Antofagasta plc

Hello, I am Iván Arriaga, Chief Executive of Antofagasta. Today we published our financial results for the first half of 2023. And so together with our CFO, Mauricio Ortiz, and our VP of Sustainability and Corporate Affairs, René Aguilar, we're going to present the results. I will begin with a brief overview of our performance before handing over to Mauricio and René who will provide more detail on our financial results and our recent progress in sustainability. Here we have the usual cautionary statement which I encourage you to read as it is important. Our presentation today will cover the four main areas shown here. Before we begin, I would like to remind you of Antofagasta's purpose, developing mining for a better future. Through this purpose, we put sustainability at the heart of our business. We aim to mine and produce copper in a socially and environmentally responsible manner, with a positive contribution to all of our stakeholders. Here we can see a good example of our purpose in action. In the first half of this year, we opened a remote operating center for Los Pelambres. Through remote operations, we see benefits in safety by removing people from risk environments. Safety remains our priority and I am pleased to report that we had another period of positive safety performance. We continue to operate with no fatal accidents and safety indicators remain at historically low levels. However, we are not complacent and later René will talk you through some of our initiatives that continue to help embed a safety-first culture across our business. On financial performance, revenues rose by 14%, despite a 3% decline in the realized copper price. Our EBITDA margins remain resilient, with a margin of 46% in the first half, which is in line year on year. We have long maintained a strong balance sheet, with low gearing. As of 30th June, we had net debt of 0.27 times EBITDA. With the construction phase of the desalination plant at Los Pelambres behind us, we have now entered the commissioning phase. In June, the plant supplied an average of 160 liters per second, and in July it supplies close to 200 liters per second. With the gradual ramp-up of this project in the second half of the year, we expect to see incremental increases in copper production quarter and quarter. With this new production guidance, we have adjusted guidance for costs before byproducts, but with stronger byproduct prices, we have maintained our net cash cost guidance. CAPEX guidance remains unchanged, and we will continue to review the timing of capital expenditures. Projects that could be brought forward include Centinela mine development and the replacement of the concentrate pipeline at Los Pelambres. Moving now to the legislative environment in Chile. On the mining royalty, Chile's Senate and lower house both approved the revised royalty bill in May this year. This bill received presidential approval earlier this month and will go into effect from January 2024. The new royalty will apply to Los Pelambres and Saldívar from that date, although we have tax stability agreements in place at Sentinela and at Antucoya. On the process to reform Chile's constitution, the members of the council to draft the constitution have now been elected and we look forward to the next draft being made public in the fourth quarter, followed by a referendum on 17th December. The political uncertainty we have seen in Chile in recent years has impacted levels of investment at a time of heightened interest in the metals that Chile produces. We look forward to the conclusion of these two events so that Chile can be given the opportunity to grow the production of critical metals benefiting not just itself but also the world to achieve its decarbonization targets. Looking now at the copper market, we believe that copper is the metal of the future. It is essential for the world's decarbonization efforts and switching to green electricity. In the near term, we see uncertainty in China's economic outlook and growth targets, but expect the Chinese government to announce further stimulus measures. We are a long-term business, however, and the long-term outlook for copper supply and demand fundamental is supportive of a strategy for growing our business. On the demand side, we see demand growing significantly from the current 25 million tons by 2035, driven by China, the US, and Europe, as these economies switch to electric vehicles and clean sources of electricity. On the supply side, we see copper mines across the world continue to experience technical challenges in the form of great decline, longer haul distances, and harder ore types. However, we are starting to see an emerging trend, with governments and regulators expressing an intent to review and expedite permitting processes for energy transition metals, which in the past has seen approval in many cases exceed a decade. It is getting harder to find and develop new mines, and we are seeing many existing mines revising their production forecast downwards. All this is happening against a backdrop of rising demand. At Antofagasta, we have a growing mineral resource base and the ability to unlock the value of these tons, and we are well positioned to continue to grow, especially with our organic resource base. And with that, I hand over to our Chief Financial Officer, Mauricio Ortiz, who will cover our financial performance in more detail.

