Antofagasta plc (ANTO) Earnings Call Transcript & Summary

Thank you for joining the Antofagasta Q&A session today. [Operator Instructions] I will now pass you over to our host for this event, Rosario Orchard.

Good morning. Good afternoon, everybody. Welcome to our half year call. I'm here today with our Chief Executive, Ivan Arriagada; our CFO, Mauricio Ortiz; and our Vice President of Sustainability and Corporate Affairs, Rene Aguilar. Ivan will start with a short introduction and then we'll move straight into Q&A and we'll wrap it up in an hour time. Ivan, over to you.

Thank you, Rosario, and hello to everybody. It's good to be in this call and to share with you on this Q&A session. I just want to say a few things as highlights. We released our H1 financial results, which show an increase in our earnings and on our financial measures and performance as well as in our interim dividend. And we also would like to note that we remain with a strong balance sheet at 0.27x EBITDA, the net debt figure. So strong set of financials and would be happy to take questions on those. But looking beyond the financials, I would like to say that we're quite excited with respect to the second half of this year. One of the key things is that we're seeing a good progress on the ramp-up on the desalination plant at Los Pelambres. We have construction now essentially behind us and even though that period took us a bit longer and that being the reason why we adjusted our production guidance earlier. We're now in we think in quite strong shape as the plant is sort of ramping up. In June we were passing 160 liters per second, in July close to 200 liters and in the last 10 days we're hitting numbers which are north of 300 liters per second. And as you know this is a key project to be able to release the full capability that Pelambres has to run as a facility. So we're very excited about that and how that's going. I think in the case of Centinela, a few words. We've continued to ramp up the 100% automated mining fleet at Esperanza Sur pit, and we'll continue to update our studies on the second concentrator, which is quite a significant project that we plan to take to the board towards the end of this year. So that is also something which is key for the second half. And then more broadly, in terms of the business environment prevailing in Chile, I would like to say that just very recently the President of Chile approved or signed the new mining royalty bill. This will come in effect in January 2024. For some of our operations, it will have an impact. For others that have invariably an agreement, like is the case of Centinela and Antucoya only from 2030 onwards. But I think the important feature of this royalty is that it does close the uncertainty around fiscal terms, which I think is something that's quite important for long-term investments like the ones that we have in mining. So having said that, I think that leads us to then take questions from the floor and we'll move then into the Q&A session. So happy to move to that part of the meeting. And then I'll hand it over to who's coordinating this to be able to take up questions.

[Operator Instructions] Our first question comes from Jason Fairclough at RSCH.

It's Jason Fairclough from Bank of America. Look, I just had a really specific question about the second phase of desalination because on the one hand you've committed to do this to sort of double the production up to sort of 800 liters per second of water. But then some of the text in the release suggests that you're ultimately limited by what you can do until you get the EIA. And so I guess the question is, does this stop you from ordering equipment? Does it stop you from preparing foundations? And what's the timeline on the EIA for the second stage of the desalination?

Okay. Thanks, Jason. Thanks for the question. I would say that the project to expand the diesel plant is well on track. There are 2 elements to this. One is there is some pre-investments that we have made which are already in place, so the foundations for the new trains have been built, the pipe line or the piping for connecting that to the plant is also in place and the marine works have been sized for the expanded plant. So all of that is now behind us and I would stress especially sort of the construction of the marine works which we know are challenging, have been completed. So what we're now doing is essentially with the same or with an ad hoc team, which is already assembled and in place, we're commencing the works for the expansion. That means that some early items have been ordered already, and therefore we expect to commence construction quite swiftly, following the completion of Phase 1, which would be so what's towards the end of this year, early 2024. Now on the permitting side, to be able to complete the work and operate an expanded plant, we need to have a permit in place. That permit has been in the works now for a few years and it's ending, coming to a closure, and we expect to get the permit before the end of the year. So this is a permit that involves in scope the expansion of the diesel plant, involves replacement of the concentrator line, the concentrator pipeline as well and some minor works at El Mauro. But this permit, as I say, was filed a few years ago, has been on the working, and is now reaching its final stages, and therefore we expect that we will get it before the end of the year. And therefore that ties in very well with the schedule that we have to commence construction. And that's why we're moving ahead with, as I say ordering some pipes and equipment which is already being delivered. So we think we're in quite good shape to be able to swiftly commence construction following the ramp-up of the current plant.

