Antofagasta plc (ANTO) Earnings Call Transcript & Summary

All right. Good morning, good afternoon. Can people hear me?

Yes, we can hear you just fine, Andrew. Thank you. And thank you, everyone, for joining the Antofagasta Q&A session today. [Operator Instructions] And I'll now pass things over to the Antofagasta host. Over to you, Andrew. Thank you.

Thank you very much. Hi, it's Andrew Lindsay here in London. Just wanted to introduce Ivan Arriagada, our Chief Executive; and Mauricio Ortiz, our CFO, who will be your host for the Q&A session. If I'll now hand over directly to -- well, we'll go straight to Q&A actually. I don't think we need to do any introductory talk. So if any of you are ready with questions, please go ahead.

[Operator Instructions] And the first question today comes from Luke Nelson from JPMorgan.

Can you hear me okay?

Yes, we can hear you.

Excellent, thanks for taking our questions. Just a couple from me. Firstly, obviously, you've provisioned 2023 guidance. Can you maybe just talk through the building blocks of how we get from the range or the low end of this year's range to the 2023 guidance with a bit more color on a mine-by-mine basis. Obviously, you've previously given the 30,000 tonne impact at Pelambres, but would be interested what else is in there in terms of the other operations.

Yes. Okay. So you hear me well, Luke? Yes. So I think that the main increase in production compared to this year, when we look at next year's guidance is focused on Pelambres, and it's got to do with being able to achieve increased levels of throughput at Pelambres as a result of essentially having increased water availability compared to this year. You will recall that when we look back at 2022, in the first half, Pelambres was essentially running at half capacity as a result of the drought and the water limitations. We've seen that easing in the second half because of higher precipitation, and when we look at 2023, we think that once the plant is up and running the diesel plant, then we will be able to be running at full capacity. So the main increase is associated to the plants. Now regarding the other side, we do expect some increase as well in Centinela so far. So in the concentrator, that's something that we expect to have high grades, as we had mentioned before, and therefore, with the good performance that the plant has been exhibiting, we expect to have good production levels at Centinela concentrates. Now overall in Centinela, probably not that different because we will see some great decline in oxides, but in the concentrator plant we expect to see an increase, and we're continuing to work and refine our plans for next year to ensure that we maximize the impact of that higher grade at the concentrator, and then in the case of Antucoya and Zaldivar, we expect to be at similar levels. I mean, there may be marginal variations up on both of those, but not significant to drive most of the increase that we're looking at. I can't hear you. I think you're in mute.

Sorry, I was muted. I think you can hear me now, and then I suppose, just in terms of the CapEx guide, you haven't given guidance for 2022, but you've given the sustaining and stripping will be about $1 billion, but in terms of the Pelambres CapEx that is still remaining and given the delays that you've articulated today and over the last week or 2, how much of that growth CapEx will be deferred into 2023, and then I suppose on top of that, Centinela, it appears that there's a delay to when that will be announced, just confirming that if so? And then maybe how you're thinking about that approval and maybe the CapEx that could be associated for that into 2023.

Yes. So let me start by the sustaining element. We have indeed guided to the fact that we expect to see on average over the next 3 to 4 years, about $1 billion. I just want to stress that it's an average over that period. So there may be years in which it might be slightly higher, it might be slightly lower, and so that is associated with projects like in the case of Pelambres, expanding the diesel plant and also replacing the concentrator line, and then in the case of Centinela, we've got to increase the rule at the tailings deposits. So it's those types of projects, which are one-off, but they tend to have a useful life that spans a long period. So sustaining on average $1 billion, but some years will be higher, some years might be lower than that average. And we're looking at what 2023 might look like. If we're able to bring forward some of those projects, it may be slightly higher than the $billion on average. So that's on the sustaining. On Centinela, let me say that the ,yes, the plan is we continue to make good progress in terms of readiness for an investment decision in terms of the advancement and progress that we're making on the engineering, but obviously, we want to make sure that we undertake the construction of this project when these 2 things are in place. One that we've completed the Pelambres project, so that we can move some of those resources into the Centinela project, and we don't have an overlap and a super position of construction work, and the other one is clarity, as we've mentioned before, on some of the taxation applicable and then that is still in progress. So to the extent that those elements are clear, we would be taking this to the Board in the course of 2023. So we continue during the initial phase of the project, what we call the commitment phase, there's a lot of work around engineering, which we continue to do. So the fact that we position this in terms of when it goes to Board approval, not specifically in January, but maybe later or some other months, we don't think it does represent a significant change in the schedule. I mean, obviously, there is some change, but not a significant change in the schedule, but we think it's prudent and it's consistent with our capital allocation policy. So that's on Centinela. Now on Pelambres and how much of that CapEx , growth CapEx might be in 2023, I'll defer that to Mauricio. He may be able to be more specific about how much of the Pelambres CapEx we expect will sort of fall into 2023 so Mauricio.

