Chairman's Statement

The Group achieved a strong operational performance during 2009 and, as a result of its strong asset base and sound financial position, has been able to continue its growth strategy without interruption in spite of the economic and financial pressures during the year.

All three of the Group's business divisions performed well. Group copper production at the mining division was 442,500 tonnes, which was ahead of the original forecast for the year of 433,000 tonnes. Molybdenum production at Los Pelambres was 7,800 tonnes, in line with 2008. The transport and water divisions both achieved increased volumes. The Group's net earnings in 2009 were US$667.7 million compared with US$842.9 million in 2008 (excluding exceptional items in 2008). The decrease mainly reflects the expected reduction in copper volumes and lower molybdenum market prices in 2009. The Group's already strong financial position was further improved through the raising of US$1.8 billion in two major financings at Esperanza and Los Pelambres. At 31 December 2009 the Group's net cash balance was US$1,595.7 million.

• Strategy

  The mining division has achieved considerable progress in line with its strategic plan, which was established in 2008. The first pillar of the strategy is to secure and strengthen the core business of the Group. During 2009 the plant expansion at Los Pelambres was substantially completed, with the increased plant throughput level of 175,000 tonnes per day expected to be reached during the second quarter of 2010. Esperanza expects to complete construction and start commissioning of its new mine by the end of 2010. The second strategic pillar is to grow this core business by further developing the areas around its existing asset base. The Group’s primary focus remains the Sierra Gorda district, which provides a range of excellent opportunities for growth in the medium and longer term. The Group intends in the medium term to assess how best to utilise the large resource base at Los Pelambres. Near Michilla, a feasibility study is in progress at the Antucoya deposit. The final element of the strategy is to develop and search for additional opportunities including early stage growth in copper both in Chile and abroad. At Reko Diq the feasibility study and the environmental and social impact assessment study are in their final stages. Discussions with the relevant authorities remain in progress, as agreements concerning a mining lease and mineral agreement have not yet been reached. During 2009 the Group has entered into a number of early-stage exploration agreements to further develop its portfolio of international exploration prospects. In January 2010 it also entered into an agreement to acquire an interest in the Nokomis deposit in the United States.

• Sustainable development

  The Group recognises that achieving its strategic plan depends on effective management of social and environmental issues, and during 2009 the mining division approved a social and environmental strategy which is integral to its business plan. This sets out the Group’s objective to create economic, social and environmental value as a participant of the mining sector. It is founded on the principle that managing sustainability performance is key to maintaining the Group’s social licence to operate and grow.

• Health and safety

  The Board deeply regrets the death of five of its workforce who lost their lives during the year at the Group’s mining operations. The Board has a clear target of zero fatalities and considers any fatality to be unacceptable. Each incident was investigated by the relevant authorities and the Group, and we have taken action to prevent a recurrence.

  Health and safety is one of the Group’s key priorities and work to improve performance will continue over the year. The Group’s lost time injury frequency rate improved in 2009 to an average of 2.8 injuries per million hours worked, from 4.4 in the previous year.

• Dividends

  The Board recommends a final dividend for 2009 of 20.0 cents per ordinary share, comprising an ordinary dividend of 6.0 cents and a special dividend of 14.0 cents. The final dividend amounts to US$197.2 million,and if approved at the Annual General Meeting will be paid on 10 June 2010. Including the interim dividend which was paid on 8 October 2009 this gives total dividends for the year of 23.4 cents per ordinary share, amounting to US$230.7 million and representing a distribution of 35% of 2009 net earnings. This is the same payout ratio as in 2008, when the total dividends of 60.0 cents in part reflected the exceptional profits realised in that year. As we have previously stated, our policy is to establish an ordinary dividend which can be maintained or progressively increased and to pay special dividends when appropriate, taking into account the profit earned, the Group’s cash position and expected funding commitments. The Board believes this year’s dividend payment combines the Group’s desire to continue to return cash to shareholders with the ability to develop the Group’s existing growth portfolio and to take advantage of opportunities that may arise.

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• Recent events and outlook

  Despite its severity and the very serious impact on parts of the country, the recent major earthquake in Chile of 27 February 2010 is not expected to have any material impact on the Group’s existing operations, and none of our employees or contractors has suffered any injury at our sites as a result. However, some employees and many contractors at the Los Pelambres and Esperanza projects have families in the affected areas, and we have assisted them in temporarily returning home. There has also been some impact on power facilities for the expanded capacity at Los Pelambres and the supply of some steel structures for Esperanza which are fabricated in the damaged zone in the south of Chile. As a result, the commissioning of the Los Pelambres plant expansion is now expected to be completed in the second quarter of 2010, while the commissioning of Esperanza is expected to start by the end of the year. The earthquake has clearly caused great loss to some of our stakeholders in the country and we are working with them to provide support.

  In January 2010 Sebastián Piñera was elected as the new president of Chile and will take office on 11 March. While this represents a change from the coalition which has governed since 1990, Chile is expected to remain both one of the most financially and politically stable countries in South America, and also one of the most favourable countries in which to conduct mining operations.

  The near-term outlook for copper has improved significantly compared with early 2009, although prices could still remain volatile. Over the medium term the outlook for copper is positive, with the potential for significant supply side pressures over the forthcoming years.

  For 2010, Group copper production from the existing three operations is expected to increase by approximately 23% to 543,000 tonnes, mainly as a result of the completion of the plant expansion at Los Pelambres. Molybdenum production at Los Pelambres is expected to be 9,500 tonnes compared with 7,800 tonnes in 2009, again due to the increased plant throughput as a result of the expansion. With the commissioning of Esperanza expected to start by the end of 2010, Group copper production in 2011 is expected to be over 700,000 tonnes.

  The Group’s sizeable exploration prospects in Chile, together with its increasing portfolio of international exploration projects, could provide further opportunities for long-term growth. The Group intends to use its sound financial position to continue to advance its existing assets and properties while continuing to seek opportunities globally to secure further world-class mining assets.

• Board composition

  Jozsef Ambrus retired from the Board on 14 October 2009. Jozsef had been a Non-Executive Director of Antofagasta plc since 2005, as well as for several years a Non-Executive Director of Antofagasta Minerals S.A. and Minera Michilla S.A. We are very grateful for his significant contribution to the Group over this period and would like to wish him every success for the future.

• Antofagasta’s team

  The Group has an extremely strong and experienced management team, who have done a very impressive job of delivering such a positive operational performance in a very demanding environment during 2009. The chief executives of the Group’s three divisions – Marcelo Awad in the mining division, Miguel Sepúlveda at the transport business and Marco Kútulas in the water division – have between them a wealth of experience both with the Group and in their respective industries. I would like to take this opportunity on behalf of the Board to thank them and all our staff for the commitment they have shown during a very challenging year, and for helping to ensure that the Group is well positioned for ongoing growth.

J-P Luksic
Chairman

8 March 2010

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