Antofagasta plc (ANTO) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Let me start by saying how sorry I am that we cannot all gather in person again this year. The AGM is an important date in the calendar for all your directors as we're keen to update shareholders on the previous year and to hear your views and take questions. However, as you are aware, the U.K. government has taken measures to prohibit public gatherings in the response to the COVID-19 pandemic. And so we have unfortunately had to restrict attendance to this year's AGM to the minimum number of individuals necessary to constitute a quorum. That said, we remain keen for shareholders to engage to the extent possible, and the electronic platform being used to stream today's meeting allows you to ask questions, should you wish to do so later. As you will have seen from the notice of meeting, this AGM will be followed by separate class meetings of the holders of the ordinary shares and the holders of the preference shares to consider and hopefully approve the adoption of new articles of association. The class meetings will be purely functional [ in format ], although you are welcome to stay logged on to the meeting platform to watch. As you will also have seen from the notice of meeting, at the time it was made available to shareholders, the Board was considering the appointment of an additional independent nonexecutive director before this meeting. Since then, the Board was pleased to appoint Eugenia Parot. Eugenia has had a distinguished career working for leading engineering and consulting companies, providing services to some of the largest mining projects in Latin America and in the areas of environment, sustainability and mine waste management. Her technical background and leadership experience will be of great benefit to the company, and we are delighted that she is joining us, along with other directors today. This is the second year we have all been unable to gather in person due to COVID-19 pandemic. When I spoke last year, I set out the actions we had been taking to protect the health of our employees and contractors and the communities near our operations. Since then, the year has presented many challenges, and amid the most severe global health crisis of our lifetimes, our employees together with our senior management, have developed new ways of working efficiently while keeping colleagues, contractors and local communities healthy and safe. I want to express my pride in and profound gratitude to the remarkable men and women of this company. Thanks to their resilience, flexibility and innovation, last year was defined not by the unprecedented challenges Antofagasta faced, but our responses to them. Our operations have high standards for safety, sustainability and efficiency. Sustaining these despite COVID-19's many complications is a fantastic achievement and one that enable Antofagasta to meet its 2020 annual production and cost targets while continuing to improve its safety record and lower its emissions. Keeping our operations going allowed Antofagasta to provide ongoing support towards Chile's social and economic recovery from the pandemic through increased local donations and assistance, the continuation of employees, salaries and bonuses and through taxes paid. Despite the challenges of COVID-19, Antofagasta produced 733,900 tonnes of copper at a net cash cost of $1.14 per pound. Combined with a stronger copper price, the EBITDA for the year increased by 12% to $2.7 billion, which allowed us to recommend a dividend of $0.547 per share, equivalent to a payout ratio of 100% of net earnings. If approved by the shareholders today, the dividend will be paid to the shareholders on the 14th of May. We have also made important progress on our commitment to protecting the environment. During the year, Zaldívar became our first mine to convert to exclusively using renewable energy and the other mining operations will follow, with the last transitioning in 2022. This has enabled us to achieve our target of reducing greenhouse gas emissions by 300,000 tonnes 2 years early. As announced this morning, we have now set ourselves a new short-term reduction target as well as a long-term target date to achieve carbon neutrality, which we are announcing for the first time today. Our new short-term target is to reduce greenhouse gas emissions by 30% relative to 2020 by 2025. This reduction represents an additional 730,000 tonnes on the 580,000 tonnes reduction we have achieved over the last 3 years. We're also committing as a group to achieve net 0 carbon emissions by 2050, which is the same target date that the Chilean government has set for the country. However, we will work to accelerate this target. And if technologies are developed over the coming years that allows us to achieve this goal sooner, we will quickly adopt them. For us, like the rest of the mining industry, the key challenges going forward will be the replacement of the diesel we use for transport and haulage and water shortages resulting from the impact of climate change. In 2020, 45% of our water consumption was sea or recycled water. And on the completion of Los Pelambres desalinization plant, this will increase significantly. Furthermore, with the decision last year to double the size of the desalinization plant, we expect sea and recycled water to account for some 90% of all our mines total water consumption by 2025. In recent years, social and economic inequality have fueled mass protests in many countries around the world, including Chile in late 2019. I have spoken about this before, but the onset of the pandemic shortly thereafter diverted attention away from these issues. However, they have not gone away. And indeed, many of those who most keenly felt the social and economic inequality are those who have been most affected by the pandemic. In a referendum in October 2020, the people of Chile voted to rewrite the constitution so that it more accurately represents the interest of all Chileans, and this process is now underway. Next weekend, 155 members will be elected to a constitutional assembly, tasked to rewrite the constitution. They have a maximum of 12 months to complete this undertaking, after which time the electorate will vote on this adoption. Whatever the outcome, Antofagasta, with the rest of the Chilean mining industry, will continue to play an important role contributing to the social and economic recovery from the pandemic and to the country's long-term growth. The mining industry and Antofagasta also play an important role in the global decarbonization challenge. Copper is essential to modern society and a greener future. It plays a vital role in addressing some of the world's major challenges, such as the availability of affordable and clean energy, electromobility, reducing air pollution and sustainable urban development. I will finish with a few comments on the copper market. Last year, the copper price weakened initially before strengthening sharply, led on the demand side by China and on the supply side by pandemic-related mine stoppages, delays in new projects and disruptions to the scrap supply chain. Demand growth in the longer term is supported by anticipated growth as economic stimulus packages are implemented around the world, particularly in the U.S.A. as governments announce plans to reduce carbon emissions. These plans include the increased development of renewable power sources and the wide adoption of electric vehicles for transport. This is positive for copper as both applications use considerable more copper than their conventional alternatives. These cyclical and structural changes have taken the copper price to over $4 per pound. And today, the physical market remains tight. This past year presented the company with many challenges, but through the positive attitude and resilience of our people, we have succeeded in continuing to operate, contributing to Chilean society and the economy and have delivered a strong set of results. The current year has brought the hope of a vaccine-led recovery from the pandemic, but we have learned that the path to recovery is not straight. We will continue to be resilient and to focus on the health and safety of our employees, contractors and local communities, all of whom I wish to thank for their perseverance, support and contribution to the company's success. Ivan Arriagada will now make a presentation, after which we will proceed with the formal part of the meeting.