Thank you, Ivan, and welcome to everyone joining us today. My name is Mauricio Ortiz and I will take you through our half-year financial results. But before we step into the numbers, I want to drive your attention to this picture of our new desalinization plant at Los Pelambres. This investment is an example of how our capital allocation framework is working. optimizing the value of our mineral resources, unlocking its potential and building climate resilience. At the time, we maintain a strong financial position. This is how we create sustainable value and shareholders' return over the long term, which is fundamental in our purpose of developing mining for a better future. In the first half of the year, we saw revenue increase by 14%, despite a 3% decrease in realized copper prices. This growth was driven by increase in production, particularly at Los Pelambres, which saw a 24% increase in throughput rates. With increasing copper and by-products production and rigorous cost control, we reduced our net cash cost by 4%, reflecting the increase in production at Los Pelambres. We have a strong margin business through our high-quality assets. In the first half, our EBITDA margin was 46%, which enabled us to deliver value to all our stakeholders. Our balance sheet remains strong, with a net debt to EBITDA ratio of 0.27 times in line with our year-end figure. Finally, we announced an 11.7 cents dividend per share, which reflects a 35% payout ratio of net earnings for the first half and in line with our dividend policy. Underpinning our financial performance are our assets, which are summarized here. We published our production report in mid-July, so I won't go into much detail here, but in summary, production at Los Pelambres rose by 31% in the first half, mainly driven by increased water availability and therefore throughput. Net cash costs improved accordingly. At Sentinella, production was in line on year-on-year basis, with net cash costs reflecting the settlement of a three-year labour agreement during the period, amounting to our enough cost of 9 cents per pound. Production at Antucoia and Saldívar remained broadly in line year-on-year, and our Transport Division carried a similar tonnage of material. Moving to a more detailed view on production and cost, here we can see the impact of the higher throughput at Los Pelambres, which was the primary factor contributing to our production growth. On cash cost, external factors contribute towards an increase of 16 cents per pound, which mostly relates to a strengthening of the Chilean peso. In terms of controllable cost, a range of factors combine to contribute a 5 cents per pound saving, delivering a pre-credit cash cost of $2.48 per pound. I would like to mention our Cost and Competitiveness Program, which generates savings and productivity improvements of $60 million in the first half of 2023, equivalent to 9 cents per pound of unit cash cost. This result has been achieved through a range of projects at all our operations, including improvements such as optimizing the water use at Los Pelambres or the haulage routes at Centinela, along with contract management and procurement initiatives. Turning to the by-product credits, This contributes an additional 18 cents per pound, mainly due to higher mollying and gold pricing in Q1 2023. This allows us to counter the external inflationary pressures and to demonstrate, once again, the robustness of our product portfolio, especially at Los Pelambres and Centinela concentrates. Moving to EVIDDA, we can see the impact of increased production and sales volume mainly at Los Palambres. Mining costs rose during the period, which relates to higher mining volumes related to the increase in production, in addition to the appreciation of the Chilean peso and local inflation. The contribution from associates and joint ventures fell by $61 million, reflecting lower production and higher costs at Saldívar. Overall, we finished this first half with an EBITDA 8% higher than last year, maintaining our profitability with an EBITDA margin of 46%. And now, looking at our balance sheet, we see how metrics remain strong, with a net debt to EBITDA ratio of 0.27 times, in line with our year-end figure. From left to right, we see the strong EBITDA from our subsidiaries and the working capital moving flat over the half. Our tax payment in the first half of 2023 was 323 million dollars, with almost 100% of this being paid in Chile. For more information on our tax, please see our second tax report, which is a stand-alone report on our wider economic contribution. Next, we see our investment in our own assets amounting to just over 1 billion dollars over the period. This is an increase of approximately 200 million compared to last year, which reflects higher sustaining CAPEC at Los Pelambres and Centinela, including mine development costs, offset by lower growth CAPEC as the Phase I expansion at Los Pelambres ends. Other factors shown here include the payment of the company final dividend for 2022, amounting 50.5 cents per share, in addition to the receipt of the proceeds following the company exit from Rekodik project in Pakistan. Note that the dividends here are those paid by Antofagasta PLC, as Saldívar did not contribute dividends in the first half of this year. Finally, with a strong balance sheet benefiting from the recorded proceeds, we are well positioned for our next investment cycle in growing our portfolio. Before I close and back to where we start this financial review, I would like to take you through our capital allocation framework, which is fundamental to all our financial decisions. Our capital allocation framework is underpinned by our high-quality asset base, which has consistently demonstrated strong cash flow generation. The interim dividend announced today, amounting 11.7 cents per share, is the equivalent to 35% of net earnings, and this is consistent with the past five years as shown here. Looking beyond our interim dividend and sustaining capital, our approach to capital allocation is based on maintaining a strong balance sheet whilst also considering a range of macroeconomic factors and elements specific to our business decisions. Through a balance of growth and shareholder returns, we aim to deliver returns to all our stakeholders. And with that, I hand you over to René, who can provide an overview of our progress in corporate affairs and sustainability. René.