Just to push you on this, Ivan, so is it correct to say that you can't do the construction until you receive the permit? Or is it that you can't operate it until you have the permit?

Oh, strictly speaking, we need the permit for both for the construction and to operate it. But as I say, we see no issue with obtaining the permit, because this is not something that we've been working on now. It's something that we've been doing for a period of time. And as we've engaged the authority in closing this permit, which is the final phases in which we're now, we don't see any material issues which would concern us. So I would say this is according to program and plan, there's nothing unusual in what we are expecting to see with respect to being able to link into the construction that follows from this point onwards.

Our next question comes from Ian Rossouw at Barclays.

I've got a couple of questions. Just firstly on the CapEx figures for the second concentrator. I can see that you've removed the $3.7 billion from the previous presentation in today's presentation. Can we still expect the overall figure to be that or is there risks of that going up? And then maybe just as a follow up. If you can give us an updated figure for the diesel expansion in terms of the CapEx and also the overall CapEx for the Los Pelambres expansion? And then second question just on working capital. There, I guess typically, you have quite a big inflow in the first half and then outflow in the second half. I guess the inflow, there wasn't a big inflow in the first half. Should we still expect a decent outflow in the second half like you usually see with seasonality?

Thanks, Ian, and good seeing you as well. With respect to the CapEx for the second concentrator, the estimate that we shared before, $3.7 billion, essentially it remains in place. Now obviously, we are updating that figure, which was released I guess, over a year ago, close to a year ago. So we are updating that, but there's no change in scope to being contemplated. It's about updating it to price and contracted values as they've sort of moved from the time this was released. So we will obviously be updating that figure, but expect some changes associated essentially to some escalation and inflation, not to any change in scope and therefore to be from that point of view measured. So that's the situation with respect to the $3.7 billion. On the diesel expansion, we will communicate the estimate for the project as part of the CapEx estimate that we do release typically with the Q3 production report. I would just advance that the scope of work that we've got involved in this project is less than we had for the original. And I've mentioned why before, because we don't have marine works. We have the foundations in place and therefore it is more limited in scope. And therefore, the investment involved is obviously lower for that part of the project. The project also includes replacing the concentrator pipeline and some other works on the El Mauro tailings dam. So we will be providing that for more granularity on that as we sort of release the Q3 production report. And on working capital, I mean let me pass on to Mauricio for him to address that question.

Thank you, Ivan. Ian, well, basically, as you know, Ian, working capital moves on the back of payables and receivables. For the second half, I don't expect -- we don't expect big changes on payables. And in receivables, if we look at the first half, basically we run flat on volumes and also copper price. So basically, that's the reason why our working capital movement over the first half was so a limited number. In the second half, of course, aligned with our increased production that we are forecasting for the second half, we expect an increase on volumes and remains to see what happened with the copper price that also may have an impact. So all in all, flat, the explanation of the running flat of the first half is no movement in volumes and sales. And for the second half, back to back with the increased production, we may expect higher sales, therefore the impact in receivables.

Our next question comes from Daniel Major at UBS.

Yes. My first one is on CapEx and the commentary around the mine development sustaining CapEx at Centinela in 2025 to 2027. Slightly confused about where this kind of classifies within the project, because you've estimated the $3.7 billion is the sort of construction CapEx, but you've got $750 million of CapEx more on essentially mine development. And if you weren't doing the expansion, I'm assuming you wouldn't have to do the mine development. So why is this not included in the overall CapEx budget for the project? That's the first question.