I am Ivan Arriagada, Chief Executive Officer of Antofagasta. I would like to provide a brief overview on the company's performance in 2020. Our #1 priority has always been the health and safety of our people, and this has never been more important than during the last year. We took proactive actions as soon as the outbreak started in Chile to limit the risk, not only to our people and our facilities, but also to our neighboring communities. As a result, we have been able to continue operating while supporting the Chilean economy, our employees, contractors and suppliers, both at local and national levels. The world is changing at a rapid pace. And in this context, the role of companies and of sectors such as ours will be more important than ever. Let me start by restating our purpose, which is developing mining for a better future. This encapsulates what motivates all of us at Antofagasta and goes beyond the day-to-day tasks that everyone is expected to do in their specific roles. As a mining business, we work to produce metals for the benefit of all, by responsibly and safely mining metals that are essential for modern society, while at the same time, providing economic and social development opportunities. This concept has been shown to be particularly important during the last year with the pandemic requiring even greater levels of social cohesion, collaboration and empathy to build a better society. We have 5 pillars which underpin our strategy and by which we measure how we perform. These are people, safety and sustainability, which underpins everything we do, the safety and health of our people especially now, our commitment to reducing our impact on the environment and sharing development benefits with our communities; competitiveness or economic performance; growth to ensure we continue to develop our business in the long term; and finally, how we use innovation to transform our business not only in the short term, but also over the long term. Antofagasta began implementing measures in February last year to slow the spread of COVID-19, maintaining a safe and healthy workplace and protecting the health of our employees, contractors and nearby communities. Our first step was to limit access to offices and operations to essential in-person attendance to ensure operational continuity. Several key controls were implemented to prevent COVID-19 infection in the workplace: working remotely, extensive testing and tracing, personal and assisted health assessments, the obligatory use of sanitary personal protective equipment, physical distancing and dedicated bus and charter plane transport to and from our sites. We also provided accommodation for employees and contractors who, for whatever reason, could not isolate at home. And we have been working alongside the government to deliver a coordinated response supporting our smaller and medium-sized suppliers and contributing to Chile's economic and social recovery. In 2020, we had a workforce of over 23,000 people, of which about 29% were our direct employees and 71% were contractors. Increasing the diversity of our workforce helps to broaden the range of views and skills in our talent pool. The percentage of women working at the company has been steadily increasing since 2018 and has now reached 14.7%, well ahead of the industry average. In 2020, 50% of the employees we recruited were women. Also in 2020, we set up a digital academy to improve employees' digital skills. And at the beginning of this year, we made part-time remote working for our desk-based colleagues permanent. Over 3/4 of our employees are members of unions. And during the year, we had 5 labor negotiations, all of which were concluded successfully. The safety and health of our employees, contractors and nearby communities are our top priority. During 2020, our swift and decisive action helped to control the spread of COVID-19, allowing us to operate safely and continuously throughout the year. I'm pleased to report that we have had no fatalities and have achieved 31 months with no fatal accidents. We have also improved our safety performance across all our mining and the transport division's operations. High potential incidents fell 63% year-on-year, far exceeding our target of 10% reduction. During the COVID-19 crisis, we sought to strengthen our relationship with the local communities. We stood by them and sought to protect their health and economic well-being. For example, we set up a $6 million COVID-19 fund to provide economic and health support for the communities. Our community engagement model, which emphasizes transparency and participation, meant we had no material incidents with communities that directly impacted our operations. Our goal is to continue working under a jointly created and shared vision for social investment, developing the areas close to our operations and working closely with communities, local government and state agencies. Last year, our economic social contribution as a group totaled $47 million. Climate change is a specific risk in our risk metrics. And last year, the Board approved a comprehensive climate change strategy, which will guide how we address this important topic over the coming years. Last year, we achieved our target to reduce our CO2 emissions by 300,000 tonnes 2 years early. And today, we're announcing 2 new targets. The first is a new short-term emissions reduction target to reduce our Scope 1 and 2 emissions by 30% by 2025. The second is to achieve carbon neutrality by 2050, which is the same target date that the Chilean government has set for the country. However, we will work to accelerate this target. And if technologies are developed over the coming years that allow us to achieve this goal sooner, we will quickly adopt them. We're also committed to reporting under TCFD and we'll report fully against it next year. And we have started the process to get the Copper Mark assurance at each of our operations. This is an independently assessed framework to demonstrate