antofagasta 2012 annual report

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Antoagasta

Annual Report andFinancial Statements 2012


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Antoagasta plcListed on the London Stock Exchange

Constituent o the FTSE 100 since 2004

Incorporated in the United Kingdom

Level One ADR in United States (ANFGY)

Market capitalisation at 31 December 2012

o US$21.2 billion

65% o ordinary share capital controlled

by Luksic amily o Chile with 35% ree oat

Inside this report Business review

OverviewTe business 02

2012 highlights 04

Introduction rom Jean-Paul Luksic 05

Statement rom Diego Hernndez 08

Quality, ocus and experience 11

Strategic reviewOur business model 18

Strategy or the mining business 22

Our marketplace 24

Key perormance indicators 28

Risk management 30

Operational reviewMining 38

1 Te existing core business 38

2 Organic and sustainable growth

o the core business 46

3 Growth beyond the core business 47

ransport 50

Water 51

Sustainability 52

Financial reviewResults 64

urnover 64

Cash fows 68

Financial position 69

Cautionary statement about

orward-looking statements 69

16Strategicreview

34Operational

review

62Financialreview

Visitwww.antoagasta.co.ukor up-to-date investor inormationincluding our past fnancial results.Within this document you will fnd the

ollowing symbol this will direct you

to urther inormation on a related topic


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Antofagasta plcAnnual Report and Financial Statements 2012

We are a Chilean-based copper mininggroup with interests in transport andwater distribution. We create value orour shareholders through the discovery,development and operation o coppermining operations.

We are committed to sustainable

development, embedding saety andsustainability throughout our operations.

GovernanceBoard o Directors 72

Management team 74

Corporate governance report 75

Remuneration report 84

Directors report 89

Directors responsibilities 92

Financial statementsIndependent auditors report 96

Consolidated income statement 97

Consolidated statement ocomprehensive income 98

Consolidated statement o changes in equity 98

Consolidated balance sheet 99

Consolidated cash ow statement 100

Notes to the fnancial statements 101

Parent Company fnancia l statements 149

Other inormationFive year summary 154

Ore reserves and mineral resources estimates 156

Mining production and sales,transport and water statistics 165

Glossary and defnitions 168

Shareholder inormation 172

Directors and advisors ibc

Directors report

70Governance

94Financial

statements 152Other

inormation

Antoagasta


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Growth beyondthe core business

Organic andsustainable growthof the core business

3

2

1The existing

core business

Overview

MiningMining is our core business, representing over90% o Group revenue and EBIDA. We operateour copper mines located in Chile, o which twoalso produce signicant by-products. Te Grouphas a major portolio o growth opportunities,also located predominantly in Chile.

Te existing core business

ransportTe ransport division operates the main cargotransport system in the Antoagasta region oChile, moving sulphuric acid and copper cathodesto and rom mines on its 900 km rail and roadnetwork. It also operates a railway in Bolivia.

Volume transported Rail (000 tonnes) Road (000 tonnes)2012 2012

Transport 6,137 1,543

Volume sold (000 m3)2012

Water 50,794

WaterAguas de Antoagasta operates the concession orthe distribution o water in the Antoagasta region,supplying domestic and industrial users.

Los Pelambres Esperanza El esoro Michilla 60% owned 70% owned 70% owned 74.2% owned

Our largest mine, with a resourcebase which could supportsignicant uture expansion.Produces copper concentratecontaining a gold by-product andmolybdenum concentrate.

Commercial productioncommenced at the start o 2011,and Esperanza is currently theGroups lowest-cost operation.Produces copper concentratecontaining a gold by-product.

Currently processing ore rom theMirador open-pit, with additionalurther ore reserves in the TesoroCentral and Tesoro North-Eastpits. Produces copper cathodes.

Michilla operates bothunderground and open-pit miningoperations, as well as processingore mined by third parties.Produces copper cathodes.

Production Copper (tonnes) Molybdenum (tonnes) Gold (ounces)2012 2013 orecast 2012 2013 orecast 2012 2013 orecast

Los Pelambres 403,700 390,000 12,200 8,000 51,500 30,000

Esperanza 163,200 170,000 248,400 230,000

El Tesoro 105,000 100,000

Michilla 37,700 38,000

Total 709,600 698,000 12,200 8,000 299,900 260,000

Te business

Our strategy

The strategy or growingour mining business isbased around three pillars:

1

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ACB

EBITDA by divisionUS$3,829m

Revenue by divisionUS$6,740m

1

A Mining 6,416

1 Los Pelambres 3,554

2 Esperanza 1,704

3 El Tesoro 851

4 Michilla 307

B Transport 190

C Water 1332

3

41

2

4

A Mining 3,674

1 Los Pelambres 2,457

2 Esperanza 1,074

3 El Tesoro 493

4 Michilla 48

5 Exploration (301)

6 Corporate and other items (97)

B Transport 74

C Water 81

ACB

3


Organic and sustainablegrowth o the core business

Growth beyond thecore business

Group

Los PelambresA pre-easibility study is under way,analysing how best to develop LosPelambres very large resourcebase, which could potentiallysupport a major increase beyondcurrent processing levels.

