ANTOFAGASTA PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2019 ANNUAL REPORT AND FINANCIAL STATEMENTS 2019 Contents Strategic Report Corporate Governance Financial Statements 84 Overview Applying the Code in 2019 Financial performance Purpose and vision 1 Board leadership and Independent auditors’ report 142 Performance highlights 2 Consolidated income statement 149 2019 highlights 3 company purpose Consolidated statement of 150 Our business today 4 Chairman’s introduction 86 comprehensive income Letter from the Chairman 6 Senior Independent 88 Consolidated statement of 150 changes in equity Letter from the CEO 8 Director’s introduction Consolidated balance sheet 151 Business model Group corporate 90 governance overview Consolidated cash flow statement 152 The mining lifecycle 10 Board activities 92 Notes to the financial statements 153 Strategic framework 12 Stakeholder engagement 94 Parent company 202 Copper contributes to a better 16 financial statements future both globally and locally Division of responsibilities Key performance indicators 20 Risk management Directors’ biographies 96 Other Information Risk management framework 22 Board balance and skills 98 Alternative performance measures 206 Principal risks 24 Roles in the boardroom 99 Five-year summary 209 Key risks 25 Executive Committee 100 Production statistics 211 members’ biographies Compliance and internal controls 31 Ore reserves and mineral 212 Introduction to the Committees 102 resources estimates Glossary and definitions 222 Stakeholder review Composition, succession Shareholder information 225 Creating sustainable value for 34 our stakeholders and evaluation How we engage with 36 Nomination and Governance 103 our stakeholders Committee report Our people 38 Board effectiveness 106 Safety and health 41 Communities 42 Audit, risk and Environment 44 internal control Suppliers 47 Audit and Risk Committee report 107 Customers 48 Sustainability and Stakeholder 112 Shareholders 49 Management Committee report Governments and regulators 50 Projects Committee report 114 Non-financial information 51 statement Remuneration Remuneration and Talent 116 Operating review Management Committee report Mining division 54 Committee Chair’s introduction 117 Los Pelambres 56 2020 Directors’ and 120 Centinela 58 CEO Remuneration Policy Antucoya 60 2019 Directors’ and 126 CEO Remuneration Report Zaldívar 61 2019 CEO Remuneration Report 129 Transport division 62 Growth projects and opportunities 64 Directors’ Report 138 Exploration activities 67 Key inputs and cost base 68 Statement of Directors’ 140 Operating excellence 70 and innovation responsibilities The copper market 72 In this Annual Report, the terms “Company”, “Group”, Financial review 76 “we”, “us”, “our” and “ourselves” are used to refer to Antofagasta plc and, unless the context requires otherwise, its subsidiaries. These terms may be used as collective expressions where general reference is made to the companies in the Group and/or where no useful purpose is served by identifying any particular company or companies. OUR PURPOSE Strategic Report DEVELOPING MINING FOR A BETTER FUTURE STRATEGY People Safety and Sustainability Competitiveness Growth Innovation PURPOSE CULTURE Shared values and the way we work ORGANISATION Designed to deliver results and growth Our Vision OUR VISION To be an international mining company based in Chile, focused on copper and its by-products, known for its operating efficiency, creation of sustainable value, high profitability and as a preferred partner in the global mining industry. antofagasta.co.uk 1 Performance highlights RECORD SAFETY AND PRODUCTION PERFORMANCE Safety Copper Net cash production2 costs3 2.0 1.50 770.0 725.3 1.29 709.4 704.3 1.25 1.6 1.6 1.22 1.20 1.5 630.2 1.0 2 LTIFR1 1 1 0 0 Fatalities 15 16 17 18 19 15 16 17 18 19 15 16 17 18 19 0 1.0 770.0k tonnes $1.22/lb Fatalities LTIFR1 + See page 41 for more information + See pages 54-63 for more information + See pages 54-63 for more information EBITDA3 Earnings Mineral per share resources4 76.1 19.1 18.8 18.7 18.7 18.7 2,587 2,439 2,228 51.5 50.9 1,626 910 0.5 12.1 15 16 17 18 19 15 16 17 18 19 15 16 17 18 19 $2,439m 50.9 ¢/share 19.1bn tonnes + See page 76 for more information + See page 76 for more information + See page 212 for more information 1. The Lost Time Injury Frequency Rate is the number of accidents with lost time per million hours worked. 2. 100% of production at Los Pelambres, Centinela and Antucoya, and 50% of Zaldívar’s production. 3. Non-IFRS measure, refer to the alternative performance measures section on page 206. 4. Mineral resources (including ore reserves) held by the Group’s subsidiaries on a 100% basis and at Zaldívar on a 50% basis. 