Yes. Okay. Thanks, Daniel. Yes, I think what we've wanted to highlight there is that the new concentrator has feed in the plant from essentially 2 sources. One is the Esperanza Sur pit, which is now in operation, and the other one is the Encuentro pit, as you know, those are part of the district. And therefore, the project does involve getting all the plant feed from that second pit. According to how we optimize the sequence coming from the several mines, we do expect to start doing some development, some mine development work around 2025. And that now sort of is in the period during which we will be building the concentrator. So we've wanted to flag that that will span for 3 to 4 years, between '25 and '27. And that is typically a combination of sustaining CapEx and mine development. And why isn't it part of the front end estimate? Because one, it expands a longer period of time. I mean, this goes to 2027 and therefore it's outside the sort of timeline in which we will be building the plant. And second, because we would incur in the development of the Encuentro pit over time, irrespective if we did the plant. Remember that we've got in the district essentially 3 pits which feed the concentrator. One is the Esperanza pit, the other one is the Esperanza Sur, and the other one is the potential Encuentro. And therefore, whatever plant capacity we have over time, our optimal mining sequence does involve developing the 3 pits. So irrespective of how much installed capacity we have in the plant, we will develop the Encuentro pit over time to be able to feed the plant that we have or the plant capacity that we have. So in fact, the Encuentro pit later or earlier is there to be developed. So that's why we're sort of treating it this way, but suddenly we wanted to flag this for the purposes of you guys being able to model the numbers better. Now this has always been part of obviously the economics of the district and therefore from the point of view of the return and the expected costs to be able to make the project attractive, this has always been part and parcel of the project. So we just wanted to flag that for the purposes of getting a better understanding of the figures. But that's the reason why we're treating it that way.

Very clear. And maybe just to follow-on from that in terms of the CapEx outlook over the next few years, I know you'll obviously provide [Technical Difficulty] numbers, but is it fair to assume at this point, if we look over the next few years, a run rate of somewhere like 1.5 [Technical Difficulty] can you still hear me or have I frozen?

Yes. You seem to cut off at times. But I think we are getting you most of what you say.

Yes. So I might --

Now we have lost you.

While we reform that connection, we can move on to our next question to Ioannis Masvoulas at Morgan Stanley.

A couple of questions from my side. The first one, I guess, relevant to what Daniel was trying to ask, a bit on sustaining CapEx specifically. You previously guided the sustaining CapEx averaging about $1 billion dollars in the next 3 years, but clearly 2023 is going to -- is running at $1.5 billion. Does that imply that '24, '25 sustaining CapEx will be below $1 billion to make the average work? And then related to that, beyond 2025, what shall we expect to be the steady-state sustaining CapEx with and without the Centinela second concentrator project. Just to put things into context, please.

Yes. And I'll pass it on to Mauricio, but just a few sort of introductory remarks. I mean, one is that, yes, we had guided to an average of $1 billion in sustaining CapEx for 3 years, which as you point out, means that the base CapEx figure is slightly lower if we started with $1.5 billion. I think obviously, this is a figure that we continue to sort of review on the basis of how input costs perform, but that assumes obviously the level of activity that we have today. So when we undertake, if we do, there's a positive decision around the second concentrator, then obviously our base capital asset changes and therefore the sustaining CapEx requirements modify. So that has to be taken into account. And therefore, this figure does not take into account obviously projects which have not been yet approved by the Board, but if it is the second concentrator, then obviously that figure will change because our asset base will be changed significantly, requiring also sustaining CapEx in line probably with depreciation. So just to warn you about that. Now we -- again, I think we will provide more granularity on our CapEx estimates in Q3 with our production report, and therefore can be more specific. But that's the sort of general trend that we expect to see. I don't know, Mauricio, if you want to add anything to that?