Resources (billions o tonnes)2012

Los Pelambres 5.6

Esperanza Sur 2.3

Encuentro 1.3

Centinela MiningDistrictThe Groups primary area oocus or exploration in Chile.A easibility study is beingperormed in respect o theEncuentro oxides and EsperanzaSur projects. A mineral resource

estimate has also beencompleted in respect o theEncuentro sulphides deposit.

Antucoya70% ownedDevelopment o the project hasbeen temporarily suspended whilea review is undertaken, to providegreater certainty over the costposition and other relevantparameters or the project.

Reko DiqReko Diq is a large copper-golddeposit in south-west Pakistanthat we are seeking to developin a 50/50 joint venture withBarrick Gold Corporation.The project is currently subjectto international arbitration.

win MetalsWe have a 40% controlling stakein Twin Metals, a large copper-nickel-PGM project in Minnesota,USA. Work is continuing on theprojects pre-easibility study.

EnergyThe Group has a number oinvestments in the energy sectorin Chile, with a particular ocuson renewable sources. We areexploring or geothermal energyprospects, and have a 30% stakein Chiles largest wind arm whichis due to start operating in 2014.

2 3

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08 09 10 11 12

3,372.62,962.6

6,076.0

6,740.1

4,577.1

Group revenueUS$6,740.1m

08 09 10 11 12

60.0

23.4

44.0

98.5

116.0

Dividends per share2

US98.5 cents

08 09 10 11 12

173.1

67.7

125.4

104.7106.7

Earnings per share1US104.7 cents

08 09 10 11 12

2,919.1

1,595.7

1,139.7

2,407.3

1,345.1

Net cash

US$2,407.3m

Overview

Record production, with a 10.8% increase incopper production over 2011 to 709,600 tonnes,and gold production up more than 50% to299,900 ounces.

Record revenues o US$6.7 billion (up 10.9%versus 2011) despite lower market commodity priceenvironment, and EBIDA o US$3.8 billion(4.6% higher than 2011).

otal dividend or the year o 98.5 cents per share,

with a signicant special dividend which representsa total distribution to shareholders o US$971.1million, and an overall payout ratio o 70% o netearnings (beore exceptional items).

Balance sheet remains strong, with cash (includingliquid investments) o US$4.3 billion and net casho US$2.4 billion as at 31 December 2012.

Signicant production growth at Esperanza achieved,reecting ongoing optimisation o the operation.

Review o the Antucoya project continues, with adecision as to whether to resume development othe project to be taken when the review is complete.

Continued progress with the growth pipeline inChile with near and longer-term opportunities atthe Esperanza Sur and Encuentro deposits, andmajor expansion potential at Los Pelambres.

win Metals project pre-easibility studyprogressing well, with completion o geological

model and mineral resource estimates.1 Earnings per share are stated ater exceptional items as set

out in Note 5 and 11 to the nancial statements.2 Dividends include both ordinary and special dividends

as explained on pages 6 and 67.

2012 highlights


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Given the Groups net cash rom operating activities o

US$2.9 billion in 2012, and hence a urther strengthening

o the balance sheet, I am pleased to report that we

will be paying a special dividend o US$764.0 million,which together with the normal interim and nal

dividend will total US$971.1 million or the year.

On the other hand, our project evaluation and

execution capabilities did not achieve the same high

standards and in December 2012 we suspended

work on the Antucoya project and instituted a detailed

review which is ongoing. As a result, capitalised

expenditure on the project to 31 December 2012

amounting to US$500 million (o which Antoagastas

attributable share is US$350 million) has been

impaired. While regrettable, this review will enable

us to come to the right decision on the uture o the

project when all relevant inormation is available.Measures have already been taken to ensure that our

project development capabilities are returned to the

standards set on previous Group projects, including

reviewing careully our early stage projects.

We have made good progress with our very signicant

growth opportunities particularly with the easibility

study covering the Esperanza Sur and Encuentro

Oxides projects in our Centinela Mining District in

northern Chile, as well as with the pre-easibility study

into the expansion options or Los Pelambres. We are

also progressing well with the pre-easibility study o

our poly-metallic deposit in Minnesota.

