information about the nature of the taxes paid by the Company and the amounts paid and can be found on the Company’s website.
● The Company also released its second Social Value Report in July 2023, in which the Company reviews its involvement in the social and economic development of the areas where it operates.
| UNAUDITED RESULTS SIX MONTHS ENDED 30 JUNE | 2023 | 2022 | % | |
| Revenue | $m | 2,890.1 | 2,528.2 | 14.3 |
| EBITDA(1) | $m | 1,331.0 | 1,237.7 | 7.5 |
| EBITDA margin(1, 2) | % | 46.1 | 49.0 | (5.9) |
| Profit before tax | $m | 764.5 | 679.6 | 12.5 |
| Earnings per share | cents | 33.5 | 26.4 | 26.9 |
| Dividend per share | cents | 11.7 | 9.2 | 27.2 |
| Cash flow from operations | $m | 1,296.4 | 1,682.5 | (22.9) |
| Capital expenditure(3) | $m | 1,021.9 | 831.0 | 23.0 |
| Net debt at period end(1) | $m | 821.3 | 491.4 | 67.1 |
| Average realised copper price | $/lb | 3.99 | 4.13 | (3.4) |
| Copper sales(4) | kt | 275.1 | 240.4 | 14.4 |
| Gold sales | koz | 78.9 | 73.6 | 7.2 |
| Molybdenum sales | kt | 5.2 | 3.9 | 33.3 |
| Cash costs before by-product credits(1) | $/lb | 2.48 | 2.37 | 4.6 |
| Net cash costs(1) | $/lb | 1.75 | 1.82 | (3.8) |
Note: The financial results are prepared in accordance with IFRS unless otherwise noted below.
(1) Non-IFRS measures. Refer to the alternative performance measures section on page 61 in the half-year financial report below.
(2) Calculated as EBITDA/Revenue. If Associates and JVs’ revenue is included, EBITDA Margin was 43.2% in HY 2023 and 44.9% in HY 2022.
(3) On a cash basis.
(4) Does not include 20,300 tonnes of sales by Zaldívar in H1 2023 and 22,700 tonnes in H1 2022, as it is equity accounted.
A recording and copy of the 2023 Half Year Results presentation is available for download from the Company’s website www.antofagasta.co.uk.
There will be a Q&A video conference call at 2:00pm (BST) today hosted by Iván Arriagada – Chief Executive Officer, Mauricio Ortiz – Chief Financial Officer and René Aguilar, Vice President – Corporate Affairs and Sustainability. Participants can join the conference call here.
| Investors – London | Media – London | ||
| Rosario Orchard | rorchard@antofagasta.co.uk | Carole Cable | antofagasta@brunswickgroup.com |
| Robert Simmons | rsimmons@antofagasta.co.uk | Telephone | +44 20 7404 5959 |
| Telephone | +44 20 7808 0988 | ||
| Media – Santiago | |||
| Pablo Orozco | porozco@aminerals.cl | ||
| Carolina Pica | cpica@aminerals.cl | ||
| Telephone | +56 2 2798 7000 | ||
Register on our website to receive our email alerts http://www.antofagasta.co.uk/investors/email-alerts/
FINANCIAL AND OPERATING REVIEW
FINANCIAL HIGHLIGHTS
Revenue was $2,890.1 million, 14.3% higher than in the same period last year mainly as a result of copper, gold and molybdenum sales volumes being higher by 14.4%, 7.2% and 33.3% respectively, and higher realised by-product prices, partially offset by the realised copper price decreasing by 3.4%.
EBITDA during the first six months was $1,331.0 million, 7.5% higher than in the same period in 2022, reflecting higher revenue, partially offset by higher cost of sales which increased by 14.8% mainly due to higher sales volumes, inflation and a stronger Chilean peso.
Profit before tax was $764.5 million, 12.5% higher than in the same period in 2022 reflecting the higher EBITDA.
Earnings per share for the year were 33.5 cents, an increase of 26.9% compared with 2022.
