TIDMANTO
RNS Number : 5605Y
Antofagasta PLC
18 May 2016
NEWS RELEASE, 18 MAY 2016
CHAIRMAN'S COMMENTS AT THE 2016 ANNUAL GENERAL MEETING
Antofagasta plc (the "Company") today released the script to be
used by the Chairman, Jean-Paul Luksic at the Company's Annual
General Meeting that commences at 10:00am today.
Thank you for joining us today.
As you can see, all of your directors are in attendance, as well
as several members of senior management including our new Group
CEO, Iván Arriagada and I welcome him to this, his first AGM as
Group CEO.
I would like to take this opportunity to thank Mr. Diego
Hernández for his service to the Group. As you all know, Diego
stepped down from the role of Group CEO last month, having
successfully led the Company through an important period and
challenging market conditions. Since joining the Group in 2012,
Diego has implemented robust organisational structures to ensure
that we are well placed to adapt to new challenges. He has also
managed the achievement of many important milestones for the Group
including the commissioning of the Antucoya mine, the closure of
Michilla, the sale of the group's water business and the
acquisition of 50% of Zaldívar.
On behalf of all the Board and the employees and shareholders we
wish to thank Diego for his time as Chief Executive and I, and the
Board, look forward to working with him as he continues to advise
us on important matters affecting the Group.
Before proposing the resolutions set out in the notice of
meeting, I would like to highlight briefly Antofagasta's financial
and operational performance during 2015 and the outlook for the
rest of this year. I will then move onto the formal part of the
meeting and there will be an opportunity to ask questions after
that.
There is no doubt that 2015 was a difficult year, and one in
which the challenges facing our industry were brought into sharp
focus. Continued falls in commodity prices highlighted the worst
effects of more than a decade of bullish markets - a time in the
cycle when controlling costs was less important than securing
production growth. This approach led to over-investment in new
mining capacity across the globe and declining productivity.
Industry lead times have meant that just as global demand growth
slowed, much of this new production came online at what are now
unsustainable costs. Now is the time to remove the consequences of
these excesses.
We took a cautious approach to developing our business at the
peak of the market, and as a result we entered the current downturn
with a strong balance sheet. As we continue to respond to low
commodity prices, we are focussed on ensuring our continued
financial resilience by working hard to ensure discipline in our
allocation of capital, reducing costs, improving operational
efficiencies and lowering our overheads. We remain focused on cash
flow generation and margin protection through sustainable cost
reductions and productivity improvements that help compensate for
the impact of lower commodity prices.
Before saying a few words about our operating performance, I
would like to take a moment to talk about safety. Unacceptably,
over the past 18 months we have had two fatalities and I would like
to express on my own behalf - as well as that of the Board - my
sincere condolences to the families of our colleagues who died. We
will continue to reinforce our actions and practices to ensure that
the safety of all of our employees and contractors comes first.
Our target across the Group is to achieve zero fatalities. We
are determined to ensure that all our employees work in a safe
environment wherever they are and we are focussed on developing and
rolling out procedures and behaviours to support this goal.
In 2015 we focussed on optimising our operations to ensure we
remain competitive in a low-price environment. We also made several
structural changes that strengthened our position as a focused
copper miner. Major highlights included the start of production at
our new Antucoya mine, the sale of our water division and the
purchase of a 50% interest in the Zaldívar copper mine from Barrick
Gold. At the same time, we also took the decision to close the
Michilla mine, which after a long history as part of the Group has
come to the end of its economic life. These changes have further
strengthened the Group's focus on mining and increased our
production capacity.
During 2015 we produced 630,300 tonnes of copper, 11% less than
originally expected, together with 214,000 ounces of gold. We also
produced just over 10,000 tonnes of molybdenum, our highest moly
production since 2012.
Against the backdrop of a weak macroeconomic environment, prices
fell for all of our products. Our average realised copper price of
$2.28/lb was 24% lower than in 2014 and gold and moly prices were
down 8% and 49% respectively.
Turning to our financials, lower metal prices and production
impacted revenue and reduced EBITDA by 58% to $891 million.
