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Financial Review

  • Basis of preparation

    The Group’s financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). The accounting policies followed are set out in Note 2 to the financial statements. The presentation currency of the Group and the functional currency of the Company is the US dollar, the principal currency in which the Group operates and in which assets and liabilities are denominated.

  • Review of performance

    A detailed segmental analysis of the components of the income statement is contained in Note 6 of the Financial Statements.

    Turnover

      Year ended 31.12.09 US$m Year ended 31.12.08 US$m
    Turnover 2,962.6 3,372.6

    Group turnover in 2009 was US$2,962.6 million, 12.2% below the US$3,372.6 million achieved in 2008. This mainly reflected decreased sales at the mining division in respect of both copper and molybdenum, and to a lesser extent also at the transport and water divisions.

    Turnover from the mining division

    Turnover from copper concentrate and copper cathodes

    Turnover from copper concentrate and copper cathode sales from the Group’s three mines decreased by 6.9% to US$2,516.1 million, compared with US$2,702.9 million in 2008. The decrease mainly reflected the impact of lower copper volumes and to a lesser extent increased tolling charges, partly offset by the effect of increased realised prices.

    (i) Realised copper prices

    The Group’s average realised copper price increased by 1.5% to 270.6 cents per pound (2008 – 266.7 cents), despite the fact that the average LME copper price decreased to 234.2 cents per pound (2008 – 315.3 cents). This was mainly due to the positive impact of adjustments to provisionally priced sales which offset lower market prices and the impact of realised hedging losses.

    Realised copper prices are determined by comparing turnover (gross of tolling charges for concentrate sales) with sales volumes in the year. 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 for future periods (normally about 30 days after delivery to the customer in the case of cathode sales and an average of about 90 days after delivery to the customer in the case of concentrate sales).

    Realised copper prices also reflect the impact of realised losses or gains of commodity derivative instruments hedge accounted in accordance with IAS 39 “Financial Instruments: Recognition and Measurements”.

    In 2009 there were significant positive close-out and mark-to-market adjustments to provisionally invoiced sales as a result of the significant increase in the LME copper price during the year. In the case of Los Pelambres, pricing adjustments increased initially invoiced sales (before adjusting for tolling charges) by US$380.3 million in 2009, compared with a US$541.9 million reduction of sales in 2008. The adjustments in 2009 comprised an uplift of US$78.0 million in respect of sales invoiced in 2008 (net of the reversal of mark-to-market adjustments made at the end of 2008) which were finally priced in 2009, and an uplift of US$302.3 million in respect of sales invoiced in 2009 (including a positive mark-to-market provision for open sales at the end of the year of US$62.1 million). Pricing adjustments in 2009 at El Tesoro and Michilla increased revenues by US$31.1 million (2008 – reduced revenues by US$27.9 million) and US$11.8 million (2008 – reduced revenues by US$12.2 million) respectively. Further details of provisional pricing adjustments are given in Note 25(d) to the financial statements.

    In 2009 turnover also included a loss of US$65.8 million (2008 – gain of US$30.0 million) on commodity derivatives at El Tesoro and Michilla which matured during the year. Further details of hedging activity in the year are given in Note 25(e) to the financial statements.

    Realised prices are analysed by mine in the Business Review. The movement in the LME copper price during the year is described in the Marketplace section.

    (ii) Copper volumes

    Copper sales volumes decreased by 7.5% from 479,000 tonnes in 2008 to 442,900 tonnes this year. Sales volumes differed slightly from production each year mainly due to differences in shipping and loading schedules.

    Production volumes are analysed by mine in the Business Review. The lower production volumes in the year were mainly due to lower production at Los Pelambres due to reduced throughput as expected due to harder ore quality and to a lesser extent lower production at Michilla due to the decision to suspend production at the Lince open pit mine due to low commodity prices at the start of the year.

