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Article Excerpt
OPERATOR: Good morning and good afternoon, ladies and gentlemen, and welcome to the Antofagasta full-year results conference call. (Operator Instructions). And just to remind you all, this conference call is being recorded.
I would now like to hand over to the Chairperson, the CEO of UK, Mr. Desmond O'Conor. Please begin your meeting, and I will be standing by.
DESMOND O'CONOR, CEO OF UK, ANTOFAGASTA PLC: Thank you very much. Welcome, everyone, to today's meeting to discuss Antofagasta's 2008 full-year results. These were announced this morning through the London Stock Exchange. Thank you very much for joining us on this call.
Here with me from (inaudible) is Marcelo Awad, the Chief Executive Officer of the Mining Group. We also have Gonzalo Sanchez from the marketing team, and Luis Eduardo Bravo from the finance team, together with Hussein Barma, who is the CFO in London, many of whom you probably know.
Clearly 2008 has been a very interesting year but in terms of how the group has developed, as well as of any dramatic movements we have seen in the market. Marcelo Awad is going to make the presentation, so I will now hand over the microphone to him, and he will take us through the 2008 year results and some comments on the outlook for 2009.
Marcelo, over to you.
MARCELO AWAD, CEO, MINERALS, ANTOFAGASTA PLC: Good morning. Thank you, Desmond, and thank you all that are listening to the conference. Let's move straight to slide number three, highlights of 2008.
This has clearly been a year of two parts, a very strong first-half, followed by the sharp fall in commodity markets from September. Even so 2008 has been a very good year for us financially and operationally, as well as in items of the steps we have taken to continue growing.
Overall net earnings were up to $1.7 billion, excluding exceptional items which mainly relate to incorporating Marubeni as a partner in the Sierra Gorda district ending where 853 -- sorry, $843 million, down on 2007 but still well above its historical levels. Cash flow remains strong, nearly $2.5 billion.
I think we are one of the few metal companies and perhaps also one of the few FTSE 100 that have increased the total dividend payout to $0.60 per share. This is an increase of over 20% from 2007 and amounts nearly $600 million. This includes a special dividend of $0.536 to be paid in June.
Operationally we have a strong year with copper production to nearly 480,000 tonnes. Molybdenum production at Los Pelambres was down following two years of high-grade mining but is still ahead of forecast. Cash costs increased compared with 2007 as a result of pressures while markets remain tight. The market started to ease in the fourth quarter and is expected to continue this way in 2009, and we have been working hard to bring all costs down. Our balance sheet remains very strong with a year-end net cash position which leaves us well-placed to continue with our growth plans.
Slide number four, I will continue with the highlights. As you are aware, in August we incorporated Marubeni as a 30% partner in Esperanza and L. Tesoro. This has enabled us to crystallize up from part of the value of the Esperanza project, which is expected to be in production by the end of 2010.
At Los Pelambres the amount of tailings done is now operating, and the plant expansion is on track for startup by the beginning of 2010. The feasibility studies at Reko Diq and Antucoya remain in progress, while our exploration results at both Los Pelambres and Sierra Gorda have been promising with both districts containing sizable resources beyond existing mine plans.
We have also signed other early stage agreements as announced during the year.
Finally, as I will explain later, the board approved a seven-year strategic plan for the mining division to provide a framework for growth based on the various opportunities we have. Well, after the highlights of 2008 result, let's move to an overview of the current market.
Slide number six, refined copper market outlook. Clearly the copper markets, which had a very good run since 2004, weakened very dramatically in the second half of 2008, particularly since September. Copper fell around two-thirds from around $4.00 per pound at the midyear to end the year at [$1.3] per pound. Margin of the OECD countries moved into recession by the second half of last year, and consumption also slowed in many emerging countries, notably China, and this has been reflected in rising inventory levels. The slowdown was reflected in a significant delivery of inventories into the LME with many customers holding back, especially towards the end of last year. Total business stocks have increased from under 200,000 tonnes to around 600,000 tonnes today in a six-month period, despite a significant level of cutbacks in mine production.
Recently prices have started to trend up and stocks down, reaching over [$1.6] last week. However, we would still be cautious for the current year as microdata remains weak, and prices could still retreat.
The longer-term picture still remains intact. The supply response to the recent years of high prices has not been especially strong, and the current downturn is likely to further delay new projects. We feel demand from emerging economies will eventually return. It is easy to forget in the upturn that this is a cyclical industry. It is also easy to forget this in the downturn.
Let's move to copper concentrate market outlook, slide number seven. During 2008 we benefit from low annual benchmarks and [nil] price participation with the result that the smelting force came about $0.17 per pound, and as the graph shows, we expect the concentrated market to continue in deficit for the next few years, given the recent large increase in a smelting capacity.
The annual terms for 2009 have gone up in favor of smelters with a benchmark of $75 per BMT and $0.075 per pound. This mainly reflects negotiation terms with the full and buy product income, especially acid pushing up the smelter costs.
In addition, smelter utilization rates have also decreased, cutting the demand for concentrate. However, the break system and the impact of the lower copper price on certain price sharing contracts should keep overall costs only slightly higher than 2008. The demand/supply balance should cause smelting terms to back down in the longer-term, thus benefiting concentrate producers such as Los Pelambres.
Slide number eight, the molybdenum market outlook. The molybdenum market held out for a bit longer, but the collapse from October -- then collapsed from October when prices move down very solidly from the $30 mark to finish the year at around [$9.5] per...
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