2 Antofagasta plc Annual Report 2019 2019 HIGHLIGHTS Strategic Report Safety Record safety performance with no fatal accidents and a LTIFR of 1.0. Copper production Record copper production of 770,000 tonnes. An increase of 6.2% on 2018 on higher production at Los Pelambres, Centinela and Zaldívar. Net cash costs Net cash costs were $1.22/lb, 5.4% lower than in 2018 due to higher production, tight cost control and the weaker Chilean peso. EBITDA EBITDA increased by 9.5% to $2,439 million and a margin of 49%, reflecting strong copper production and lower cash costs. Earnings per share EPS from continuing operations of 50.9 cents per share, 1.2% lower than the previous year on higher EBITDA, offset by higher depreciation and amortisation, and tax. Dividend per share Total dividend of 34.1 cents per share, equivalent to a 67% pay-out ratio. Projects Los Pelambres Expansion project under construction. Zaldívar Chloride Leach and Esperanza Sur pit projects approved. antofagasta.co.uk 3 At a glance OUR BUSINESS TODAY Mining is our core business, representing over 96% of our revenue and EBITDA. We operate four copper mines in Chile, two of which produce significant volumes of by-products. We also have a portfolio of growth opportunities located mainly in Chile. In addition to mining, our Transport division provides rail and road cargo services in northern Chile predominantly to mining customers, which include some of our own operations. Copper production (tonnes) and net cash costs1 Products Revenue EBITDA1,2 2019 2020 forecast Growth potential Antucoya CU 71,900 80-85,000 Mine life extension • Potential to process satellite ore bodies • 70% owned • 20-year mine life 9% 4% $2.17/lb $1.90/lb • Produces copper cathodes $432m $86m Centinela expansion Centinela CU AG 276,600 240-250,000 • Opening Esperanza Sur pit • 70% owned • Building a second concentrator • 48-year mine life AU MO 40% 39% $1.26/lb $1.50/lb • Produces copper cathodes and copper concentrates containing gold and silver CU and a separate molybdenum concentrate $2,008m $960m Los Pelambres Incremental Los Pelambres CU AG 363,400 350-360,000 • 60% owned Expansion • Phase 1 will increase annual production • 15-year mine life AU MO $0.91/lb $1.00/lb 48% 57% by 60,000 tonnes. Project construction • Produces copper concentrates containing gold and started in early 2019 silver and a separate molybdenum concentrate • Phase 2 will further increase $2,364m $1,384m production by 35,000 tonnes and extend the Life-of-Mine Zaldívar CU 58,100 55-60,000 Mine life extension • Assessing viability of leaching • 50% owned (and operated) the primary sulphide ore body • 11-year mine life $1.75/lb $1.70/lb 5% • Chloride Leach project approved. • Produces copper cathodes It will increase production by 10-15,000 tonnes $113m Transport 6.5m tonnes Haulage capacity increase • Programme to increase the fleet’s • Cargo transport system in the Antofagasta haulage capacity completes in 2020 Region of Chile 3% 3% • 900 km rail network $161m $81m Group $4,965m $2,439m 770,000 725-755,000 $1.22/lb $1.30/lb KEY Cathodes Concentrate Road Rail 1. Non-IFRS measure, refer to the alternative performance measure section on page 206. 2. Adds to more than 100% as excludes $184 million of corporate costs, exploration and evaluation, and other non-operating income and expenses. See note 2 to the financial statements. 4 Antofagasta plc Annual Report 2019 Strategic Report Copper production (tonnes) and net cash costs1 Products Revenue EBITDA1,2 2019 2020 forecast Growth potential Antucoya 71,900 80-85,000 Mine life extension • Potential to process satellite ore bodies • 70% owned • 20-year mine life $2.17/lb $1.90/lb • Produces copper cathodes Antucoya Centinela Centinela 276,600 240-250,000 Centinela expansion Zaldívar • Opening Esperanza Sur pit • 70% owned • Building a second concentrator • 48-year mine life $1.26/lb $1.50/lb • Produces copper cathodes and copper concentrates containing gold and silver and a separate molybdenum concentrate Los Pelambres Los Pelambres Incremental 363,400 350-360,000 Los Pelambres • 60% owned Expansion • Phase 1 will increase annual production • 15-year mine life $0.91/lb $1.00/lb Santiago by 60,000 tonnes. Project construction • Produces copper concentrates containing gold and started in early 2019 silver and a separate molybdenum concentrate • Phase 2 will further increase production by 35,000 tonnes and extend the Life-of-Mine Zaldívar 58,100 55-60,000 Mine life extension • Assessing viability of leaching • 50% owned (and operated) the primary sulphide ore body • 11-year mine life $1.75/lb $1.70/lb • Chloride Leach project approved. • Produces copper cathodes It will increase production by 10-15,000 tonnes Transport 6.5m tonnes Haulage capacity increase • Programme to increase the fleet’s • Cargo transport system in the Antofagasta haulage capacity completes in 2020 Region of Chile • 900 km rail network Group 770,000 725-755,000 $1.22/lb $1.30/lb antofagasta.co.uk 5 Letter from the Chairman ANTOFAGASTA IS PART OF AN INDUSTRY THAT WORKS FOR EVERYONE “Mining is a vital part of Chile’s economy and when we are successful the whole country benefits, through higher tax revenues, better jobs and improved infrastructure.” Dear shareholders, I have written before about the cyclical nature of the copper industry and the need for Antofagasta to deliver what we call “considered growth”.