Just some flavor to your comments, Ivan. So basically to reconcile Ioannis, we were saying $3 billion average over the next 3 years, 2023, 2024, 2025. So that basically includes mine development and sustaining in our 4 companies and within sustaining companies, important projects that we are including there are basically the diesel Phase 2 in Los Pelambres and the rise in the wall of the tailing dams in Centinela. So those are the main elements in the sustaining CapEx over this 3 years window. On top of that, as Ivan said, of course, we need to detail how the expenditure profile of the second concentrator will looks like, but I will say that a shape, a belt shape is a good proxy for your models at this stage with something like 25 the first 12 months, 50 in the second, 12 months and then 25 in the last 12 months as a proxy of a 36-30 months construction period. And on top of that, what is the information that we are clearly informing today to the market is the fact that Ivan was discussing with Dan previously, is in Encuentro pit, and as we said, we are forecasting that that expenditure will increase sustaining CapEx plus mine development in Centinela from the average that we have seen over the last couple of years, about $650 million to a number close to $900 million. So with these 3 elements, I believe you can build an accurate projection of our CapEx profile for the next 3, 5 years, including the second concentrator, which is one of the main building blocks in our projection.

And just a second question on Zaldivar. You're looking to develop the primary sulfide ore deposit and to extend the mine life to 2051. Is this a bet on the Cuprochlor technology that is going to prove viable on your expectations? Or are you considering other competing leaching technologies to make this expansion viable?

Yes. We're looking at technologies that allow basically the leaching of primary ore. And the base technology is Cuprochlor. And that Cuprochlor is based essentially on chloride leaching with temperature. So from that point of view, we think that technology will allow us essentially to achieve the level of recoveries that we expect will make this project attractive. And where we are on that, we are actually finishing a pre-feasibility and all the testing and results on the metallurgical side are quite supportive of that conclusion. As I say, we believe this is the route to develop in the long term, low or lower grade primary sulfides, especially those which are adjacent to hydro facility like we have in Zaldivar. So yes, it's essentially built on chloride leaching with temperature and everything confirms that this yields the sort of expected results that we're looking at.

Our next question comes from Edward Goldsmith at Deutsche Bank.

Two from my side. Firstly, on the Reko Diq proceeds. How should we think about the allocation of the proceeds given the central upcoming CapEx extended at Centinela? And then secondly, can you provide an update on the water tender process at Centinela? How this could impact the economics of the second concentrated project?

Yes. Two things. I think one on the Reko Diq. I mean, I think the good news is that this has been now completely settled. We did recognize in our earnings in 2022 the recovery and then we've received the cash in full in the first half. And we've also cleared any tax liability with the Australian tax authority and therefore that's been settled and it's behind us and there was no tax applicable. Now in respect of distributions this goes into our cash allocation as part of the cash received by the company. We typically pay our dividend, our interim dividend on the basis of our 35 minimum dividend policy. And that's what we've done. And the Board will take or make an active decision on the final dividend after year end. So we will know then essentially at that time what that decision is. And until then we've just have applied the minimum dividend policy that we normally do for the interim dividend. So that decision will be made when the final dividend is announced. And as I say, that active dividend decision is typically made at that time and not before. So it'll come with that decision. On the water process at Centinela, I think we've been working on this quite extensively and we're now in the sort of finalizing this process. And as we've mentioned before, we've sort of tendered for a party which might be interested in actually buying the water system and then undertaking the expansion of the water system required for the second concentrator as a separate entity on the back of a water supply agreement. And we are looking at this, as I say, with the sort of final numbers being put together as we speak. I think it does look as an attractive option to consider. We've put some boundaries around it from the point of view of the risk allocation. We need to feel comfortable about the risk allocation. Water supply is pretty critical. And I think we are seeing terms and conditions which are consistent with the type of risk allocation that we would expect, so that's positive. And from the point of view of pricing, we would expect this to be at least NPV neutral or to accrue some value. And I think the initial numbers that we're looking at would indicate that to be the case as well. So we're now in the process of analyzing this and this will come to closure in the next couple of months as we sort of approach the Board with a decision on the second concentrator because the idea is to make this choice simultaneously or at the same time. So that's where things are with respect to the water tender process, good progress.

Our next question comes from Bob Brackett at Bernstein Research.

