Principal Risks and Uncertainties

The Group faces a variety of risks which could negatively impact its performance, earnings, financial position, reputation and future prospects. Over the past year we have refined the process of identifying, evaluating and monitoring strategic risks in order to focus on the most significant events that could impact the Group’s performance. Set out below are the principal risks and uncertainties identified and the steps the Group has taken to mitigate each of them. There may be additional risks unknown to the Group and other risks, currently believed to be insignificant, could turn out to be significant. These risks, whether they materialise individually or simultaneously, could significantly affect the Group’s business and financial results.

Further information about the Group’s risk management systems are given in the Corporate Governance Report and in the Sustainability Report. Further detailed disclosure in respect of financial risks relevant to the Group are set out in the Financial Review and in Note 25(c) to the financial statements.

• Commodity prices

  Risk

  The Group’s results are heavily dependent on commodity prices – principally copper and to a lesser extent molybdenum. The prices of these commodities are strongly influenced by world economic growth, and may fluctuate widely and have a corresponding impact on the Group’s revenues.

  Mitigation

  The Group considers exposure to commodity price fluctuations within reasonable boundaries to be an integral part of the Group’s business, and its usual policy is to sell its products at prevailing market prices. The Group monitors the commodity markets closely to determine the effect of price fluctuations on earnings and cash flows, and uses derivative instruments to manage its exposure to commodity price fluctuations where appropriate.

  The sensitivity of Group earnings to movements in commodity prices is set out in the Financial Review.

  Details of hedging arrangements put in place by the Group are included within the Financial Review and in Note 25(e) to the financial statements.

• Strategic resources

  Risk

  Disruption to the supply of any of the Group’s key strategic inputs such as electricity, water, sulphuric acid and mining equipment could have a negative impact on production volumes. Longer term restrictions could impact opportunities for the growth of the Group.

  A portion of the Group’s input costs are influenced by external market factors and are not entirely within the control of the Group.

  Mitigation

  Contingency plans are in place to address potential short-term disruptions to strategic resources such as electricity. The Group enters into medium and long-term supply contracts for a range of key inputs to help ensure continuity of supply.

  Technological solutions, such as increased use of sea water in the Group’s mining processes, can help address long-term limitations on scarce resources such as fresh water.

  Information on the Group’s arrangements for the supply of key inputs are included within the Marketplace section, and details of significant operational or cost factors related to key inputs are included within the Business Review section.

• Political, legal and regulatory risks

  Risk

  The Group may be affected by political instability and regulatory developments in the countries in which it is operating, pursuing development projects or conducting exploration activities. The withdrawal or variation of permits already granted and changes to regulations or taxation could adversely affect the Group’s operations and development projects.

  Mitigation

  The Group assesses political risk as part of its evaluation of potential projects, including the nature of foreign investment agreements in place. Political, legal and regulatory developments affecting the group’s operations and projects are monitored closely.

  Details of any significant political, legal or regulatory developments impacting the Group’s operations are included within the review of operations in the Business Review section.

• Community relations

  Risk

  Failure to adequately manage relations with local communities could have a direct impact on the Group’s reputation and ability to operate at existing operations and the progress and viability of development projects.

  Mitigation

  The Group is committed to managing the social impact of its activities by utilising several instruments to ensure clear communication with local stakeholders, such as local perception surveys, local media and community meetings.

  Details of the Group’s community relations activities are included in the Corporate Sustainability section.

• Growth opportunities

  Risk

  The Group needs to identify new mineral resources and development opportunities in order to ensure continued future growth. The Group seeks to identify new mineral resources through exploration. There is a risk that exploration activities may not identify viable mineral resources. The Group may fail to identify attractive acquisition opportunities, or may select inappropriate targets. The long-term commodity price forecasts used when assessing potential projects and other investment opportunities are likely to have a significant influence on the forecast return on investment.

  Mitigation

  The Group has teams conducting active exploration programmes both within Chile and elsewhere. The Group has also entered into early-stage exploration agreements with third parties in a number of countries throughout the world.

  The Group assesses a wide range of potential growth opportunities, both from its internal portfolio and external opportunities, to maximise the growth profile of the Group. A rigorous assessment process is followed to evaluate all potential business acquisitions.

  A review of the Group’s exploration activities, its exploration agreements and other growth opportunities are set out in the Business Review section.

• Ore reserves and mineral resources estimates

  Risk

  The Group’s ore reserves and mineral resources estimates are subject to a number of assumptions and estimations, including geological, metallurgical and technical factors, future commodity prices and production costs. Fluctuations in these variables may result in lower grade reserves being deemed uneconomic, and could lead to a reduction in reserves.

  Mitigation

  The Group’s reserves and resources estimates are updated annually to reflect material extracted during the year, the results of drilling programmes and updated assumptions. The Group follows the JORC code in reporting its ore reserves and mineral resources which requires that the reports are based on work undertaken by a Competent Person.

  The ore reserves and mineral resources estimates, along with supporting explanations, can be downloaded from the Other Information section.

• Operational risks

  Risk

  Mining operations are subject to a number of circumstances not wholly within the Group’s control, including damage to or breakdown of equipment or infrastructure, unexpected geological variations or technical issues, extreme weather conditions and natural disasters, which could adversely affect production volumes and costs.

  Mitigation

  The key operational risks relating to each operation are identified as part of the regular risk review process undertaken by the individual operations. This process also identifies appropriate mitigations for each of these specific operational risks.

  The Group has appropriate insurance to provide protection from some, but not all, of the costs that may arise from such events.

  Details of the operational performance of each of the Group’s operations are included in the Business Review section.

• Development projects

  Risk

  A failure to effectively manage the Group’s development projects could result in delays in the commencement of production and cost overruns. Demand for supplies, equipment and skilled personnel could affect capital and operating costs. Increasing regulatory and environmental approvals and litigation could result in delays in construction or increases in project costs.

  Mitigation

  Prior to project approval a detailed feasibility process is followed to assess the technical and commercial viability of the project. Detailed progress reports on the ongoing development projects are regularly reviewed, including assessments of the progress of the key project milestones and actual performance against budget.

  Details of the progress of the Group’s development projects are included within the Business Review section.

• Employees and contractors

  Risk

  The Group’s skilled workforce is essential both to maintain its current operations and to successfully complete the Group’s development projects. The loss of skilled workers and failure to recruit new staff may lead to increased costs or delays. Labour disputes may lead to operational interruptions and higher costs and could have a negative impact on the Group’s earnings.

  Mitigation

  There are long-term labour contracts in place at each of the Group’s mining operations which help to ensure labour stability. The Group maintains appropriate and transparent dialogue with its employees, and invests in employee training and development.

  Contractors’ employees are an important part of the Group’s workforce, and under Chilean law are subject to the same duties and responsibilities as the Group’s own employees. The Group’s approach is to treat contractors as strategic associates.

  Details of the Group’s relations with its employees and contractors are set out within the Corporate Sustainability section and the review of the operations in the Business Review section.

• Health, safety and the environment

  Risk

  The Group operates in an industry that is subject to numerous health, safety and environmental laws and regulations as well as community expectations. Non-compliance could result in harm to the Group’s workers, the environment and the communities in which the Group operates, disruption to the Group’s operations, as well as fines and penalties and damage to its reputation.

  Mitigation

  The Group attaches a very high priority to health, safety and environmental matters. The Group monitors relevant legislation and regulations relating to health, safety and the environment to ensure continued compliance. The Group provides for future site closure and remediation costs, based on analysis produced by external expert advisors.

  Further information in respect of the Group’s activities in respect of health, safety and the environment is set out in the Corporate Sustainability section.