    (iii) Tolling charges

    Tolling charges for copper concentrate at Los Pelambres increased from US$113.1 million in 2008 to US$125.1 million in 2009, reflecting the increased level of annual treatment and refining charges (partly mitigated by the “brick system” under which terms are often averaged over two years) and the impact of increased realised copper prices on certain contracts. Tolling charges are deducted from concentrate sales in reporting turnover and hence the increase in these charges has had a negative impact on turnover compared with 2008.

    Turnover from molybdenum and other by-products

    Turnover from by-products at Los Pelambres, which relate mainly to molybdenum, decreased by 48.5% to US$223.5 million in 2009 compared with US$434.2 million in 2008, mainly due to lower molybdenum realised and market prices. Molybdenum revenues (net of roasting charges) were US$180.1 million (2008 – US$394.8 million).

    (i) Realised molybdenum prices

    The realised molybdenum price decreased by 52.7% to US$11.3 per pound in 2009 (2008 – US$23.9 per pound), compared to a 61.6% decrease in the average market price to US$11.1 per pound (2008 – US$28.9 per pound). Molybdenum concentrate sales are also subject to provisional pricing with an average open period of up to approximately 90 days. As prices have increased slightly during 2009, realised prices were marginally higher than the average market price. In contrast, during 2008 prices weakened sharply during the fourth quarter, resulting in a realised price that was significantly lower than the average market price.

    (ii) Molybdenum volumes

    Molybdenum sales volumes were 7,700 tonnes in both 2008 and 2009. Small differences with production in each year reflected shipping and loading schedules.

    Production volumes for Los Pelambres are analysed in the Business Review.

    (iii) Gold and silver credits in copper concentrate sales

    Credits received from gold and silver contained in copper concentrate sold increased to US$43.4 million (2008 – US$39.4 million). This was mainly due to the increase in gold content from 19,700 ounces in 2008 to 23,500 ounces in 2009, and the increase in average gold prices in this period, partly offset by lower silver volumes.

    Turnover from the transport and water divisions

    Turnover from the transport division (FCAB) decreased by US$11.6 million or 7.7% to US$139.4 million, mainly due to normal tariff adjustments under contracts in line with reduced costs. This was partly offset by an increase in transport volumes which reflected the full year effect of the San Cristóbal and Gaby contracts which came fully on stream in the second half of 2008, as well as increases in volumes from other customers.

    Turnover at Aguas de Antofagasta, which operates the Group’s water business, decreased by US$0.9 million or 1.1% to US$83.6 million in 2009, despite a 2.5% increase in volumes. This mainly reflected the impact of the weaker Chilean peso on the company’s peso denominated revenues and a slight decrease in average tariffs. 2008 also benefitted from sundry income from installation and construction services which were not repeated in 2009.

    EBITDA and operating profit from subsidiaries and joint ventures

      Year ended 31.12.09 US$m Year ended 31.12.08 US$m
    EBITDA 1,680.7 1,899.8
    Depreciation and amortisation (217.5) (180.2)
    Loss on disposals (4.2) (5.3)
    Operating profit from subsidiaries and joint ventures excluding exceptional items 1,459.0 1,714.3
    Impairments – (188.3)
    Operating profit from subsidiaries and joint ventures including exceptional items 1,459.0 1,526.0
    EBITDA

    EBITDA (earnings before interest, tax, depreciation, and amortisation) from subsidiaries and joint ventures decreased by 11.5% to US$1,680.7 million (2008 – US$1,899.8 million).

    EBITDA at the mining division decreased by 12.2% from US$1,781.8 million to US$1,563.9 million, due to the reduction in turnover as explained in greater detail above, partly offset by lower operating costs as a result of both lower copper volumes and the cost reduction programme. At Los Pelambres, EBITDA decreased from US$1,429.7 million in 2008 to US$1,408.9 million this year. EBITDA at El Tesoro decreased by US$111.1 million to US$231.7million. At Michilla, EBITDA decreased by US$90.5 million to US$27.9 million.