Cash flow from operations was $1,296.4 million, a 22.9% decrease compared with the same period last year, due to a significant positive working capital variance in H1 2022 (following a reduction in receivables), which was not repeated in H1 2023.
The Board has declared an interim ordinary dividend of 11.7 cents per share, equal to a 35% pay-out ratio and in line with our dividend policy.
SUSTAINABILITY
Safety and health
Antofagasta prioritises the safety, health and wellbeing of its people. The Company is pleased to report that we continued to perform fatality free in H1 2023 (2022: zero), and a number of leading and lagging safety indicators improved during the year in comparison with H1 2022.
The Group has a safety management system that prioritises the elimination of fatalities. To help achieve this objective, the Group maintains a focus on the occurrence of high potential incidents (HPIs), which are a key leading indicator of safety performance. During the first half of 2023, the Group recorded 13 HPIs, which represents a 43% reduction compared to the previous year, with improvements seen in both the Mining and Transport Divisions.
A lagging indicator of safety is the Lost Time Injury Frequency Rate (LTIFR), which the Company seeks to keep below 1.0. In H1 2023, the Mining Division’s LTIFR was 0.62, 22% below the same period in 2022. The overall Group LTIFR was 0.58 for H1 2023, a 30% improvement year-on-year.
To help achieve this improvement, the Group has increased its focus on risk identification and risk management processes, to identify and reduce repeated safety incidents. The Group also focuses on reducing risk in identified high risk areas and in H1 2023 we progressed our programme to install collision detection systems, which are planned to be installed in the haul trucks at all of our operations during the coming periods.
To further protect the wellbeing of our workforce, we have strengthened our monitoring programme for detecting and responding to occupational health and work-place related diseases, such as hearing loss, musculoskeletal conditions and psychosocial risks.
Communities
For Antofagasta, the success of our business model is directly connected to the development and well-being of local communities. Through regular dialogue, we identify social investments relevant to the specific needs of each community, whilst coordinating with local authorities on the implementation of each project.
In central Chile, close to Los Pelambres, recent community engagement work in the Province of Choapa includes the following highlights:
● APRoxima-EnRed Programme: Collaboration agreements were signed in H1 2023 with the Rural Sanitary Services (“SSRs”) of the province for the implementation of this programme. Through this work, we are aiming to incorporate technology that will improve the availability, distribution and systematisation of information between all 80 local SSRs, and to help improve the management of available water resources.
● The formalisation of dialogue and due diligence agreements with nine Changas organisations from the Los Vilos commune: Under this framework, we are creating links and providing spaces for permanent dialogue between any indigenous peoples present in the Choapa Valley (Changos, Diaguitas and Mapuches) and Los Pelambres.
● The inauguration of a local healthcare facility, CESFAM, in Chillepín, which is a community located in the Choapa Valley: This facility will provide care to more than 6,700 people from rural towns in Valle Alto in the Salamanca district, with the Company contributing more than $2.5 million for its construction.
Community engagement highlights in the north of Chile include:
● The launch of the latest phase of “Diálogos para el Desarrollo María Elena” (Dialogues for Development in María Elena): This programme between Minera Antucoya and the Municipality of María Elena, aims to build trust and productivity between companies and communities. For the year 2023, this programme will help to finance initiatives in areas such as education, health, the local economy and culture.
● The inauguration of the “Sierra Gorda EnRed: Conectados al mundo” project (Connected to the World): This initiative aims to improve the connectivity of Sierra Gorda through high speed internet connections to more than 250 homes, in addition to providing free Wi-Fi points and enabling the adoption of new technologies in health, education and training facilities.
● Heritage rescue project with the Peine community: “Let’s talk in Ckunza”, which is a partnership with the Cultural Heritage Corporation of Chile and is sponsored by UNESCO. This project seeks to maintain community traditions and language, through local art projects and the creation of a documentary that aims to tell the story of the local language in the Peine community.
Diversity and inclusion
The Group’s Diversity and Inclusion Strategy, launched in 2018, has transitioned from an awareness-raising phase about unconscious bias and discrimination to introducing inclusive practices as an integral part of how we work.