Thank you, Mauricio. My name is René Aguilar and I will now present a few slides on our sustainability footprint and how this is helping us to deliver our purpose of developing mining for a better future. To begin with safety, here on slide 17, we can see the significant progress that we have achieved to date. Our approach to safety is based on monitoring both leading and lagging indicators. We have a particular focus on leading indicators, such as high potential incidents, as a key step in reducing lost time injuries and fatalities. Recent work in 2023 has focused on risk identification and risk analysis, seeking to understand areas of our business with repeated safety incidents. we are also targeting areas of our business with a higher incidence rate for safety events, such as the interaction of vehicles in our mining operations. In 2023, we are installing collision avoiding systems in all of our haul trucks, which will further help reduce a key risk area in mining. Climate change in Chile is having a significant impact on people's lives through the availability of water. The Board approved the construction of a desalination plant and we are now about to take the first steps in a journey to substantially reduce Los Pelambres' reliance on continental water. Through this investment, we have built a 400 liters per second desalination plant to supply Los Pelambres. This will improve water availability throughout the year. Once operational, it is our intention to commence construction to double the capacity of this plant to 800 liters per second. we have a lot happening in terms of water. At Saldívar, we submitted an application that envisages investments to switch this operation to utilize raw sea water in the same manner as Sentinela and Antucoya or water from third parties, following a necessary transition period involving an extension to the current permit which expires in 2025 to 2028. Through these projects, we expect the group to operate with a greatly reduced reliance on continental water sources, aiming for 90% seawater or recirculated water use, making us one of the most responsible copper miners in Chile when it comes to water. Moving across to slide 19, we can see our emissions journey today, with a 37% reduction in emissions on a unit basis since our baseline year of 2020. A large part of this progress has been achieved through our adoption of green electricity contracts at all our operations in 2022, greatly reducing our scope two emissions. In the pie chart to the right, we can see our carbon footprint today is predominantly scope one emissions. With 60% of this category being diesel, we are focusing our efforts to implement modern technologies to reduce consumption and improve efficiencies. Examples of such technologies include a trial trolley assist project at Los Pelambres, and in June this year, we started using a fleet of 50 electric light vehicles at Sentinella. Looking ahead, a key project for us is our work to determine the next phase of our emission reduction targets, having met our previous target of a 30% reduction. We have worked on the measurement of our Scope 3 emissions, understanding that this is an ongoing process and the industry continues to fine-tune and define the methodology to be used in estimates. Based on this, we expect to make progress in defining targets that will allow us to manage this category of emissions throughout our value chain, including both upstream and downstream emissions. Looking at tailings, we are at an important moment in terms of reporting around tailing facilities. The Global Industry Standard on Tailings Management is an initiative co-created by the International Council on Mining of Metals, United Nations Environment Programme and Principles for Responsible Investment. We fully support this important initiative and we are pleased to report that the main tailings facility at Los Pelambres, known as El Mauro, as well as the tailings storage facility at Sentinela, have now met the requirements for disclosure under this global standard. The former is reported in line with the deadline set for meeting this requirement, and in the case of Sentinella, we are reporting two years ahead of schedule. For more information on our approach to tailing safety and management, please visit our website. Looking at slide 21, a good example of this interconnected nature of our sustainability program is our Suppliers for a Better Future initiative, through which we are engaging with our suppliers to improve competitiveness, sustainability reporting and diversity, as well as help support local development. We consider that these activities are part of our broader license to operate, helping to improve standards in local communities. This project was launched in December 2022, and through this initiative we have already awarded $165 million of contracts across 351 tender processes. And with that, I will now hand back to Ivan to take us through the remainder of our presentation today.

Thank you, René. For the final segment of our presentation today, I would like to update you on our growth program. Here on slide 23, we have our pipeline of growth projects. These range from those which deliver growth in the next two to three years through to Encierro and Cachorro, projects which have added close to one billion tons to our resources recently. In addition, we have Sentinela's second concentrator, which I will go into in more detail later in this section. Overall, this pipeline of growth demonstrates a potential pathway to grow to 900,000 tons of copper. One area of growth where we are nearing completion is the Phase I expansion of Los Pelambres, which comprises of a 400 liter per second desalination plant and a fourth concentrator line. As announced previously, both projects are now in their respective commissioning phases. Completion for this phase of growth is expected to be achieved in the second half of the year. The implementation of both will reduce variability in throughput at Los Pelambres and assist with water availability. Once completed, as René mentioned previously, we expect to commence construction to double the capacity of the desalination plant to 800 liters per second. This will enable us to achieve our target of 90% of our water consumption across the group to be either seawater or recirculated water. This was a consideration in the construction of the existing plant, and the space has already been assigned for the necessary equipment for this expansion. Moving to the north of Chile, we have a significant growth project at Sentinela. With a reserve base of nearly two billion tons of copper ore, we have the opportunity to significantly expand production at this operation through the addition of a second concentrator. The map here shows the proposed configuration of our mining operations, with the current concentrators fed by ore from Esperanza and Esperanza Sur, both of which are in operation today. The proposed second concentrator will also be fed by the Esperanza Sur pit as well as the Encuentro pit. Fully exposing Encuentro's sulphide ore to feed the second concentrator will require mine development activities that are expected to commence halfway through the construction phase of the second concentrator. This will require investments in infrastructure, mining equipment and mine development activities spread across a period of three to four years. If we decide to advance the second concentrator, this is a project that would add approximately 170,000 tons of copper equivalent production, helping us to get to the 900,000 tons mentioned previously. This brings us to the end of our presentation today. Shown here is our purpose, developing mining for a better future, and how we are delivering on this purpose. Speaking here today, we are at an important moment. We're entering a growth phase. The phase one expansion at Los Pelambres is now in its commissioning phase, and we will soon be considering updated studies on the Sentinella second concentrator to grow our production to 900,000 tons of copper. We are operating sustainably, our safety metrics are at a record level, our emissions footprint has fallen by 37%, and we are proud to be working closely with local communities and local suppliers. Finally, we are seeing strong fundamental value in copper in the medium term, with a positive outlook for prices, supporting our growth ambitions. And with that, I bring the presentation section of this session to a close. Thank you for your attention.