    Excluding by-product credits (which are reported as part of turnover) and tolling charges for concentrates (which are deducted from turnover), weighted average cash costs for the Group (comprising on-site and shipping costs in the case of Los Pelambres and cash costs in the case of the other two operations) decreased from 117.2 cents per pound in 2008 to 106.7 cents per pound. This decrease partly reflected the thorough cost reduction programme implemented from the start of 2009 as well as a general easing of market costs, although cost pressures began to return in the second half of the year. Cash costs are analysed by mine in the Business Review.

    Exploration costs increased from US$54.9 million in 2008 to US$67.1 million, reflecting the increased level of exploration activity across the Group. Net costs in respect of corporate and other items were lower at US$37.5 million (2008 – US$54.2 million) mainly as a result of the cost reduction programme implemented from the start of 2009.

    EBITDA at the transport division decreased by US$7.6 million to US$56.6 million, with the decreased revenue as explained above partly offset by lower operating costs. Aguas de Antofagasta contributed US$60.2 million compared to US$53.8 million last year, mainly reflecting the increased volumes and decrease in costs which were partly offset by the decreased revenues discussed above.

    Depreciation, amortisation and impairments

    Depreciation and amortisation increased by US$37.3 million to US$217.5 million in 2009, mainly due to higher charges at Los Pelambres (as a result of commencement of depreciation of amounts capitalised at the Mauro tailings dam and some elements of the expansion) partly offset by a reduction at Michilla due to its reduced carrying value. The loss on disposal of property, plant and equipment in 2009 was US$4.2 million, compared with US$5.3 million in the prior year.

    During 2008 an impairment charge of US$188.3 million relating to property, plant and equipment at El Tesoro (US$160.0 million) and Michilla (US$28.3 million) was recorded within operating profit, following an impairment review undertaken in light of the commodity market environments during the last quarter of 2008. There have been no impairments during 2009.

    Operating profit from subsidiaries and joint ventures

    As a result of the above factors, operating profit from subsidiaries and joint ventures (excluding 2008 exceptional items) decreased by 14.9% to US$1,459.0 million. Including 2008 exceptional items, operating profit from subsidiaries and joint ventures decreased by 42.8%.

    Share of income from associates
      Year ended 31.12.09 US$m Year ended 31.12.08 US$m
    Share of income from associates 4.5 2.3

    The Group’s share of net profit from its associates was US$4.5 million (2008 – US$2.3 million), comprised of a net profit of US$3.2 million (2008 – nil) from its 40% interest in Inversiones Hornitos S.A. (“Inversiones Hornitos”), a net profit of US$1.5 million (2008 – US$2.3 million) from its 30% interest in Antofagasta Terminal Internacional S.A. (“ATI”) and a net loss of US$0.2 million (2008 – nil) from its 17.8% interest in Sunridge Gold Corp (“Sunridge”).

    Profit on part-disposal of subsidiaries

    During 2008 the Group’s disposal of its 30% interest in both Esperanza and El Tesoro to Marubeni Corporation for a consideration of US$1,401.2 million resulted in a profit before tax of US$1,024.9 million. Further details of this exceptional profit are set out in Note 5 to the financial statements.

    There were no comparable exceptional items in 2009.

    Net finance (expense)/income
    Net finance income Year ended 31.12.09 US$m Year ended 31.12.08 US$m
    Investment income 13.2 78.9
    Interest expense (24.0) (13.7)
    Other finance items (15.1) (8.9)
    Net finance (expense)/income (25.9) 56.3

    Net finance expense in 2009 was US$25.9 million, compared with an income of US$56.3 million in 2008.

    Interest receivable decreased from US$78.9 million in 2008 to US$13.2 million in 2009, reflecting the lower market interest rates and lower yields on securities held.

    Interest expense increased from US$13.7 million in 2008 to US$24.0 million, mainly due to additional short-term loans taken out at Los Pelambres.

