ANNUAL REPORT AND FINANCIAL STATEMENTS 2018 DEVELOPING MINING FOR A BETTER FUTURE STRATEGIC REPORT GOVERNANCE FINANCIAL OVERVIEW Applying the Code in 2018 86 STATEMENTS Board Leadership and Purpose and vision 1 Company Purpose FINANCIAL PERFORMANCE Performance highlights 2 Chairman’s introduction 88 Independent auditors’ report 142 2018 overview 3 Senior Independent Director’s 90 Consolidated income statement 147 At a glance 4 introduction Consolidated statement of Letter from the Chairman 6 Group governance overview 92 comprehensive income 148 Letter from the CEO 8 Board activities 94 Consolidated statement of changes Developing mining for a 10 Stakeholders engagement 96 in equity 148 better future Shareholders engagement 97 Consolidated balance sheet 149 Building the cities of tomorrow 12 Division of Responsibilities Consolidated cash flow statement 150 Contributing to clean and affordable 14 Directors’ biographies 98 Notes to the financial statements 151 energy Board balance and skills 100 Parent company financial Electric transport gets green light 16 Roles in the Boardroom 101 statements 198 Strategy in action 18 Executive Committee members’ 102 Key performance indicators 20 biographies Risk management framework 22 Introduction to the Committees 104 OTHER INFORMATION Principal risks 24 Composition, Succession and Five year summary 205 Key risks 25 Evaluation Production statistics 207 Nomination and Governance 105 CREATING SUSTAINABLE Ore reserves and mineral 208 Committee report resources estimates VALUE FOR STAKEHOLDERS Board effectiveness 107 Glossary and definitions 218 Stakeholder engagement 34 Audit, Risk and Internal Control Shareholder information 223 Employees 36 Audit and Risk Committee report 108 Communities 38 Sustainability and Stakeholder 114 Suppliers 40 Management Committee report Customers 42 Project Committee report 116 Safety and health 44 Remuneration Environment 46 Remuneration and Talent 118 Management Committee report Value creation 50 Committee Chairman’s 119 Total economic contribution 51 introduction OPERATING PERFORMANCE Remuneration at a glance 121 2018 Directors’ Remuneration 122 Business model 54 Report Operating review 2018 Executive Remuneration 125 Key inputs and cost base 56 Report Operating excellence and 58 Summary of 2017 Directors’ 134 innovation Remuneration Policy Business units 60 Directors’ Report 137 Growth projects and opportunities 70 Statement of Directors’ 139 Exploration activities 73 Responsibilities The copper market 74 Financial review 76 Sustainability governance 82 In this Annual Report, the terms “Company”, “Group”, “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. STRATEGIC REPORT OUR PURPOSE DEVELOPING MINING FOR A BETTER FUTURE OUR VISION TO BE RECOGNISED AS 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 YEAR OF PRODUCTION FATALITIES AND LOST TIME COPPER NET CASH INJURY FREQUENCY RATE1 PRODUCTION2 COSTS3 2.0 1.50 725.3 1.43 709.4 704.3 704.8 1.7 1.29 1.6 1.6 1.25 630.2 1.20 1.5 5 2 LTIFR 1 0 1 Fatalities 14 15 16 17 18 14 15 16 17 18 14 15 16 17 18 1 1.6 Fatality LTIFR 725.3k tonnes $1.29/lb + See page 44 for more information + See pages 60 to 69 for more information + See pages 60 to 69 for more information EBITDA3 EARNINGS MINERAL PER SHARE RESOURCES4 76.1 18.8 18.7 18.7 18.7 17.9 2,587 2,228 2,103 51.5 46.6 1,626 910 12.1 0.5 14 15 16 17 18 14 15 16 17 18 14 15 16 17 18 $2,228m 51.5 ¢/share 18.8bn tonnes + See page 76 for more information + See page 76 for more information + See page 208 for more information 1. Figures restated to include contractors in the transport division. 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 in Note 37 to the financial statements. 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 2018 2018 STRATEGIC REPORT OVERVIEW DURING 2018 SAFETY Safety is our top priority. Regrettably, after 26 months without a fatality there was a fatal accident at Los Pelambres COPPER PRODUCTION2 Record year of copper production – 725,300 tonnes, an increase of 3.0% compared with 2017 with higher production, particularly at Los Pelambres and Centinela NET CASH COSTS3 Net cash costs $1.29/lb on lower grades at Centinela and higher input costs offset by higher by-product credits EBITDA3 EBITDA of $2,228 million and margin of 47.0%, reflecting strong copper sales, lower copper price, lower grades and higher input costs EARNINGS PER SHARE Earnings per share from continuing