our responsible production practices and contribution to the UN's Sustainable Development Goals. New energy supply contracts have been negotiated at all of the group's mining operations over the last few years, and they are progressively converting to 100% renewable energy by the end of 2022. Antofagasta has been a pioneer in the use of seawater, having started in the 1990s. At Centinela and Antucoya, we already use seawater, and this accounts for 43% of the group's total water consumption. And at Los Pelambres, we're building a desalination plant that will increase the operation sea and recycle water consumption to over 95% by 2025. We have also recently started sponsoring a program in water sustainability at the Catholic University of Chile. In 2020, copper production decreased year-on-year as we expected, mainly due to lower grades at Centinela Concentrates. This was partially compensated by higher throughput by the group overall. And production for the year was 733,900 tonnes of copper. We continue to tightly control our costs with net cash cost decreasing 6.6% compared to 2019, averaging $1.14 per pound for the year. In the Transport division, we transported 6.4 million tonnes, 1.4% lower than in the previous year as a result of the impact of COVID-19 on some of the division's customers. Looking to the future of Antofagasta, we have significant expansion optionality in our current portfolio of operations. Our 3 current growth projects at Los Pelambres, Centinela and Zaldívar will add 80,000 tonnes to 90,000 tonnes of copper each year once they are completed in 2022. And the construction of a second concentrator at Centinela will add another 180,000 tonnes of copper equivalent in 2025. Los Pelambres recently submitted its environmental impact assessment, application to expand the desalination plant to 800 liters per second and for various sustaining capital expenditure projects, including the replacement of the concentrate pipeline and other infrastructure. We also have the Twin Metals project in Minnesota, which is currently in the early stages of the permitting process. So you can see that Antofagasta has a number of options for attractive growth, which we will advance in accordance with our disciplined capital allocation framework. I would like to give you a bit more detail on the progress of our 3 growth projects. The Pelambres expansion is a high-return project that will bring forward production without extending its current mine life. The expansion optimizes the operations production within the limits of its current permits, adding an average of 60,000 tonnes of annual copper production. Last year, we announced we were changing the scope of the desalination plant to include enabling works for a future expansion to 800 liters per second. Once this is fully operational, it will increase the operations share of sea and recycled water consumption to over 95%. First production will be in the second half of 2022. The Zaldívar Chloride Leach project will increase copper recoveries by approximately 10 percentage points, increasing production by close to 15,000 tonnes per annum. The project is expected to be completed in the first half of 2022. At Centinela, we're opening the Esperanza Sur pit. This will bring greater flexibility to the operation and will allow it to smooth and optimize its year-on-year production profile. Pre-stripping is currently underway. And once this is completed in the first half of next year, we will start mining using our first autonomous fleet. If the pandemic has proved anything during 2020, it is the importance of technology and innovation in supporting the resilience and flexibility that has kept our operations running smoothly and efficiently. Innovation is key to our future as we constantly seek to reduce our cost while grades continue to decline. We have several exciting projects underway, including the construction of our remote operations center in the city of Antofagasta and the introduction of autonomous trucks at Centinela. These projects will generate cost savings and increase productivity while also improving safety by moving jobs away from the mine site. We also have large-scale strategic initiatives, such as our work on developing a way to leach primary sulfides, and we have continued to advance this successfully. We're now conducting industrial-scale tests at Centinela. To summarize the year, I would say that it was one when our resilience and flexibility was put to the test. And we came through the year successfully despite the challenges we faced. We had no fatal accidents, and our serious accidents continue to decrease. Our strong safety performance and operational consistency was also reflected by our production being in line with guidance and our net cash cost below guidance. Our EBITDA was $2.7 billion, 12% higher than in 2019. And our EBITDA margin was 53%, also an improvement on 2019. And our earnings per share for the year were $0.547 per share, 7.5% better than the previous year. Looking to this year and beyond, we will continue to run our operations safely while protecting the health of our workforce and minimizing the impact of COVID-19. We will maintain our operating resilience and flexibility while embedding our climate change and sustainability strategy in all our decision-making processes. Today, more than ever, innovation plays a key role in transforming our company going forward, and the current crisis has accelerated its adoption in several areas. We will advance our growth projects with one of our key priorities remaining to move forward with the desalination plant at Los Pelambres. Finally, we're committed to maintaining financial discipline with a focus on value creation and shareholder return. I look forward to the future, mindful of the challenges that remain, but confident in the strength of this company and its people. I would like to take a moment to thank our people and our contractors for their commitment and good work during this challenging year. Thank you.