    Other finance items comprised a loss of US$15.1 million (2008 – loss of US$8.9 million). A loss of US$1.1 million (2008 – loss of US$1.6 million) has been recognised in respect of the time value element of changes in the fair value of commodity derivative options, which is excluded from the designated hedging relationship, and is therefore recognised directly in the income statement. Foreign exchange gains included in finance items were US$1.2 million in 2009, compared with a loss of US$3.9 million in the previous year. A loss on foreign exchange derivatives of US$12.4 million (2008 – loss of US$1.4 million) is also included in other finance items and partly offsets exchange gains on cash balances included within the overall foreign exchange gains of US$1.2 million. An expense of US$2.8 million (2008 – US$2.0 million) has been recognised in relation to the unwinding of the discount on provisions.

    Profit before tax

    The resulting profit before tax for the period was US$1,437.6 million compared to US$2,609.5 million in 2008, reflecting the reduction in turnover and the net finance expense compared with net finance income in 2008, and the one-off profit on part disposal of subsidiaries in 2008. This was partly offset by the decrease in operating costs.

    Income tax expense

      Year ended 31.12.09 US$m Year ended 31.12.08 US$m
    Total tax charge (Income tax expense) (317.7) (519.7)

    The rate of first category (i.e. corporation) tax in Chile was 17% for both 2009 and 2008. Los Pelambres, El Tesoro and Michilla are also subject to a mining tax (royalty) which imposes an additional tax of 4% of tax-adjusted operating profit. Production from the Tesoro North-East deposit and the run-of-mine processing at El Tesoro is subject to the mining tax at a rate of 5% of tax-adjusted operating profit.

    In addition to first category tax and the mining tax, the Group incurs withholding taxes on the remittance of profits from Chile. Withholding tax is levied on remittances of profits from Chile at 35% less first category tax already paid. Accordingly, the effective tax rate of withholding tax for the purpose of paying dividends to Group shareholders is approximately 18% of the amount remitted or expected to be remitted.

    The tax charge for the year was US$317.7 million and the effective tax rate was 22.1%. This rate varies from the standard rate principally due to the provision of withholding tax of US$28.1 million, the effect of the mining tax which resulted in a charge of US$55.1 million, exchange gains of US$18.3 million on Chilean peso denominated tax prepayments due to the strengthening of the Chilean peso during the year, and the effect of items which are not subject to or deductible from first category tax. In 2008 the total tax charge was US$519.7 million and the effective tax rate was 19.9%. This was principally due to the provision of withholding tax of US$72.1 million, and the effect of the mining tax, which resulted in a charge of US$66.2 million, exchange losses of US$66.3 million on Chilean-peso denominated tax prepayments due to the weakening of the US dollar during the year and the effect of items which are not subject to or deductible from first category tax.

    Minority Interests

      Year ended 31.12.09 US$m Year ended 31.12.08 US$m
    Minority interests 452.2 383.3

    Profit for the financial year attributable to minority shareholders was US$452.2 million, compared with US$383.3 million in 2008. The increase is mainly due to the effect of the disposal of the 30% interest in El Tesoro to Marubeni Corporation in August 2008. Weak commodity prices and the impairment provision resulted in a loss for El Tesoro in the final four months of 2008 (although it remained profitable for the 2008 year as a whole), significantly reducing the overall minority share of Group profit for that year. By contrast, all operations with minorities remained profitable in 2009 and there were no changes in the share of minority interests in each operation during this year.

    Earnings per share

      Year ended 31.12.09 US$m Year ended 31.12.08 US$m
    Earnings per share including exceptional items 67.7 173.1
    Earnings per share excluding exceptional items 67.7 85.5

    Earnings per share calculations are based on 985,856,695 ordinary shares. As a result of the factors set out above, profit for the 2009 financial year attributable to equity shareholders of the Company was US$667.7 million compared with US$1,706.5 million in 2008. Accordingly, basic earnings per share were 67.7 cents in 2009 compared with 173.1 cents for 2008. Basic earnings per share excluding exceptional items (detailed in Note 5 of the financial statements) were 85.5 cents for 2008. During 2009 there were no exceptional items.