The Company is deepening its inclusive organisational culture that supports the attraction and retention of all people, including women and those with disabilities or different cultural origins. As at the end of the first half of 2023, we have a 20.6% participation rate for women at our operations. We continue to deploy a range of initiatives to further increase this participation rate, to achieve our goal for women to represent 30% of our employees by 2025.
In addition to gender diversity, we promote disability inclusion throughout our business. Across the Group, 1.5% of those working for Antofagasta have a registered disability, exceeding a government-mandated minimum in Chile of 1%.
Climate change and emissions
During 2022 and 2023, the decarbonisation strategy for the Group has continued to mature, adding new initiatives and working on our interim goals to achieve carbon neutrality by 2050.
Regarding progress in our Decarbonisation Plan, we have made progress towards the implementation of a test to introduce trolley-assist technology at our Los Pelambres operation.
Water
Climate change continues to impact water availability in Chile, with our operations located in the Atacama Desert and central Chile, where there has been a drought for the last 14 years.
In order to reduce water-related risk, Los Pelambres is building a desalination project that produced an average of 160 litres per second of desalinated water in June 2023, and is expected to ramp-up production during H2 2023. Once commissioning is completed, the Group expects to have obtained the requisite permits to advance the next phase and commence construction to double the capacity of the plant to 800 litres per second, following which over 90% of Los Pelambres’s water usage will be from desalinated or recirculated water.
Considering the continuing drought in central Chile and the recent changes in the Water Code, discussions have been held during the year with stakeholders in the Choapa Valley about water distribution arrangements in the area and an agreement has been reached with local communities. The relevant water authority is now in the process of reviewing this proposal. This ongoing process involves no material change to the availability of continental water at Los Pelambres.
Currently, Zaldívar is permitted to extract water and mine until 2025 and 2024 respectively. To ensure the continuity of this operation, in March 2023 Zaldívar submitted a Declaration of Environmental Impact (“DIA”), a more limited scope and simplified procedure than an Environmental Impact Assessment (“EIA”). The DIA submitted requests that the mining permit be extended from 2024 to 2025, in order to expire at the same date as the current water permit. After this, and after withdrawing an earlier EIA with a permit extension filed in 2018 and which remained unresolved, in June 2023 Zaldívar submitted an EIA application to extend its mining and water environmental permits through to 2051. This EIA includes a proposal to develop the primary ore deposit beyond the current life of mine plan, requiring investments over the course of the mine life of $1.2 billion, and a conversion of the water use at Zaldívar to either seawater or water sourced from third parties, following a transition period which considers an extension to the current continental water extraction permit from 2025 to 2028.
Our operations at Centinela and Antucoya already operate solely using raw seawater, and in 2022 45.4% of the Group’s water withdrawals were from sea water sources. The Group’s water usage is expected to increase to 90% from being either sea water or recirculated water on completion of the expansion of the desalination plant at Los Pelambres in approximately 2026.
Suppliers
During December 2022, the Group launched its “Suppliers for a Better Future” programme, with activities commencing during H1 2023. This initiative has a focus on small and medium-sized local suppliers, to promote high standards in sustainability, including initiatives in diversity and inclusion, safety, community relations, local contracting and lowering emissions. This programme focuses on four key areas: (1) encouraging local development through employment and procurement, (2) improving working conditions, inclusion, safety and health, (3) environmental stewardship and (4) a commitment to innovation and supplier training.
In parallel, we have also created a free training platform for local suppliers to develop their skills, raise standards and increase the competitiveness of local industry.
PRODUCTION AND CASH COSTS
Group copper production in the first half of 2023 was 295,500 tonnes, 10.0% higher than in the same period last year, principally reflecting a 23.9% increase in throughput rates at Los Pelambres on a year-on-year basis.
Group gold production for the first six months increased by 16.8% to 86,200 ounces.
Molybdenum production was 4,900 tonnes, 22.5% higher than in the same period last year.