However, despite these adverse circumstances, we remained focused
on maintaining a strong balance sheet, improving operational
efficiencies and managing costs. In 2015 we reduced our gross cash
costs through various programmes by 11c/lb, or 6% of cash costs, to
increase our efficiency and productivity and protect our future
margins. These programmes, combined with our reduction of
Exploration & Evaluation and Corporate Costs, brought our
savings in 2015 to $245 million, or 8% of our total operating
costs. During 2016 we aim to reduce our costs by a further $160
million, or 6% of last year's gross cash costs.
In accordance with our dividend policy to pay out at least 35%
of our net income, the total dividend for the year was 3.1 cents
per share, or $30.6 million, which was paid as the interim
dividend. No final dividend has been recommended by the Board as
the interim dividend exceeds the minimum payout ratio in our
dividend policy.
Our approach to allocating capital with an appropriate balance
between investment, growth and dividends has allowed the Company to
retain a strong position and our financial strength gave us the
capacity to take advantage of opportunities over the year.
During the year we sold the ADASA water business for slightly
more than $960 million. This helped us fund our acquisition of a
50% stake in the Zaldívar copper mine from Barrick Gold in December
and has concentrated our focus on our core business of mining
copper.
This acquisition has come after reviewing many potential
opportunities around the world. Zaldívar is located in a region
where we are experienced operators and was an opportunity that
aligned with our long-term objectives and passed our hurdle rates
for this type of investment. We have now been operators of the
Zaldívar mine for nearly six months and we are pleased with how
smoothly it has been integrated into the Group. We have already
achieved some synergies with Zaldívar and we are now investigating
ways to improve copper recoveries, which could help increase
production from current levels. We believe that Zaldívar has been
the best quality copper acquisition that has come available for
some time and that it complements our existing portfolio of assets
in the north of Chile.
Turning to corporate governance - we fully complied with the UK
Corporate Governance Code throughout 2015. We also undertook a
number of changes to the Board Committees, which included the
creation of a new Projects Committee that will allow greater Board
oversight of Antofagasta's major projects. The development of new
projects is critical to the future of the Company and this
Committee will allow more detailed scrutiny of our projects. All
investment decisions that are brought to the Board for approval
will first be reviewed by the Committee to highlight matters for
the Board's consideration and to make recommendations to the Board.
This Committee is already making an important contribution to
providing Board-level input into the advancement of our projects
and I would like to thank Ollie Oliveira for agreeing to be the
first Chairman of the Committee.
As I mentioned earlier, Iván Arriagada has succeeded Diego as
Group CEO. Iván joined the Group in February 2015 as CEO of the
mining division. Since joining the Group, Iván has led a rigorous
cost reduction programme, focusing on maintaining the Company's
healthy balance sheet while ensuring all of the Company's
operations are generating operating cash flow. He was also directly
involved in leading the Zaldívar negotiations and its ultimate
acquisition. Iván is the right person to succeed Diego and to
continue to deliver the Group's strategy. His strong leadership has
proven effective in navigating the current challenge of low copper
prices while maintaining our ability to grow and develop in the
future.
Let me now speak about the future and our plans for growth.
Our three-pillar strategy for growth, remains unchanged.
Firstly, we will focus on optimising our existing operations, where
investment generates good returns quickly. Secondly, we look for
sustainable, organic growth in the areas around our operations. And
finally, we look for special opportunities for growth beyond our
core businesses both in Chile and abroad.
Antucoya is part of this three-pillar strategy for growth and we
started production in September last year and achieved commercial
production at the beginning of last month. The mine is now expected
to reach its design capacity in a few months' time and will produce
some 65-70,000 tonnes of copper this year.
In the current environment, we are working to get the most out
of our existing operations, lowering our cost base and improving
operational efficiency, while preserving our development options
for the future and ensuring they are ready to grow at the right
time.
We currently have two development projects underway, Encuentro
Oxides and the new molybdenum plant at Centinela. Both of these
projects were started in early 2015 and were scheduled to be
completed by the end of 2016 and early 2017, respectively. The
development of both projects has now been slowed by some eight
months as we concentrate on cash preservation in these uncertain
times.
Los Pelambres and Centinela both have very large mineral
resources and will be the source of our organic growth for decades
to come.
At Los Pelambres, our next expansion is the Incremental
Expansion project. For this project, we decided last year to take a
phased approach to its development to spread the financial cost. As
part of this project we will also construct a desalination plant
and pipeline that will provide up to 400 litres per second of
water, which will complement the continental water sources we
already have and provide us with water security.