A bit of a follow-up on the Zaldivar primary sulfides. I noticed in your slide around pipeline for growth, in previous versions you had Cuprochlor-T sort of on both sides of the growth wedge, and now you've replaced one of those with other innovation. Am I over reading that, or are there other innovations you're contemplating? And are they competing with Cuprochlor-T?

No, I think you're probably overreading it. It's our design team that I guess is exercising some extra creativity in how they sort of display this. We are very I think committed to and favorable with respect to Cuprochlor-T. I think we see this as something that is a kind of breakthrough in the sense of being able to provide an extended life for some assets. That's the case of Zaldivar. But we're also seeing it applied in some other mine plants. We see it in Antucoya and we see it in Centinela, as we've sort of developed and update our mine plants for the life of mine. There are some minerals that will benefit from CuproChlor. So we're actually seeing it applied across our assets that have hydro-facility. So no, I think it remains in the same spot and space that we've seen it in the past. As I say, we continue to progress deployment of this technology so that we can extract commercial value and very much focused on our own minerals and therefore there's no change in respect of that.

Next up we have a question from Tony Robson at Global Research.

Tony Robson, Global Mining Research. Looking -- it sounds like a lot of figures will be coming out in the Q3 results, but ahead of that, I'm looking out to Phase 2. Where would we roughly think of Phase 2 costs relative to Phase 1? Similar, higher or lower, please? And as an adjunct to that, permitting for tails has historically been a bit problematic at Los Pelambres. Can any of Stage 2 go ahead if you don't get the tailings permit or would lack of a tailing permit mean Phase 2 does not go ahead?

Yes. So I'm just going to refer to the projects by their scope, more than by the phase to make sure that I'm answering your question. But what we call the next phase at Pelambres is this project that involves expanding the diesel plant and replacing essentially the concentrator line. And those projects we see as necessary to be able to achieve the sufficient water supply independence and then replace some critical infrastructure. So those are going ahead regardless of any decision on the tailings expansion. As you know, these projects are an integral part of our sustaining capital expenditure, leading to the life of mine that we have today, which finishes in 2036 or 2037. So those projects go ahead, that project goes ahead irrespective. And we will provide more granularity on the CapEx estimate in Q3, but as I've mentioned before, the scope of the project as it relates to water is simpler, because we don't have to do the marine works. Those have been completed for both. And the foundations for the trains in the plants are in place. And also we don't have to actually build a pipeline for water up to El Mauro, because this project involves repowering the pump stations, but not creating or building a new line. There's only a new line between El Mauro and the plant in [ Taca ]. So a more limited scope, but we will provide more granularity on that. And then the permit for tailings. I mean, the next phase of growth that comes in Pelambres, subsequent to this expansion, is really the extension of the mine life. And that is something which is centered on being able to get an extension of the tailings permit. So we're working on that. The current tailing permit expires, our estimate is around 2036 or 2037 on the basis of the capacity in the tailings dam today, and we're working to be able to achieve an extension of that tailing permit. We think that will, or has the potential to unlock significant value for Pelambres obviously, because the mineral base or resource is there. Now that is not a very capital intensive expansion or project. So it's of a smaller size than what we've seen for Reko, and we're working on essentially preparing the groundwork to be able to submit a permit for that in the near term. So that's the following phase.

If I may have a follow up question, please. And shifting minds to Zaldivar, Barrick this week said or pointed out, that the stake in Zaldivar is non-core. How does Antofagasta see its stake there? Would you be looking to buy, for example, if Barrick is a seller?

Look, you've got to -- I mean, this is something for Barrick to answer in respect of how they classify the asset. And we -- I mean, from our point of view, we remain committed to Zaldivar, both from the point of view of achieving an extension on the water permit, which is very, very critical as it expires in 2025, and also at looking at development opportunities, I mean, this is an asset which has around 1 billion tonnes of ore and that's why we've recently in the new permit that we've submitted talk about a project which could potentially extend its life to 2051. Now we own 50%, we operate the asset and therefore, any decision to change ownership in the direction that you suggest is basically an economic decision which would have to run through our capital allocation and stand against our other investment opportunities. Therefore, that's the way we would look at it.