    Dividends

    The Board recommends a final dividend of 20.0 cents per ordinary share payable on 10 June 2010 to shareholders on the Register at the close of business on 7 May 2010. The final dividend comprises an ordinary dividend of 6.0 cents and a special dividend of 14.0 cents. Including the interim dividend, this represents a distribution of approximately 35% of net earnings (profit attributable to equity holders of the Company). The Board’s policy is to establish an ordinary dividend which can be maintained or progressively increased at conservative long-term copper prices and through the economic cycle. The Board recommends special dividends when it considers these appropriate after taking into account the level of profits earned in the period under review, the existing cash position of the Group and significant known or expected funding commitments. The Board has continued to increase its ordinary dividend and has adjusted its total recommended dividends in line with profits by means of special dividends in the years of high copper prices. The cost of the final dividend is US$197.2 million and the cost of total dividends for the year is US$230.7 million. The board considers that this level of distribution retains adequate working capital and provides sufficient flexibility for the Group to progress with capital projects and its portfolio of early-stage prospects as well as to take advantage of opportunities which may arise in the current economic environment.

      Year ended 31.12.09 US cents Year ended 31.12.08 US cents Year ended 31.12.07 US cents Year ended 31.12.06 US cents 09 v 08 change 08 v 07 change 07 v 06 change
    Ordinary  
    Interim 3.4 3.4 3.2 3.2  
    Final 6.0 5.6 5.4 5.0  
      9.4 9.0 8.6 8.2 4.4% 4.7% 4.9%
    Special  
    Interim – 3.0 3.0 2.0  
    Final 14.0 48.0 38.0 38.0  
      14.0 51.0 41.0 40.0  
     
    Total dividends to ordinary shareholders 23.4 60.0 49.6 48.2 (61.0%) 21.0% 2.9%
    Dividends as percentage of profit attributable to equity shareholders 35% 35% 35% 35%  

    Dividends represent dividends proposed in relation to the year.

    Capital expenditure

    Details of capital expenditure during the year are set out in the cash flow summary below.

  • Treasury management and hedging

    The Group periodically uses derivative financial instruments to reduce exposure to commodity price movements. The Group does not use such derivative instruments for speculative trading purposes. The impact of derivative instruments on the Group’s results for the period is set out above in the sections on turnover, operating profit from subsidiaries and net finance income, and in Note 25(e) to the financial statements.

    The Group has applied the hedge accounting provisions of IAS 39 “Financial Instruments: Recognition and Measurement” to its commodity derivatives. 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 turnover. The time value element of changes in the fair value of derivative options is excluded from the designated hedging relationship, and is therefore recognised directly in the income statement within other finance items.

    At 31 December 2009 the Group had min/max instruments for 22,200 tonnes of copper production and futures for 9,800 tonnes at Michilla covering a total period up to 31 December 2010. The weighted average remaining period covered by the min/max hedges calculated with effect from 1 January 2010 is 6.5 months. The instruments have a weighted average floor of 186.8 cents per pound and a weighted average cap of 237.8 cents per pound. The weighted average remaining period covered by the futures hedges calculated with effect from 1 January 2010 is 6.4 months. The instruments have a weighted average price of 199.9 cents per pound. The total hedged amount of 32,000 tonnes represents approximately 80% of Michilla’s forecast production for 2010, and the Group’s exposure to the copper price will be limited to the extent of these instruments.

    At 31 December 2009 the Group also had futures for 6,500 tonnes at El Tesoro to both buy and sell copper production, with the effect of swapping COMEX prices for LME prices without eliminating underlying market price exposure, covering a period up to 31 January 2011. The remaining weighted average period covered by these instruments calculated with effect from 1 January 2010 is 7.0 months. Between 31 December 2009 and 28 February 2010 the Group entered into further futures instruments of this type for 100 tonnes of copper production at El Tesoro covering a total period up to 31 March 2010 with a remaining weighted average period covered by these instruments calculated with effect from 1 January 2010 of two months.