Sorry, there was an item in the line, but yes, just to tie with the Ivan answer basically what you described on sustaining CapEx and related to Pelambres expansion project. Well, as we disclosed, we are adjusting the diesel plan completion date to early next year or during the next year, during the first half of next year. So basically, we are forecasting a few hundreds of millions dollars, something in the space of $300 million for Los Pelambres expansion project CapEx for next year.

The next question comes from Myles Allsop from UBS.

Can you hear me?

Yes, we can hear well.

Okay. Perfect. Maybe just following up on a previous question around or came up in the previous answer around the tax situation. Could you give us a sense as to how the time line looks in terms of getting clarity on the tax situation, the first question?

Yes. Sure. So there are 2 tax discussions taking place in Chile. One is around a broader tax reform for comfort and people, and the other one, it's the royalty for mining. And so there are 2 separate, if you want, build being looked at. Now for the overall tax changes, the agreement has sort of communicated their expectation that this, that tax reform would be finalized. That's what the government expects march next year, and with respect to the royalty, I think there's been , it's more, it's narrower in scope. It's, but obviously more significant in terms of impact for us. So even though it may be narrow-in-scope, it's actually more important, and the government, I think, has indicated their desire to progress the reform, however, needs still to get through Congress, in its full form and discussions. So I think the expectation on timing is that probably there will be progress made before year-end. I would expect on the royalty. Whether it is finished or not, I think it's hard to depict at this stage. But that's the sort of timing from the government.

Okay. So and with the tax reform, could you give us a sense as to why you think that will be and with the royalties so current copper prices, what would you expect your effective tax rate to lift by based on the latest draft?

Yes, so on, let me start with the royalty. I think the key message that we've conveyed I guess, as an industry is that with the changes, it's important that competitiveness is preserved for investments, and what does that mean? Today, it depends on the study, but considering the more prevalent ones. The overall tax rate for mining in Chile is estimated to be between 38% and 40%. So that's where the rates are today. If you look at the sort of average over most of the relevant mining jurisdiction, that rate is probably around 42% or 43%. So that's the scale of change that we think would preserve the competitiveness of the industry. So an overall tax rate, which would sort of move or be within those brackets would be competitive, we think, for the industry. Now if you think of the current bill as it's sitting in the congress ones today, it does result in much higher rates, probably above 50%, so there are quite, the current proposal is quite higher than what I guess one would consider to be competitive against other mining jurisdictions. So that's the review that is taking place, I think, with the government, the government and Congress are being looking at this, and I guess, getting input from several stakeholders around the different interests at play, and I think here, there is , it seems a genuine decide to try to reach the right balance between increasing tax collection for social purposes, which is one of the industry supports, but at the same time, keeping investment competitive. So those are the ranges in which that reform seems to be seems to be moving. Now with respect to the overall, the other tax reform, I think it's much more of a collection of changes across a quite range of taxes, and most of them are actually on personal tax changes. So I won't go through those in detail, but on the corporate tax, I think it's one of the features that is being considered or is being considered some adjustment in taxation that has to do was basically, with retained earnings and how those are, or personal taxes are credited against corporate taxes. So it's quite complex, but it's basically focused on those type of taxation features. So that's the sort of sense of it.

Okay. So are you reasonably optimistic that we'll end up with a 42%, 43% tax rate as opposed to 50%? Or is it really up in the air and you've put your arguments forward and we'll have to see how politics shake out? And how should we think about it? Should we be optimistic or concerned?

No, I think that, I think what's been positive is that there's been a genuine intake of opinions and views and , i think that's been positive. I think, obviously, it's difficult to predict exactly where things will land, but I think it is positive that there's been an openness to listen to a broad range of sectors and also a realization that in the current economic context, where the economy locally is going into lower growth as happens elsewhere in the world that investment will remain important, especially for the mining industry. So I think the combination of those 2 things is positive, but we need to wait for the outcome. I mean, it's not for me to predict exactly where we're going to land, but I think those are positive signs, at least.

And our next question comes from Danielle Chigumira from Credit Suisse.

A couple of questions from my side. Firstly, on Los Pelambres, so for 2013, there's a bit of a mismatch between the increased plant capacity coming on in Q1 and then the diesel plants coming on in H1. It will be useful to get a sense in terms of whether that presents any incremental risk to the new production guidelines that you set out?

