Antofagasta faces 'more challenging short-term environment'

21st May 2014 09:03

Copper giant Antofagasta faces a 'more challenging short-term environment', the group told investors at its annual general meeting on Wednesday. Chairman Jean-Paul Luksic said that following a 'difficult' 12 months in 2013, the group was now in a period of consolidation, but said the fundamentals for copper in the medium term remained strong."Periods of lower prices and less growth in demand allow us to rebalance, realign and set ourselves up in a good position to benefit fully from the next upturn in prices," the Chairman said. "Whilst the group has enjoyed a number of years of significant growth, we are now in a period of consolidation during which we are bringing Antucoya into production while focussing on cost control. We seek only to invest in projects that we expect to offer strong returns."He said the group was currently focused on brownfields projects, which help control the growth of unit costs across its operations. While 2013 was its strongest ever year in terms of production, it was also a period of adjustment following structural changes to some costs across the business. "Perhaps one of the most significant changes was at Los Pelambres which, following the expiration of a favourable fixed cost long-term power agreement at the end of 2012, was exposed to the significantly higher and more volatile spot market. This led to a near doubling of energy costs at Pelambres during 2013," Luksic said. From a financial perspective, 2013's revenues were affected by lower realised commodity prices on a relatively flat production base and higher unit operating costs, which rose by 32%. The high increase in costs arose primarily because of the increase in energy prices at Los Pelambres, additional mine movement activities at Esperanza and lower by-product revenues due to lower realised prices and production volumes, Antofagasta explained. Looking ahead, the group said its largest development, the Antucoya copper project, which was temporarily suspended last year while the group reviewed the cost escalation and viability of the project, has progressed well and is on-time and on-track to meet its new $1.9bn capital budget. The most advanced of its brownfield projects, the Esperanza mine, is on track for ramp up in the second half of 2015. Its key brownfield projects are expected to support increasing production over the next five years to nearly 900,000 tonnes, approximately 25% above current levels. The group is on track to meet its formal production guidance issued in January of 700,000 tonnes of copper. Discussing tax changes in Chile, Luksic explained: "The two main proposed changes that will impact Antofagasta are to corporation tax and withholding tax. "The proposed changes to corporation tax would increase the current rate of 20% in increments to 25% by 2017 and for withholding tax the proposal is to keep the rate unchanged at 35%, but to move it to an accruals based system so that from 2017 onwards the effective withholdings tax rate would be an additional 10% on top of corporation tax bringing the total tax rate to 35%." NR