Group cash costs before by-product credits in the first half of 2023 were $2.48/lb, a year-on-year increase of 4.6% due to higher input costs and the appreciation of the Chilean peso.
Net cash costs were $1.75/lb for the first half of the year, compared to $1.82/lb in the first half of 2022, reflecting the increase in cash costs before by-product credits more than offset by higher by-product credits.
COST AND COMPETITIVENESS PROGRAMME
During the first half of the year, the Cost and Competitiveness Programme achieved savings and productivity improvements of $60 million, equivalent to 9c/lb as the Group has managed to reduce cash expenditure in some areas by optimising and negotiating third party services and increasing productivity. Given progress made in the first half, the Group has now achieved its savings target of $60 million for the full year. A sustained focus on operational efficiency remains a priority for the Group.
EXPLORATION AND EVALUATION COSTS
Exploration and evaluation costs were $62 million, $11 million higher than H1 2022, mainly as a result of a higher level of activity at Centinela during the period.
TAXATION
The effective tax rate for the period was 30.0%, partly reflecting a one-off adjustment to the provision for deferred withholding tax, which compares with 36.5% in 2022. For more information, please see the Financial Review Section of this report.
The income tax expense for the H1 2023 was $229 million compared to $248 million in H1 2022.
CAPITAL EXPENDITURE AND DEPRECIATION & AMORTISATION
Capital expenditure in H1 2023 was $1,022 million, including $281 million of sustaining capital expenditure, $390 million on mine development and $326 million of growth expenditure, of which $238 million was on the Los Pelambres Expansion project.
Group capital expenditure for the full year is expected to be $1.9 billion, in line with original guidance, assuming no further appreciation of the Chilean peso. Opportunities to accelerate the execution of selected development projects will continue to be evaluated.
Depreciation, amortisation and loss on disposals increased by $22 million to $511 million.
NET DEBT
Net debt at the end of the period was $821 million, largely reflecting the payment of the 2022 final dividend. The Net debt to EBITDA ratio at the end of the period was 0.27 times. Cash flow from operations reduced to $1,296 million compared with $1,683 million in H1 2022.
DIVIDENDS
The Board has declared an interim dividend of 11.7 cents per share, equivalent to $115.3 million and a pay-out ratio of 35%, consistent with the Company’s policy and previous interim dividends. Any distribution of excess cash for the year, as defined under the policy, will be made as part of the final dividend.
LABOUR AGREEMENTS
In the Mining Division, a labour negotiation with the supervisors’ union at Centinela was successfully concluded during May, resulting in a 3 year contract with a one-off payment fully expensed in the period. In addition, Zaldívar reached a 3 year agreement with its workforce in July. There are two other labour agreements that will expire during the year, both of which are with unions at Centinela (November).
In the Transport Division, a total of five union negotiations are due to take place during the year, with two already settled during July and the remaining three due to take place in September.
LEGISLATIVE
Proposed mining royalty
In May 2023, both the Chilean Senate and lower house of Congress approved the proposed revision to Chile’s mining royalty bill, with Presidential approval confirmed in August 2023. The terms include a 1% ad valorem royalty on copper sales, and a royalty ranging from 8% to 26% on operating profits depending on each mining operation’s level of profitability, combined with a provision establishing that total taxation (including corporate income, the new royalty tax and tax on dividends) should not exceed 46.5% of profitability. This new law will come into effect at the beginning of 2024. Since Centinela and Antucoya have tax stability agreements, the new royalty rates will only apply from 2030. There will be a one-off non-cash adjustment to the deferred tax balances of each of the Group’s mining operations reflecting the impact of the change in the 31 December 2023 results.
Constitutional convention
The process to approve a new constitution in Chile continues. In May 2023 members of the Constitutional Council that will draft the revised constitution were elected. The Council is expected to agree a final draft of the revised constitution in Q4 2023, before it is presented for approval in a national referendum on 17 December 2023.