operations of 51.5 cents per share on lower EBITDA and higher depreciation and amortisation DIVIDEND PER SHARE Total dividend of 43.8 cents per share, equivalent to a 65% pay-out ratio plus $100 million of net cash proceeds from the sale of non-core assets during the year PROJECTS Encuentro Oxides project reached full capacity and Centinela’s molybdenum plant started operating. Los Pelambres $1.3 billion expansion project approved to produce 60,000 tonnes per year additional copper over 15 years from late 2021 antofagasta.co.uk 3 AT A GLANCE OUR BUSINESS TODAY Mining is the Group’s core business, representing over 96% of Group revenue and EBITDA. The Group operates four copper mines in Chile, two of which produce significant volumes of by-products. The Group also has a portfolio of growth opportunities located mainly in Chile. In addition to mining, the Group has a transport division providing rail and road cargo services in northern Chile predominantly to mining customers, which include some of the Group’s own operations. COPPER PRODUCTION (TONNES) AND NET CASH COSTS1 ($/LB) PRODUCTS REVENUE EBITDA1,2 2018 2019 FORECAST GROWTH POTENTIAL CU 72,200 75-80,000 MINE LIFE EXTENSION ANTUCOYA − Potential to process third parties’ − 70% owned 10% 6% $1.99/lb $2.00/lb satellite ore bodies − 21-year mine life − Produces copper cathodes CENTINELA EXPANSION CENTINELA CU AG 248,000 260-280,000 − Building a second concentrator − 70% owned AU MO 34% 29% $1.51/lb $1.35/lb − 49-year mine life − Produces copper cathodes and copper CU concentrates containing gold and silver and a separate molybdenum concentrate LOS PELAMBRES INCREMENTAL CU AG 357,800 360-370,000 LOS PELAMBRES EXPANSION − 60% owned AU MO 53% 64% $0.91/lb $1.05/lb − Phase 1 will increase throughput capacity to − 20-year mine life 190ktpd. Project was approved during 2018 − Produces copper concentrates containing gold and − Phase 2 will further increase silver and a separate molybdenum concentrate throughput capacity to 205ktpd and extend the life of mine CU 47,300 55-60,000 MINE LIFE EXTENSION ZALDÍVAR − Assessing viability of primary − 50% owned (and operated) 4% $1.94/lb $1.75/lb sulphide leaching − 12-year mine life − Produces copper cathodes 6.1m tonnes HAULAGE CAPACITY INCREASE TRANSPORT − Programme to increase the fleet’s − Cargo transport system in the Antofagasta Region of Chile 4% 3% haulage capacity − 900 km rail network GROUP $4,733.1m $2,228.3m 725,300 750-790,000 $1.29/lb $1.30/lb KEY CATHODES CONCENTRATE ROAD RAIL 1. Non-IFRS measure. Refer to the alternative performance measure in Note 37 to the financial statements. 2. Add to more than 100% as exclude $159 million of corporate costs and explorations and evaluations. See note 2 to the financial statements. 4 Antofagasta plc Annual Report 2018 STRATEGIC REPORT STRATEGY 1. THE EXISTING 2. ORGANIC AND 3. GROWTH BEYOND CORE BUSINESS SUSTAINABLE THE CORE BUSINESS The first pillar of the GROWTH OF THE The third pillar of the strategy is to optimise CORE BUSINESS strategy is to seek and enhance the existing The second pillar of growth beyond the core business: Los the strategy is to Group’s existing Pelambres, Centinela, achieve sustainable, operations, in Chile Antucoya, Zaldívar and organic growth by or internationally, the transport division. further developing through the acquisition the areas around the of high-quality operating Group’s existing asset assets and/or high- base in Chile. potential early-stage developments. COPPER PRODUCTION (TONNES) AND NET CASH COSTS1 ($/LB) PRODUCTS REVENUE EBITDA1,2 2018 2019 FORECAST GROWTH POTENTIAL ANTUCOYA 72,200 75-80,000 MINE LIFE EXTENSION ANTUCOYA − Potential to process third parties’ − 70% owned $1.99/lb $2.00/lb satellite ore bodies CENTINELA − 21-year mine life − Produces copper cathodes ZALDÍVAR 248,000 260-280,000 CENTINELA EXPANSION CENTINELA − Building a second concentrator − 70% owned $1.51/lb $1.35/lb − 49-year mine life − Produces copper cathodes and copper concentrates containing gold and silver and LOS PELAMBRES a separate molybdenum concentrate 357,800 360-370,000 LOS PELAMBRES INCREMENTAL SANTIAGO LOS PELAMBRES EXPANSION − 60% owned $0.91/lb $1.05/lb − Phase 1 will increase throughput capacity to − 20-year mine life 190ktpd. Project was approved during 2018 − Produces copper concentrates containing gold and − Phase 2 will further increase silver and a separate molybdenum concentrate throughput