Our next question comes from Alan Spence at BNP Paribas and Exane.

Los Pelambres mine life extension is a CapEx budget of $500 million for it, but I think that's from a PFS nearly 10 years old now. Where do you think that cost estimate would stand today?

Yes, I agree. This again, just to be clear, the scope of that work essentially involves rising the height of the tailings dam and potentially adding another ball mill into the plan. So the scope is rather limited. The value is enormous because it involves extending the mine life, but the scope of construction work is actually rather limited. The main issue with the face of the project is actually the permit to extend the mine life. Now I don't have or we don't have an updated figure here, but obviously if you take simple inflation adjustments applied to this base, you probably get to a number which is probably close to 2x that figure.

And then just another one for me. I think you secured a couple of agreements with unions in the last quarter or so. What's the average labor cost inflation you agreed?

So we have typically the I would say the percentage increase in salaries is between 2% and 3% in those agreements. So that's the sort of level of structural salary increase involved in those agreements. On top of that, as you know, there are payments, there's a one-off bonus payment that's paid to the workers. And let me give you that. And that figure varies but it's anything between $15,000 and $20 000 per worker. So that's basically what typically is involved in those agreements.

[Operator Instructions] Our next question comes from Daniel Major at UBS.

Sorry I had technical issues earlier. I'll keep my camera off, my Zoom a bit more stable. But -- and apologies if this is repeating what you've already said. But just wanted to circle back on that sort of question around the trajectory of sustaining and mine development CapEx in the next couple of years. I think I've managed to rejoin just as Mauricio was finishing the explanation. So if you could just quickly repeat that, that would be much appreciated.

Yes. Mauricio may want to provide a brief summary of that.

Well, as we were saying, Dan, so basically we were guiding, we guide previously that we are going to have an average of $1 billion per year, next 3 years. So that means 2023, 2024 and 2025. So that includes basically mine development and sustaining CapEx. So those are the 2 building blocks in our sustaining CapEx, mine development and sustaining CapEx. The good examples of the sustaining CapEx that we are undertaking over these 3 years window are the, for example, the diesel Phase 2 at Los Pelambres and raising the wall at Centennial existing concentrator. So that is the explanation and I'm just quoting what we said before regarding the explanation of this average of slightly higher $1 million. Then the second building blocks in our CapEx profile, Dan, is of course the second concentrator. Once we announce if the Board approves this investment, we're going to disclose the precise timeline and precise execution of our program. But I will say that this stage, a bell-shaped curve is a good way to model that investment. That means 25% the first 12 months, something like 50% during the second year of execution and the balance in the last period, which should be something between 12 and slightly lower than 12 months because we are expecting that this is going to take something between 30 months and 36 months. And the building blocks that we are lighting this announcement is the one that you were pointed out previously, which is Encuentro. Encuentro is this existing open pit that we are bringing forward and basically we are opening the sulphide phase halfway of the construction of the second concentrator and ending that mine development work and some sustaining investment just after we complete the construction of the second concentrator. That number compares the following way. Over the last 3 years, we have invested $650 million in Centinela, including mine development and sustaining, And during the window that we are going to develop in Encuentro, we expect that that sustaining CapEx at Centinela goes to $900 million, and then moves downward once we complete in Encuentro. All in all, we believe that this is a good rationale as we have, with the second concentrator, we will be doubling copper production, we will be doubling gold production and basically just over a limited period of time increasing sustaining CapEx and mine development and then basically move downward to the same level of sustaining CapEx that we have now for just one concentrate.

Let's move on. Yes. And just to on -- so this is something that's always been part as I say of the project and also the development of the district and so just to bear that in mind. So it's not new from that point of view. Okay. So any following question?

Our next question comes from Ioannis Masvoulas at Morgan Stanley.

