Mining

1. Securing and strengthening the Core Business

Esperanza

Esperanza is expected to complete construction and begin commissioning by the end of 2010. Over its first 10 years of operation it is expected to produce on average 191,000 tonnes of payable copper in concentrate containing 215,000 ounces of payable gold annually.

Esperanza is a copper-gold sulphide deposit located in Chile’s Antofagasta Region approximately five kilometres south of the Group’s El Tesoro mine. It will produce copper concentrate containing gold and silver by-product credits through a conventional milling and flotation process, with ore throughput expected to average approximately 98,000 tonnes per day. The Esperanza deposit includes an oxide resource that is part of the overburden removed through pre-stripping and which, as explained in the El Tesoro section above, has started being processed by the El Tesoro plant during 2009 through ROM leaching. In August 2009 Esperanza was awarded the Avonni prize in Chile for the most innovative mining operation, reflecting in particular Esperanza’s efficiency in water usage, through its use of sea water and its thickened tailings system.

The mine life given current reserves is 16 years. In its first ten years of operation Esperanza is projected to produce on average per year approximately 714,000 tonnes of concentrate containing 191,000 tonnes of payable copper; although with lower grades in its initial year production in 2011 will be below this average level. In addition, the concentrate is expected to contain an annual average of 215,000 ounces of payable gold, as well as silver which is treated as a by-product credit. Cash costs before by-product credits are currently estimated to be approximately 136 cents per pound over the same period. The gold by-product is expected to reduce cash costs on average during this period by approximately five cents per pound per US$100 in the gold price. There is potential for molybdenum production from 2015 at a rate of 2,000 tonnes per year over the following ten years. The adjacent Telégrafo Sur and Telégrafo Norte deposits could utilise the Esperanza plant and facilities well beyond Esperanza’s mine life.

All key contracts relating to the construction are in progress. As at 31 December 2009 overall construction was approximately 65% complete, with construction of the plant more than 40% complete. Pre-stripping has progressed as planned, with a total of 108 million tonnes of material moved by the end of 2009.

Capital expenditure during 2009 was US$716 million. Cumulative expenditure up to the end of 2009 was US$1,218 million. Total development costs, including working capital and financing but before exchange impacts, remain estimated at US$2.3 billion.

Esperanza reached a two-year collective agreement with its labour union in May 2009, with the next labour negotiation not expected to be due until the mine is fully operational.

In May 2009, Esperanza signed definitive agreements for a 12-year US$1.05 billion project financing facility with a consortium of senior lenders including governmental agencies and commercial banks. Up to 31 December 2009 US$716.1 million had been drawn down under this facility. The Group is responsible for its 70% share of the development costs not covered by this facility and its partner Marubeni is responsible for the remaining 30%.

While the recent earthquake has not had any direct impact on Esperanza’s facilities or its employees which were on site, some employees and many contractors have families in the affected areas of the south of Chile and the company has assisted them in temporarily returning home. Supply of some key steel structures for Esperanza fabricated in the damaged zone may also be affected. This may delay some of the construction activities from the original schedule but Esperanza expects to start commissioning the mine by the end of this year. Group forecasts for 2010 do not take into account any production from Esperanza.

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