    Details of the mark-to-market position of these instruments at 31 December 2009, together with details of any interest and exchange derivatives held by the Group, are given in Note 25(e) to the financial statements.

    The Group periodically uses foreign exchange derivatives to reduce its exposure to fluctuations in the fair value of non-US dollar denominated assets or liabilities. At 31 December 2009 the Group had cross currency swaps with a principal value of US$102.8 million (of which US$68.8 million relates to the Railway and other transport services, US$24.7 million relates to Corporate and other items and US$9.3 million relates to the Water concession) to swap Chilean pesos for US dollars, at an average rate of Ch$510.3/US$, covering a total period up to 1 April 2010. The weighted average remaining period covered by these hedges calculated with effect from 1 January 2010 is 1.3 months. Between 31 December 2009 and 28 February 2010 the Group entered into further cross currency swaps with a principal value of US$134.8 million (of which US$56.8 million relates to the Railway and other transport services, US$10.0 million relates to Corporate and other items and US$68.0 million relates to Corporate and other items) to swap Chilean pesos for US dollars, at an average rate of Ch$532.7/US$, covering a total period up to 2 June 2010.

    The Group also periodically uses interest rate swaps to swap floating rate interest for fixed rate interest. At 31 December 2009 the Group had entered into contracts in relation to the Esperanza financing for a maximum notional amount of US$787.8 million at a weighted average fixed rate of 1.353% maturing in February 2011 and a maximum notional amount of US$840.0 million at a weighted average fixed rate of 3.372% maturing in February 2018.

  • Commodity price sensitivities

    Based on 2009 production volumes and without taking into account the effects of provisional pricing and any hedging activity, a ten cent change in the average copper price would affect turnover and profit before tax by US$97.5 million and earnings per share by 5.0 cents. Similarly, a one-dollar change in the average molybdenum price would affect turnover and profit before tax by US$17.2 million and earnings per share by 0.8 cents.

  • Cash flows

    The consolidated cash flow statement is presented in the financial statements section. The key features are summarised in the following table.

      Year ended 31.12.09 US$m Year ended 31.12.08 US$m
    Cash flows from operations 1,167.8 2,454.3
    Income tax paid (135.2) (561.4)
    Net interest (paid)/received (11.2) 66.3
    Acquisition of minority interest in subsidiary (25.0) (243.1)
    Acquisition of associates and subsequent capital contributions (114.5) –
    Part-disposal of subsidiaries – 1,401.2
    Purchases of property, plant and equipment (1,323.6) (1,135.0)
    Purchases of intangible assets (52.5) (10.7)
    Dividends paid to equity holders of the Company (561.9) (491.0)
    Dividends paid to minority interests (310.0) (495.6)
    Capital increase from minority interest – 57.7
    Other items 0.5 6.9
    Changes in net cash relating to cash flows (1,365.6) 1,049.6
    Exchange and other non-cash movements 42.2 (77.0)
    Movement in net cash in the year (1,323.4) 972.6
    Net cash at the beginning of the year 2,919.1 1,946.5
    Net cash at the end of the year 1,595.7 2,919.1

    Cash flows from operations were US$1,167.8 million in 2009 compared with US$2,454.3 million last year, reflecting the operating results adjusted for depreciation, amortisation, impairments and disposals gains and losses of US$221.7 million (2008 – US$373.8 million) and a net working capital increase of US$513.0 million (2008 – decrease of US$554.5 million). The significant working capital movements relate mainly to changes in the levels of trade debtors as a result of copper prices and provisional pricing mark-to-market adjustments at the end of each period, and to a lesser extent increased inventory levels with the start-up of Tesoro North-East and the ROM project.

    A dividend of US$0.7 million (2008 – US$1.8 million) was received from the Group’s investment in ATI.