Just a few left from my side. The first one on Zaldivar again, how confident are you in securing the extensions of both the mining permit to 2025 and the water extraction permit to 2028? Given the permitting track record of the asset, timelines appear rather tight here. So interested to hear your views on how achievable those are?

Yes. So, yes. And just for everybody's information, we've got 2 permits running. One is an extension to the mine permit, which is a simpler form of a permit request and which we expect to get before or during -- or before the expiry of the current permit in 2024. And then the water permit, which runs out in 2025. So I think we've been working in our permitting sequence, which we think it's optimized in the sense that I think it's got all the sort of right elements there to meet the expectations and requirements to be able to continue to operate. The mining permit as such extension to match the water permit, as I say it's a simpler permit and therefore we don't expect there to be significant issues. And in the case of the water permit, what we basically said is that we want or are requesting an extension for the temporary period to be able to continue to run the asset, before we link it to a potential extension, which would see this asset operate into 2051. So we're talking of a limited transition with continental water. And we think that from that point of view, this meets or should meet we expect the requirements for the permitted to be granted. Now obviously, this is something that we're working with the authorities as we speak, and therefore, we think this is responsive to their view and requirements, and we will see, but we expect that to be the case.

And just one last question, if I may, on the minority dividends. If we look at the P&L, it shows $450 million in minority interests over the past 12 months in the second half of 2022 and first half of 2023. But the cash flow shows 0 dividends to minorities in that timeframe. Shall we expect a catch-up effect in the second half of this year? Because that could be quite material on top of the H2 2023 dividend minorities. So I'm interested to hear your thoughts on how long you can avoid paying the dividends here?

No, we're not -- yes, we're not avoiding or otherwise. I mean, I think this just follows internal cash management practices depending on which -- on where each asset is at different stages, in terms of what payments have been made, what's the outlook for the market and also what are the requirements in terms of both investment and any other balance sheet requirement like repayment of debt. So there's no fixed pattern. Generally, what we do is we draw cash from the companies and pay those dividends internally as we sort of manage cash centrally. But it does take into account the specific situation or cycle in which each company is, as I say, with respect to any loan repayment investment or expectation with respect to future requirements. So there's no fixed pattern to expect and it's just normal course of business with respect to what we expect to see in the second half.

Okay. And any indications on what happens in the second half? Whether there's going to be a payment or not? With respect to the dividend minorities, whether you expect any outflows to come through in the second half of this year?

Yes. We don't typically share that because as I say, that's part of the cash management of each of the companies in respect of their own internal situation. But I would stress again that we don't expect to see anything extraordinary from the point of view of how we manage cash according to the criteria that I've outlined.

Our next question comes from Ian Rossouw at Barclays.

Just 2 follow-up questions. So just on this royalty Ivan or Mauricio, if you have any idea how you will account for that? Will the ad valorem component come into EBITDA, and then the, I guess the remaining part as you currently do in your tax payments? And then secondly, just coming back to the overall CapEx sort of profile. Mauricio, you mentioned the sort of bell shaping. Let's sort of around numbers assume $4 billion at the second concentrator. If 50% of that will be in the second year, plus $900 million sustaining and mine development at Centinela and then I guess CapEx elsewhere. Could that mean CapEx in 2025 could be $3 billion? And then maybe just if you do the syndication on the water pipeline, what could that potentially change in terms of that component?

Yes. Okay. Also on the accounting of the royalty, I will leave that to Mauricio. But I think on CapEx, these building blocks are in their estimates at this stage. Again, we should be able to provide more granularity on guidance on capital expenditure in Q3. And therefore, just be aware of that. So I can't comment on whether, you know, CapEx will be $2.5 billion or $3 billion in 2025. I think we will build those blocks more precisely as we -- as decisions are made with respect to the project and also as we sort of review, you know, the exact figures which we will be able to disclose in Q3, partly, and then going forward when the project is approved. With respect to the water system, what that essentially does is that we reduce the front end capital requirement for the project in 2 ways. One is we get proceeds if we go ahead with the choice of doing the water by third parties, we get proceeds from selling the existing water system out of basically disposing that asset and then are able to recycle those proceeds into the CapEx. And then secondly, we avoid undertaking ourselves the investment in the expansion. So that's quite a significant combination of cash. So that's essentially how this would play. And we would expect it, if that goes ahead and we do make that choice, then that we would recycle that CapEx or capital cash into the project requirements, which we think it's an important upside from the point of view of meeting the cash needs. But then Mauricio, you want to talk about the royalty maybe on the accounting side?