We have started the permitting process and we will work with the
authorities over the coming months to address their comments on our
proposals. We expect that the feasibility study for the Pelambres
expansion will be completed by the end of next year.
Our next project at Centinela is the construction of a second
concentrator. We are currently working on a feasibility study for
the first phase of this expansion which will add some 140,000
tonnes of copper, 150,000 ounces of gold and 3,000 tonnes of
molybdenum annually to our existing Centinela operations. We have
submitted the Environmental Impact Assessment and expect it to be
approved later this year, and the feasibility study to be completed
by the end of next year.
Advancing permitting and studies for these projects allows us to
secure options for growth in the future.
Beyond our key brownfield projects, we also have a number of
greenfield projects for development in the longer-term such as the
Twin Metals project in Minnesota and a potential further expansion
of Los Pelambres.
Finally, we look for growth further afield where special
opportunities may exist.
We have made good progress in improving the sustainable
operation of our assets. Water is a valuable resource for us, our
communities and for Chile, and we recycled up to 72% of water in
our operations in 2015 with the rest evaporating or remaining in
tailings dams, and we are a leading user of sea water. The Group's
priority is to ensure that it has sufficient water to operate
without compromising the quality or availability of water for the
local community.
In 2015 Los Pelambres strengthened its relationships with local
communities. This was achieved by engaging in a formal, transparent
and open consultation process designed to allow Los Pelambres to
better understand community concerns and to share views and
information about its own activities. Less than two weeks ago we
agreed a lasting solution with the Caimanes community which
addresses certain requirements set down by courts in Chile and will
see Los Pelambres invest in future water supply solutions, safety
measures, community development projects and compensation. This is
part of our ongoing commitment to ensure that the impact we have on
the communities and environments in which we work is limited as
much as possible.
We are also focused on increasing our energy efficiency to
reduce carbon emissions by diversifying our energy sourcing to
include more renewables. By the end of 2015, 47% of the energy
consumed by Los Pelambres came from renewable sources, and by 2019
this is expected to increase to 80%.
Antofagasta takes its responsibility to the community and the
environment very seriously and we will continue to work together
with local stakeholders to develop a common long term vision.
Before we look ahead I would like to take a moment to reiterate
our commitment to safety. The Board and I have reinforced our
messages on the importance of safety to senior management. Looking
to the remainder of this year, and for every year, the safety and
health of our employees remains central to our success. The safety
of our employees, communities and operations will always come first
in everything that we do and we will continue to work hard to
achieve our target of zero fatalities.
2015 was a time for managing the challenges that faced
Antofagasta, and the wider industry as a whole, in what has been
another year of tough markets and tough operating conditions. But,
as was the case with the acquisition of Zaldívar, this has also
been a time for taking advantage of good opportunities when they
arise.
As we look forward we are not counting on an improved
macroeconomic environment although we have recently seen some
positive signals to this effect. We are expecting another year or
two of low copper prices. Consequently, it is vital that we
continue to improve our operational performance and our ability to
deliver on our commitments. In particular, we are focussing on
achieving our production and cost guidance for this year and to
continue to do so in the future.
Our organisational structure has been optimised, our costs
reduced, our balance sheet strength maintained and we are focused
on improving our operations. All of this, leaves us well placed to
weather the current downturn.
Finally, I would also like to take this opportunity to thank all
of the employees and contractors that work across the Group whose
contribution has helped to make Antofagasta what it is today.
Investors - London Media - London
Andrew Lindsay alindsay@antofagasta.co.uk Carole Cable antofagasta@brunswickgroup.com
Paresh Bhanderi pbhanderi@antofagasta.co.uk Will Medvei antofagasta@brunswickgroup.com
Telephone +44 20 7808 0988 Telephone +44 20 7404 5959
Investors - Santiago Media - Santiago
Alfredo Atucha aatucha@aminerals.cl Pablo Orozco porozco@aminerals.cl
Telephone +56 2 2798 7000 Carolina Pica cpica@aminerals.cl
Telephone +56 2 2798 7000
This information is provided by RNS
The company news service from the London Stock Exchange
END
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