    Cash tax payments in the year were US$135.2 million (2008 – US$561.4 million), comprising corporation tax of US$95.0 million (2008 – US$399.5 million), mining tax of US$40.1 million (2008 – US$41.7 million) and withholding tax of US$0.1 million (2008 – US$120.2 million). These amounts differ from the current tax charge in the consolidated income statement of US$185.1 million (2008 – US$541.7 million) because cash tax payments partly comprise lower monthly payments on account in respect of current year profits as compared with the previous year and partly comprise refunds of amounts due to the Group on the settlement of the outstanding balance for the previous year.

    The cash outflow for the acquisition of the minority interest in Minera Caracoles amounted to US$25.0 million. In 2008 the cash outflow for the acquisition of the minority interest in Antomin Limited amounted to US$243.1 million. The cash outflow for the acquisition of the interests in Inversiones Hornitos S.A. and Sunridge Gold Corp amounted to US$85.9 million and subsequent capital contributions to Inversiones Hornitos S.A. amounted to US$28.6 million. In 2008, cash proceeds from the part-disposal of subsidiaries, relating to the disposal of a 30% interest in Esperanza and El Tesoro to Marubeni Corporation, amounted to US$1,401.2 million.

    Cash disbursements relating to capital expenditure in 2009 was US$1,323.6 million compared with US$1,135.0 million in 2008. This included expenditure of US$716.4 million relating to the Esperanza project (2008 – US$460.6 million), US$399.4 million (2008 – US$272.7 million) relating to the plant expansion at Los Pelambres, US$11.5 million (2008 – US$69.3 million) relating to the Tesoro North-East deposit and US$43.1 million (2008 – US$19.8 million) at El Tesoro relating to the project for the Run-of-Mine (ROM) leaching of low-grade oxides from Esperanza.

    Purchase of intangibles in 2009 was US$52.5 million relating to acquisition of the desalination plant by ADASA. In 2008, purchase of intangibles of US$10.7 million related to exploration licences and related rights in Pakistan and Zambia.

    Dividends (including special dividends) paid to ordinary shareholders of the Company this year were US$561.9 million (2008 – US$491.0 million), which related to the final dividend declared in respect of the previous year and the interim dividend in respect of the current year. Dividends paid by subsidiaries to minority shareholders were US$310.0 million (2008 – US$495.6 million), principally due to decreased distributions by Los Pelambres.

    New borrowings in the year amounted to US$2,051.6 million (2008 – US$229.5 million), mainly due to drawdowns from the Esperanza Project finance facility and the short term loans and new corporate facilities taken out by Los Pelambres. Repayments of borrowings and finance leasing obligations in the year, were US$874.5 million relating mainly to repayment of the Los Pelambres short-term borrowings taken out during the year and to a lesser extent regular repayments on existing loans (2008 – US$109.5 million mainly relating to regular repayments on existing loans).

    Details of other cash inflows and outflows in the year are contained in the Consolidated Cash Flow Statement in the Financial Statements section.

    Financial position

      At 31.12.09 US$m At 31.12.08 US$m
    Cash and cash equivalents 3,222.3 3,358.0
    Total borrowings (1,626.6) (438.9)
    Net cash at the end of the year 1,595.7 2,919.1

    At 31 December 2009 the Group had cash and cash equivalents of US$3,222.3 million (2008 – US$3,358.0 million). Excluding the minority share in each partly owned operation, the Group’s attributable share of total cash and cash equivalents was US$2,934.3 million (2008 – US$3,085.7 million).

    Total Group borrowings at 31 December 2009 were US$1,626.6 million (2008 – US$438.9 million). Of this, US$1,067.6 million (2008 – US$282.3 million) is proportionally attributable to the Group after excluding the minority share holdings in partly owned operations. The increase in debt is mainly due to draw downs on the Esperanza and Los Pelambres facilities entered into during the year and new short-term borrowings at Los Pelambres, offsetting further principal repayments on existing borrowings principally at Los Pelambres.