Governance

I and the rest o the Board are committed to the

undamental importance o good governance or the

long-term success o the Group. We believe that it is

primarily about having the right people and the right

culture in place to ensure we make the right decisions

or our business and our shareholders.

The Groups Ethics Code sets out our commitment to

undertaking business in a responsible and transparent

manner. The Code demands honesty, integrity and

responsibility rom all employees and contractors.

An updated version o the Ethics Code was rolled outto the Groups employees in 2011, and during 2012

this roll-out was extended to contractors working at

the Groups operations.

Restructuring and newmanagement appointments

We have also made some important appointments to

the senior team during the year. In August 2012 I was

delighted to be able to welcome Mr Diego Hernndez

as the new CEO o the mining division. He brings a

great depth o experience o the mining sector across

South America, and in particular o the Chilean copper

industry, having served previously as CEO o Codelcoand President, Base Metals or BHP Billiton. He brings

Introduction rom Jean-Paul LuksicChairman o Antoagasta plc

I am delighted to report that in 2012 we addressed andsuccessully resolved a number o operational and organisationalissues which last year had negatively impacted theoperational eciency o the Group.

Despite a poor rst quarter, when restructuring was takingplace, we ended 2012 with record copper production o justunder 710,000 tonnes, ahead o our original orecast o700,000 tonnes and some 10.8% higher than 2011. Recordamounts o gold and molybdenum were also produced.

In a very dicult operating environment with severe costpressures prevailing throughout the mining chain, theperormance o all our mines was excellent both in terms omeeting or exceeding production targets and in maintainingcosts at or below budgeted levels. Management and staf atall levels are to be commended or this perormance, whichresulted in another strong nancial perormance. Earningsper share (beore exceptional items) were 140.2 centscompared with 139.7 cents in the prior year; ater takingaccount o exceptional items, earnings per share were

104.7 cents (2011 125.4 cents).


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Overview

Introduction rom Jean-Paul Luksic

a real ocus on operational excellence and value,

which is a natural t with the Groups culture.

As urther discussed below, we have also made a

number o other appointments to the executive team,both at the Antoagasta Minerals corporate centre,

and also at the individual operations, which have

enhanced the Groups capabilities and expertise

in the technical and nancial areas o our business.

I am also pleased that we have been able to urther

add to the depth o mining sector experience on the

Board, ollowing the appointment o Nelson Pizarro

as an independent director in July 2012. Nelson is a

mining engineer and has held various senior executive

positions in the mining sector in Chile, both in project

and operational roles. Currently he is in charge o the

construction o the Caserones project as CEO o

Minera Lumina Copper Chile S.A. He worked or theGroup between 1997 and 2003, rstly as CEO o

Minera Los Pelambres during its construction and

start-up, and then as Mining Vice-President o

Antoagasta Minerals S.A.

Our appointments, both at the executive management

level and at Board level, are based rst and oremost

on merit looking or the individual with the best skills,

experience and vision or the role. We recognise the

business benets o having a diverse range o

experience and perspectives within the Group, and

accordingly we keep the composition o the Board

under regular review.

Capital allocation

The Group has maintained its strong cash generation,

and has urther improved its robust balance sheet

position. Our net cash position has increased to

US$2.4 billion at the end o 2012, rom US$1.1 billion

at the end o 2011. The Group is ocused on ensuring

an appropriate balance between signicant capital

returns to its shareholders, while maintaining a strong

balance sheet position and not compromising our

growth opportunities.

Accordingly, the Board has declared a nal dividend

o 90.0 cents per ordinary share, which comprises anordinary dividend o 12.5 cents and an exceptional

dividend o 77.5 cents. This represents a total amount

o US$887.3 million. This gives total dividends or the

year o 98.5 cents, including the interim dividend o

8.5 cents, amounting to US$971.1 million and

representing a distribution o 70% o 2012 net

earnings (beore exceptional items).

The Boards dividend policy is to establish an ordinary

dividend which can be maintained or progressively

increased at conservative long-term copper prices and

through the economic cycle. In addition, the Board

recommends special dividends when it considers

these appropriate ater taking into account the level

We ended 2012with record copperproduction o justunder 710,000 tonnes,ahead o our originalorecast o 700,000tonnes.


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o prots earned in the year under review, the existing

cash position o the Group and signicant known or

expected unding commitments.

The 2012 dividend payout ratio represents a one-o

distribution, refecting a periodic review o the Groups

balance sheet position perormed this year. Future

distributions are considered by the Board on a

year-by-year basis, but at present the Board anticipates

a return to a 35% payout level rom 2013 onwards.