Okay. Ian, well, basically regarding the royalty, the piece of analysis that we just completed is the 1 regarding the deferred tax, and that is something that we are actually highlighting in these results. You can deep dive on the notes and you will find that we have something in the space of $40 million suspected impact. We didn't include that in the accounting of the first half because the bill was not signed yet, but we have completed the assessment and we expect that that will be reflected in our results, in the full year results. Regarding the ad valorem, Ian, we are completing the analysis of that. In general terms, the bulk of the royalty changes were in the variable part, and the variable part doesn't change at all. It will remain as it is now. So in general terms, we don't see a different change of what we were forecasting over the last part of the discussion. Basically, in 2024 onwards increase the royalty payment in Pelambres and Zaldivar, mainly driven by the variable component and 2030 onwards in Centinela and Antucoya as tax stability agreement are in place for these 2 companies.

Maybe just a follow up for Ivan. I think Mauricio previously indicated sort of the capital cost for that pipeline expansion was around $500 million, $600 million and then your sort of valuation of the pipeline, I think you had similar figures. Are those 2 still realistic?

I think that's the -- you mean that's the expansion?

Both the expansion and then also the sale of the existing. I think those numbers are similar numbers around $500 million to $600 million?

I think, yes, I think I would say, yes, it could be, you know, slightly north of that number.

For CapEx or for the existing pipeline or both?

For both.

Our next question comes from Danielle Chigumira at Credit Suisse.

A couple more questions on Zaldivar. So firstly, in the potential event that the extension to the water permit doesn't come through, are you guys already looking at potential third party sources for desalinated water for Zaldivar? And then secondly, and assuming, like assuming that doesn't, you can't find an alternative water source, would there be a material impact on the economics of the extracting the primary sulfides if you had to like put Zaldivar on care and maintenance for a couple of years while you firm up the project and then restart it with exploiting the primary sulphides? Does that make a big difference or not really?

Yes. Thanks, Danielle. I would say first of all, I mean obviously we're working on the basis that the permit is extended. I think we've done a lot of rethinking and reformulating of this permit over the years to be able to address the requirement of the regulator and the expectations of those surrounding the place where water is extracted. So I think we're quite, from that point of view, committed to trying to see it through. And I think, again, that we've got a permit which does take into account the requirements as they have been relayed to us. Now in respect of the alternatives, I mean, our permit is built on the basis that we have an ore body which we will mine until 2050, and that there is a transition period which extends the use of continental water beyond that point which is limited. That extension would have its own water solution. And that water solution involves either a desalinated or not desalinated but a water system from the sea or some alternative source. So we obviously have and are developing those alternative in the context of the continuation of mining at Zaldivar beyond this transition period. And from that point of view, there are options or alternatives that we've identified, and we will continue to work on that basis. But always thinking of them as being relevant for the extension beyond the transition period, which ends in 2028, where we're asking to the water extraction to be extended. Now we think that in any scenario that you can think of, Zaldivar, because of the significant ore, which sits in this asset will operate for a long period of time with a project that will be able to monetize this resource and reserves. So we are sort of planning long term on that basis for Zaldivar.

And our last question comes from Tyler Broda at RBC. We seem to be having a technical difficulty with Tyler's audio. At this moment in time, we have no more questions.

Okay. Thank you then. I think with that then we'll draw the call to an end. Thank you very much for your interest and participation and we expect to see you around soon. Thank you very much. Bye-bye.

Bye-bye, bye-bye. Take care.