Annual Report and Financial Statements 2016 Introduction
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ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 INTRODUCTION Antofagasta is a Chilean copper mining group with signifi cant by-product production and interests in transport. The Group creates value for its stakeholders through the discovery, development and operation of copper mining assets. The Group is committed to generating value in a safe and sustainable way throughout the commodity cycle. See page 2 for more information CONTENTS STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 01-05 66-119 120-187 OVERVIEW 2016 highlights 1 Leadership Independent auditors’ report 122 At a glance 2 Chairman’s Governance Q&A 68 Consolidated income statement 127 Letter from the Chairman 4 Senior Independent Director’s Q&A 70 Consolidated statement Governance overview 71 of comprehensive income 128 Board of Directors 72 Consolidated statement of Executive Committee 76 changes in equity 128 06-27 Effectiveness Consolidated balance sheet 129 STRATEGY Board activities 78 Consolidated cash flow statement 130 Professional development 80 Notes to the financial statements 131 Effectiveness reviews 82 Parent company financial statements 181 Statement from the CEO 8 Accountability Question and answer 9 Nomination and Governance Committee 85 Investment case 10 Audit and Risk Committee 88 Our new operating model 11 Sustainability and Stakeholder Our position in the market 14 188-204 Management Committee 92 Our strategy 16 OTHER INFORMATION Projects Committee 94 Key performance indicators 18 Remuneration Risk management 20 Five year summary 188 Committee Chairman’s Principal risks 23 Dividends to ordinary shareholders letter of introduction 96 of the company 189 Summary of the 2014 Directors’ Ore reserves and mineral resources remuneration policy 99 estimates 190 2016 remuneration report 100 28-60 Glossary and definitions 200 2017 Directors’ remuneration policy 112 Shareholder information 204 PERFORMANCE Relations with shareholders 115 Directors and advisors ibc Directors’ Report 117 Our business model Statement of Directors’ Responsibilities 119 Creating value 30 Operating review Key inputs and cost base 32 Key relationships 35 Our mining division 38 Growth projects and opportunities 40 The existing core business 44 Transport 50 Sustainability report The Group’s approach to sustainability 52 Financial review Delivering a strong set of results 60 STRATEGY PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS 2016 HIGHLIGHTS 721.2 Lost time injury 2.5 Copper production 709.6 704.8 709.4 frequency rate 630.3 2.0 1.9 1.7 709.4K TONNES 1.5 1.5 The Lost Time Injury Frequency Rate of the Group was 1.5 accidents with lost time per million Copper production of 709,400 hours worked. tonnes, a 12.5% increase on 2015. ‘12‘13 ‘14 ‘15 ‘16 ‘12‘13 ‘14 ‘15 ‘16 See page 19 for more For more information go to information Financial Review 1 1.50 Net cash costs 1.43 Revenue* 1.36 6,280.1 1.20 5,509.2 $1.20/LB 1.03 $3,621.7M 4,810.2 3,621.7 3,225.7 Net cash costs for the year, Revenue of $3,621.7 million, 20.0% lower than in 2015 due 12.3% higher than 2015 due to cost savings and higher to higher realised prices and gold production. higher production. ‘12‘13 ‘14 ‘15 ‘16 ‘12‘13 ‘14 ‘15 ‘16 See page 19 for more For more information go to *Restated for discontinued operations. information Financial Review 105.2 18.7 18.7 Earnings per share* Mineral resources2 17.9 16.2 15.2 12.1 CENTS 66.9 18.7BN TONNES Earnings per share from 46.6 (including ore reserves) continuing operations increased Mineral resources remained to 12.1 cents per share due similar due to the incorporation of to higher realised prices, additional resources at Penacho (0.5) 12.1 sales volumes and lower unit Blanco and Mirador offset by the operating costs. closure of Michilla. ‘12‘13 ‘14 ‘15 ‘16 ‘12‘13 ‘14 ‘15 ‘16 For more information go to For more information go to Financial Review *Restated for discontinued operations. Financial Review 1. Non IFRS measures, refer to the alternative performance measures in Note 39 to the financial statements 2. Mineral resources relating to the Group’s subsidiaries on a 100% basis and Zaldívar on a 50% basis. ANTOFAGASTA.CO.UK 1 AT A GLANCE THE BUSINESS Mining is the Group’s core business, representing over 95% of Group revenue and EBITDA. The Group operates four copper mines in Chile, two OUR of which also produce significant volumes of by-products. The Group has a portfolio of growth opportunities located predominantly in Chile. In addition to mining the Group has a transport division that provides rail and road cargo services in northern Chile predominantly to mining BUSINESS customers, including to some of the Group’s own