INNOVATION
Fleet autonomy / Remote operation
In January 2023, Centinela became the first private mining company in the country to implement autonomy in 100% of the mining fleet in the Esperanza Sur pit. Currently, the operation has 17 trucks and 2 autonomous drills that are controlled centrally at the Company’s remote operations centre (see section below). In addition to this milestone, the Group has advanced work to implement autonomous drilling operations at Zaldívar and remote operation of equipment at Antucoya. Both projects will come into operation during the last quarter of the year
Integrated Remote Operations Centre (IROC)
During H1 2023, Centinela transferred the operation of its autonomous truck fleet to its IROC in the city of Antofagasta. Los Pelambres has an IROC in Santiago, and both are improving the integration of their operations.
Cuprochlor-T®
The Company’s Cuprochlor-T® technology to leach primary sulphide ores was made available to each operation within the Group during H1 2023, in order to evaluate its potential impact at each site. Exploratory tests have been carried out with Antucoya beginning profile engineering studies, and Zaldívar continuing the evaluation of its primary sulphides project.
Electromobility
The Group is working on the deployment of electromobility as part of its long-term decarbonisation plan. In June 2023, Centinela inaugurated 50 electric light vehicles – the largest fleet of its kind in Chile’s mining industry – and other ancillary electric mining equipment such as front-end loaders, excavators and trucks, with a focus on evaluating the performance of similar equipment elsewhere in the Group.
REKO DIQ PROJECT
Following confirmation by the Australian Tax Office that the proceeds from the sale of the Group’s interest in Reko Diq (amounting to $945 million) were not taxable, the funds have been distributed to the Company during H1 2023. The Company will apply its capital allocation model to determine the final use of the proceeds.
FUTURE GROWTH
The Group has a pipeline of growth projects to develop our significant 20 billion tonne Mineral Resource base, which we are currently advancing through a disciplined process of project evaluation.
The desalination plant for Los Pelambres is nearing the end of its commissioning phase. The plant achieved an average production rate of 160 litres per second of desalinated water in June 2023, and is expected to continue to ramp-up production during H2 2023.
At the concentrator expansion project at Los Pelambres, pre-operational testing work started in Q2 2023, alongside the commissioning of some key sections of the project and the connection of main facilities to the national grid. The commissioning phase of this growth project is expected to be completed in H2 2023.
An updated study into the development of the Centinela Second Concentrator project is expected to be submitted to the Board for consideration by the end of the year.
OUTLOOK
The rescheduling of marine work at the desalination plant due to sea swell conditions combined with lack of rainfall in H1 2023, has decreased this year’s expected production at Los Pelambres, and as such, guidance for full year is adjusted to 640-670,000 tonnes of copper production. Further details on guidance for the year can be found above.
The Company’s average realised copper price was $3.99/lb in H1 2023, 3.4% below the same period in 2022. Looking forward, the global shift towards clean electricity has elevated demand for copper at a time when global supply is facing issues such as declining ore grades, supply disruptions, prolonged permitting processes for new projects, amongst other factors. Global copper consumption is estimated to increase by 2.4% per annum between 2021 and 2050, with total demand rising from approximately 25 million tonnes to 53 million tonnes during this timeframe, and modelling of net-zero scenarios forecast a potential shortfall of up to 9.9 million tonnes of refined copper by 2035.1 To close this supply gap, it is expected that higher copper prices, and reduced permitting delays for both greenfields and brownfields expansion projects will be required to incentivise more projects into development.
In Chile, the proposed mining royalty received approval from the Senate and lower house of Congress, as well as Presidential approval in August 2023, following five years of debate within Chile that has created uncertainty for investors in Chile’s mining sector. The process to determine a new constitution will see a national referendum on 17 December 2023, following the election of the members of the Constitutional Council in May 2023.
We have a range of growth projects being implemented throughout our portfolio that will provide incremental growth in the medium term, including ongoing studies into the potential construction of a second concentrator at Centinela, which provides a pathway to grow output to 900,000 tonnes of copper production. The Company will continue to evaluate opportunities to accelerate the execution of selected development projects.
[1] Source: S&P Global, “The Future of Copper” Report, July 2022.