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Article Excerpt
OPERATOR: Good morning and good afternoon, ladies and gentlemen and welcome to the Antofagasta half-year results 2008 conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). Just to remind you all that this conference call is being recorded. I would now like to hand over to Desmond O'Conor. Please begin your meeting, sir, and I will be standing by.
DESMOND O'CONOR, CEO, UK, ANTOFAGASTA PLC: Thank you very much. Well, repeating, good morning or good afternoon depending on where you are and again, welcome to this conference call to discuss Antofagasta's 2008 half-year results, which were released in London this morning.
I am Desmond O'Conor, Chief Executive Officer of Antofagasta's London office. With us in Chili is Marcelo Awad, Chief Executive of Antofagasta Minerals, who many of you know. Together with him are Alejandro Rivera, Vice President of Corporate Finance and Development; Gonzalo Sanchez, Vice President of Sales and Marketing; and Francisco Veloso, Vice President of Legal and Corporate Affairs. Also with me here in London is Hussein Barma, the CFO in the UK, and before I hand over to Marcelo, I would perhaps ask everyone who is finding difficulty hearing us to please interrupt and let us know as there do appear to be a few difficulties with the transmission. But anyway, we will now start out the main part of the presentation. Marcelo, over to you.
MARCELO AWAD, CEO, ANTOFAGASTA MINERALS, ANTOFAGASTA PLC: Thank you, Desmond. Good morning and good afternoon, everyone. This has been another very good period for Antofagasta, with earnings up 9% to $793 million compared with the 2007 first-half and cash flows from operations of $1.5 billion. We will pay an interim dividend of $0.064 and ordinary up 6% to $0.034 and a further (technical difficulty) of $0.03.
The results were driven by strong operating performances from all of our businesses, as well as the continued strong pricing environment. Group copper production was 10% ahead of the 2007 at 234,000 tonnes. Moly production was lower, in line with our guidance at the start of the year at 3,800 tonnes. Markets remained strong, copper average nearly $3.70 and moly over $33 per pound, both up over 2007.
Let's move to slide number 4, highlights, 2008 first half. We also achieved a number of steps in our growth and development strategy. Earlier this week, we completed the agreement with Marubeni whereby Marubeni has entered as a partner in the Sierra Gorda district. Marubeni is now a 30% partner in both Esperanza and El Tesoro and will participate pro rata in the development of Esperanza. We have had a long and successful relationship with Marubeni as one of our partners in Los Pelambres and we are very pleased that they will be joining us in such an exciting new district.
In July, we approved a further planned upgrade at Los Pelambres, which will increase throughput from early 2010 to around an average of 175,000 tonnes per day. We also are nearing completion of the Mauro dam. Development of the Tesoro North-East satellite deposit is progressing as planned and we are now completing the studies for the possible extension of Michilla's mine life beyond 2009. We have received environmental approvals at Esperanza less than one year after submitting the environmental impact assessment and project construction has now begun. We have progressed with exploration both in Chile and abroad. In addition to existing targets, we have signed a number of agreements for early-stage opportunities.
Slide number 5, market outlook, starting with a look at the current market conditions we are operating in. Slide number 6, copper concentrates market outlook. First, the concentrates market which is important for Los Pelambres. The significant increase in smelting capacity, particularly in China and India, has not been much by increases in mine production and the market has remained in deficit since 2006. We expect this to continue until at least 2010, although delays in planned production could prolong the deficit.
This is clearly reflected in the recent midyear settlements, which have fallen a further 5% compared with the 2008 calendar year to $42 for treatment charge and $0.042 per pound for refining charge with nil price participation, although smelters are in fact benefiting from high asset prices on sulfuric acid, which is a byproduct of the smelting process.
The tight market is also seen in very low spot terms even with some reduction in smelting capacity through maintenance in the second quarter of this year. We expect the market to remain in favor of producers well into 2009 and possible 2010.
Next slide, refined copper market outlook, slide number 7. Turning to the end market, the market for refined copper, which is important for all three mines. The 2008 first half was another very strong period, starting at just over $3 and ending at just under $4 at the end of June. Since then, the market has softened with prices in -- almost averaging under $3.50 is still a good price though.
However, the third quarter is traditionally weaker in Europe and the US, while in China, the summer Olympics have curtailed a great deal of industrial activity around Beijing. We see the recent price weakening as temporary, inventories remain low and supply is constrained and continues to be vulnerable to disruption. Several analysts see a possible recovery towards the end of 2008, which could extend well into 2009 and this is reflected in consensus estimates.
Next slide, number 8, molybdenum market outlook. The molybdenum market also remains favorable with 2008 expected to be a fourth year of deficits. The pattern is similar to copper, some signs of softer demand, which are partly seasonal, with similar constraint and risk to supply. Like copper, molybdenum is mainly driven by industrial activity, but unlike copper, the absence of a terminal market means it is less affected by financial investment and sentiment.
Moly prices have been very stable throughout 2008 and this tends to support our view that fundamentals for metal demand remain sound. We expect prices to remain at or above $30 this year and possible also well into 2009. Additional supply from new primary mines could bring the market back into surplus from 2010. Although like copper, the risk of delay remains as key, this depends on projects coming in on time.
Slide number 9, market cost pressures. As we noted in March, pressure remains on costs in this background of high commodity prices. In page 32 of the presentation, you may see a detailed reconciliation for each operation. However, as in 2007, the impact on cost comes mainly from industry factors, either global or Chilean, which affect oil producers.
In the Chilean context, the two most significant factors to highlight remain energy and acid. Energy prices have increased significantly due to increased generation costs, particularly in the North which depends on diesel and coal. These costs are passed on to consumers such as mines. However, oil prices have eased somewhat since they have peaked at nearly $150 per barrel and this could cause this cost to stabilize or reduce over the second half of this year.
Similarly, sulfuric acid prices have gone up sharply with a strong demand from the fertilizer industry and significant transport costs. Most of our acid is, however, sourced by contracts of one year or more and the spot variations have limited effect on this year's costs. Although (inaudible) prices for next year may increase. I could emphasize that we see these issues as one of cost rather than availability and we do not feel at this point the risk of disruption is great.
Let's move to slide number 10, financial analysis. We will now look briefly at the results announced today. Slide number 11, financial highlights. We reported another strong set of results for the 2008 half year with earnings per share of $0.804, an 8.8% increase over what was already a record 2007 first half.
The main drivers behind these were higher copper volumes, up 10% over the previous period, higher LME copper prices and a strong provisional price in credits. The realized price of $0.0409 exceeded LME prices again. Higher molybdenum prices, again, over $30 and lower tolling charges with the lower 2008 benchmark and full benefit of nil price participation. This was partly offset by...
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