  • Balance sheet

    Net equity (i.e. equity attributable to ordinary shareholders of the Company) increased from US$5,266.8 million at 1 January 2009 to US$5,338.6 million at 31 December 2009, relating mainly to profit after tax and minority interests for the period less ordinary dividends declared and paid in the year. Other changes relate mainly to movements in the fair value of hedges and available for sale investments and the currency translation adjustment; these are set out in the Consolidated Statement of Changes in Equity.

    Minority interests increased from US$1,165.8 million at 1 January 2009 to US$1,278.8 million at 31 December 2009. This principally reflected the minority’s share of profit after tax less the minority’s share of the dividends paid by subsidiaries in the year. Other movements affecting minority interest are also set out in the Consolidated Statement of Changes in Equity.

    Long-term provisions increased from US$18.0 million at 31 December 2008 to US$127.9 million at 31 December 2009. New assessments of the closure provisions for all mining operations were performed by external consultants, resulting in a US$105.1 million increase to the capitalised decommissioning and restoration provision. The increase in the provision balance is mainly due to the significant amount of construction work at Esperanza since the previous assessments.

  • Foreign currency exchange differences

    The principal subsidiaries with a functional currency other than the US dollar are Chilean peso denominated, of which the most significant is Aguas de Antofagasta S.A. Exchange rates used to translate the results of such subsidiaries are given in Note 36 to the financial statements.

    In 2009 the currency translation adjustment gain to net equity of US$46.1 million resulted mainly from the strengthening in the Chilean peso during the year from Ch$636/US$ at the start of 2009 to Ch$507/US$ at the end of 2009. In 2008 the currency translation adjustment charge to net equity of US$41.8 million resulted mainly from the weakening in the Chilean peso during the year from Ch$497/US$ at the start of 2008 to Ch$636/US$ at the end of 2008.

  • Going concern

    The Group’s business activities, together with those factors likely to affect its future performance, are set out in the Business Review, and details on the Principal Risks and Uncertainties relevant to the Group are set out here. Details of the cash flows of the Group during the year, along with its financial position at the year-end are set out in this Financial Review. The Directors’ Report includes details of the Group’s capital structure, as well as significant medium and long-term contracts with customers and suppliers. The financial statements includes details of the Group’s cash and cash equivalent balances in Note 22, and details of borrowings are set out in Note 23. Details of the Group’s financial risk management including details of the management of liquidity and counter party risk, are set out in Note 25(c) to the financial statements.

    In assessing the Group’s going concern status the Directors have taken into account the above factors, including the financial position of the Group and in particular its significant net-cash position, the current copper price and market expectations in the medium term, and the Group’s capital expenditure and financing plans.

    After making appropriate enquiries, the Directors consider that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future and that it is appropriate to adopt the going concern basis in preparing the financial statements.

  • Cautionary statement about forward-looking statements

    The Financial Statements contain certain forward-looking statements with respect to the financial position, results of operations and business of the Group. Examples of forward-looking statements include those regarding ore reserve and mineral resource estimates, anticipated production or construction commencement dates, costs, outputs, demand, trends in commodity prices, growth opportunities and productive lives of assets or similar factors. The words “intend”, “aim”, “project”, “anticipate”, “estimate”, “plan”, “believe”, “expect”, “may”, “should”, “will”, “continue”, or similar expressions, commonly identify such forward-looking statements.

    Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that are beyond the Group’s control. For example, future ore reserves will be based in part on long-term price assumptions that may vary significantly from current levels. These may materially affect the timing and feasibility of particular developments. Other factors include the ability to produce and transport products profitably, demand for products, the effect of foreign currency exchange rates on market prices and operating costs, activities by governmental authorities, such as changes in taxation or regulation, and political uncertainty.

    Given these risks, uncertainties and assumptions, actual results could be materially different from any future results expressed or implied by these forward-looking statements which speak only as at the date of this report. Except as required by applicable regulations or by law, the Group does not undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information or future events. The Group cannot guarantee that its forward-looking statements will not differ materially from actual results.

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