operations. TODAY REVENUE EBITDA1 ANTUCOYA Cu − 70% owned 8 4 − 20-year mine life % % − Produces copper cathodes. CENTINELA Cu Ag − 70% owned − 42-year mine life 37% 35% − Produces copper concentrates containing gold Au Cu and silver, and copper cathodes. ZALDÍVAR Cu − 50% owned (and operator) 5% MINING OPERATIONSMINING − 13-year mine life − Produces copper cathodes. LOS PELAMBRES Cu Au − 60% owned 51% 57% − 21-year mine life Ag Mb − Produces copper concentrates containing gold and silver and a separate molybdenum concentrate. TRANSPORT The transport division operates the main cargo transport system in the Antofagasta Region of Chile, moving goods and 4% 5% materials such as sulphuric acid and copper cathodes to and from mines by road and on its 900 km rail network. Volume transported combined rail and road 6,496,000 tonnes. GROUP $3,621.7M $1,626.1M 1. Non IFRS measures, refer to the alternative performance measures in Note 39 to the financial statements 2 ANTOFAGASTA ANNUAL REPORT 2016 STRATEGY PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS OUR INVESTMENT CASE OUR STRATEGY HIGH- CAPITAL CASH QUALITY COST CONTROL DISCIPLINE GENERATION ASSETS T H E S S C E O N RE BUSI G E RO R W CO TH OF THE G RO RE WT CO See page 10 for more information H BEYOND THE See page 16 for more information COPPER PRODUCTION (TONNES) AND NET CASH COST1 ($/LB) 2017 2016 FORECAST GROWTH POTENTIAL 66,200 80-85,000 $1.83/LB $1.60/LB 236,200 220-230,000 CENTINELA SECOND CONCENTRATOR − The Centinela Second Concentrator will produce $1.19/LB $1.35/LB 140,000 tonnes of copper, 150,000 ounces of gold and 2,800 tonnes of molybdenum. 51,700 55-60,000 $1.54/LB $1.50/LB 355,400 330-345,000 LOS PELAMBRES INCREMENTAL EXPANSION − Phase 1 will increase throughput capacity to 190ktpd. $1.06/LB $1.15/LB The feasibility study was completed in early 2017. − Phase 2 will further increase throughput capacity to 205ktpd and increase the mine life. 709,400 685-720,000 KEY Cathodes Road $1.20/LB $1.30/LB Concentrate Rail ANTOFAGASTA.CO.UK 3 LETTER FROM THE CHAIRMAN POSITIONING FOR THE FUTURE copper production has grown to If managed properly, copper will Company and our management Dear shareholders, almost 710,000 tonnes. While we have a long-term role to play in have been well prepared to meet anticipate prices will be stronger Chile’s development. The country the challenges ahead. I look forward Over the course of 2016 we saw in 2017 than in 2016, we must still has 30% of global copper to his continued support, not copper prices begin to stage a continue to implement our strategy reserves. With the right incentives only of the Group, but also in the recovery from the lows at the of reducing costs sustainably in place and working with all the development of the mining industry beginning of the year and this has and producing only profitable stakeholders involved – employees, in Chile in his new role as President continued into 2017. While this tonnes in a way that benefits all of communities, companies, of Sonami. is undoubtedly good news, we our stakeholders. shareholders and local and regional must be careful as an industry government – we can develop these A RESPONSIBLE to guard against falling back reserves safely and to the benefit of into complacency. AN IMPORTANT PARTNER IN THE PILLAR IN CHILE’S future generations of Chileans. COMMUNITY Despite considerable efforts – the DEVELOPMENT industry still has further to go WELCOMING OUR As we work to reduce our cost in order to put costs back on a Despite the fall in prices over the NEW CEO base we must do so in a way sustainable footing. last few years, the copper industry that reflects our responsibilities in Chile still has a vital role to play In April 2016 we welcomed to the communities – and the At Antofagasta, our response to both in the country’s development Iván Arriagada as CEO of the environment – in which we operate. these challenges has been to renew and in the global markets. While Antofagasta Group. He has over I am delighted therefore with our focus on producing profitable I believe that Chile needs to continue 25 years of operating and financial the demonstrable progress that tonnes. This is an essential strand in to diversify its economy as the experience in the mining and oil and Antofagasta has made to strengthen our strategy to ensure our business country raises living standards for gas industries, including leading the its community relations during will generate positive free cash flow all, we must not lose sight of the Group’s mining division since early 2016. Chief among these is the through the cycle and generate very important role that the copper in 2015. Iván is the right person agreement we reached in April with decent returns on the capital we industry has to play.