Yes. Yes. Okay. Thanks, Danielle, and good to see. So I think what we are indicating there is that, as you point out, that we expect the plant to be ready in terms of construction in quarter 1, and however, I mean, obviously, we're not able to run that additional 1 million capacity at its fullest before we get the water. So and the water we expect to be available in half 1. So what's likely there to happen is that we will be ramping up in a more extended period, that capacity is subject to water availability. Now that has been built into the guidance. So the guidance does contemplate that sort of phasing for both the plant and the diesel water, and the reason, I think we've sort of provided for a more extended time for the diesel is because we've got these CSLs, which are very difficult to anticipate and we don't fully control. So we're just trying to factor that uncertainty, which is mostly weather-related, into our guidance. If you look at the project, I mean, the plant, it's quite a self-contained construction work, which is now above 85% complete. So the milling plant. Therefore, we have little uncertainty around the ability to finish that in quarter 1. All the main equipment is there and work is progressing well. Now if you look at the water system, which involves the marine works, the diesel plant, and the pipelines, essentially on the diesel plant, we are also quite advanced, and the same is true of the pipeline, which has actually been very, sorry, installed and finalized. So the uncertainty of variation is mostly focused on the marine works not on the diesel plant, which is almost, as I say, finished and ready nor on the pipeline, which takes the water from the sea to the mine. So the marine works, and on the marine works, the most difficult bid, which was the tunnels, others are built. So it's the remaining work. The issue is that the ability to undertake that work depends on the availability that we have at the port, and that is a direct function of the sea condition. So that's why we've allowed for a bit more latitude in the estimate of completion time because it depends on that factor. There's no technical issue associated to this. It's more around the availability of time, but all of that is factored into the guidance that we provided. So it's been built with those elements in.

Great. That's very clear. Different topic. On Zaldivar, recoveries there continue to be low. Can you talk through when you expect the impact of the chloride leach project to come through into recoveries? And what that will take recoveries to in 2023 and '24.

Yes. So on Zaldivar, that we've finished the project, as we sort of indicated before, and the project is intended to progressively increase recoveries through chloride leaching, which we think is the right processing route for the type of ore that we have there, which is essentially now sulfide secondary sulfides and mixed ore. Now what we've seen is that getting the exact combination of factors between humidity, question size, fine content in the ore and ration and the like is a work which requires fine-tuning a lot of components to be able to get exactly to the design configuration for the project, and that requires a certain time. So we think that we are scheduled to make good progress around those parameters in the course of 2023 and therefore, expect improvements to be seen in the course of 2023, and then it inflects towards the end of 2023, 2024, but that's the timing. So the issue here with Zaldivar, as you know, is that these leach tanks have high or extended cycle times. I mean the cycle times of these leach tanks tend to spend for close to 300 days. So these parameters are set in a way that they have to go through the full cycle, which is 300 days before they can get changed, but that's what we're doing. We've got a group of experts, which are assisting us in this process, and we're confident that we will get to the design parameters on the operational side, which is where the focus is today within that sort of timing, and therefore, a team as a consequence of that, the increase in recoveries that we expect to get from the project. So that's the sort of timing casing that we are looking at, Danielle.

Just one final follow-up. So just to confirm, the increased recoveries will be based versus where you are now versus the current 50% of our recoveries?

Yes. Our expectation is that we should be getting to recoveries, which are in the sort of mid-60s with the leaching projects. So that's basically where we want to head.

And our next question comes from Ioannis Masvoulas from Morgan Stanley.

Can you hear me?

Yes, we can hear you well, Ioannis.

Great. Great, fantastic, thanks very much for the presentation, the Q&A session. A few questions left from my side, all of them on the Centinela project, and the first is around the tax reform. You sort of said in the past that you have the stability agreement that protects the value of this asset until the end of this decade, but if we do end up with a higher tax burden than this 42% to 43%, is there any potential for you to rescope the project, look at potentially a lower volume, higher value mine plan that could make the economics work?

I think that on the most significant elements of the project, we would not make changes or adjustments under those circumstances, if obviously, if we see as a result of these tax changes that taxation is significantly higher. I mean, obviously, we would have to look at how we sort of reframe the project in a way that it would be viable, but I think that's the challenge. That's why our argument is with the changes in the range that are being, that I've sort of mentioned that we would be able to undertake the project. If not, it would probably require some sort of revisiting and that would certainly take time, and we would have to look at it in a different way. So I think for now, we have a project, which we think is robust. It's solid in terms of how it looks at the return in gold. It's a long project in the sense that it does allow us to essentially mine for close to 30 years of extra ore, and therefore, we look at it in that perspective, and therefore, our view is that, and our expectation is that we should not have to make changes in the scope because those would be detrimental to the optimal return for the project. So we're working on that basis. I think you're on mute, we can't hear you.

Okay. I think you can hear me now, hopefully. So the second question, again on Centinela. You talked about a possible sale of the water infrastructure and the bidding process closing by the end of this year. It seems that given the taxation developments, you might take your time on approving the project, does that delay the time line on the water infrastructure sale?

I'll defer that to Mauricio. I can only just as a general comment, say that obviously, we're trying to bring together in sync those 2 days and we're working on that basis. So there is some flexibility around that with the aim of achieving that purpose, but Mauricio, you may be able to be more specific as to that question.