Sustainability and communities

In a long-term, capital intensive industry such as

mining, operating in a sustainable manner is not just

an ethical imperative, it is a undamental business

imperative. Below we discuss our actions and

perormance in respect o saety at our operations,although I would personally like to say how deeply

saddened I was by the death o a worker at our

Michilla mine during January 2012.

I want to discuss some o the actions we are taking to

address some o the main social and environmental

challenges acing the industry in Chile. The Sustainability

and Stakeholder Management Committee assists the

Board in its responsibilities with respect to the Groups

social responsibility. The Board takes into account the

community, social, environmental and ethical impact

o its decisions.

We have implemented new environmental guidelines

or the mining division which cover water, air quality,biodiversity, climate change, waste, heritage and land

use. The Group also participates in the Carbon

Disclosure Project reporting on both our carbon

emissions and water consumption.

Retaining and augmenting our social licence to

operate is an ongoing challenge. We aim to maintain

positive relationships with neighbouring communities

through regular and open communication. In 2012

the Group continued to ormalise its community

investment procedures, recording and categorising its

contributions with the aim o making a smaller number

o more strategic and impactul investments to benet

local people. We understand that closing a mining sitecan have a signicant impact on local people, and we

continue to work towards widening local peoples

skills and sources o income to develop social and

economic opportunities or communities beyond

mining. In 2012 the mining division also implemented

a social perormance assessment tool that provides

better quality inormation to assess our perormance.

The Group promotes equal opportunities across the

workorce, and the percentage o emale workers in

the mining division is well above the average or the

Chilean mining industry. Our initiatives to encourage

women to join the Company include our work with

SERNAM, the national agency devoted to promoting

We have implementednew environmentalguidelines or themining division whichcover water, air quality,biodiversity, climatechange, waste, heritageand land use.

98.5centsTotal dividend or 2012,representing a 70% payout ratioo earnings per share beoreexceptional items.

womens rights. In 2012, Esperanza and El Tesoro

oered training courses tailored or women.

Climate change is one o the key issues acing theindustry. The Group has prioritised energy eciency

or many years and seeks every opportunity to reduce

its consumption. In 2012 the Group created a new

Energy unit within Antoagasta Minerals to develop

and secure aordable energy supplies and explore

new technologies. Our investments to date in

renewable energy make us one o the leaders within

the Chilean mining sector.

Future prospects and ouroperating environment

These are very challenging times or the mining industry

as a whole and the copper mining sector in Chile inparticular. The operating and capital cost environment

in Chile remains subject to the negative orces o high

infation, shortages o experienced project managers

and technical personnel and escalating costs o energy.

Furthermore, energy shortages and extended

permitting time lines add complexity and additional

costs to new project development. Nevertheless, Chile

remains a very mining riendly country, with a stable

political and scal environment.

We are proud o what we have been able to contribute

to the development o the Chilean mining industry, and

I am condent that Chile will overcome the challenges

acing the industry and continue to provide anexcellent base or the continued growth o our Group

over the coming years.

Jean-Paul LuksicChairman11 March 2013


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Overview

My rst ew months with the Group have also

conrmed my initial view that many o my own areas

o ocus correspond closely with the Groups existing

strengths and culture. For example a concentrationon day-to-day operational excellence as the bedrock

which underpins everything else we want to achieve;

and a ocus on eciency and value in everything we do.

I am looking orward to playing a part in the next stage

o the Groups development, and Im sure that the next

ew years will be an exciting and signicant period or

the Group.

2012 highlights

We achieved a record year o production, with

copper volumes o 709,600 tonnes, a 10.8% increase

compared with the 640,500 tonnes produced in 2011.This increase was due to higher production at

Esperanza, which produced 163,200 tonnes o

copper, an 81.1% increase compared with 2011. This

principally refected an increase in plant throughput

levels compared with the prior year when the

operation was ramping-up. Gold production was

299,900 ounces in 2012 compared with 196,800

ounces in the 2011 ull year refecting the higher

throughput at Esperanza. Molybdenum production at

Los Pelambres was 12,200 tonnes in the 2012 ull year

compared with 9,900 tonnes in 2011 refecting the

particularly high molybdenum grades in this year.

The increase in copper, gold and molybdenumproduction resulted in a 10.9% increase in revenue to

US$6,740.1 million (2011 US$6,076.0 million), despite

lower commodity prices. EBITDA increased to

US$3,829.3 million, a 4.6% increase on the

$3,660.5 million generated in 2011. The increase in

revenue was partly oset by higher on-site costs at

the operations and increased exploration and

evaluation expenditure. Ater taking into account slight

increases in depreciation, nance costs and taxation,

this resulted in modest earnings per share growth

(beore exceptional items) remaining relatively stable

to 140.2 cents, compared with 139.7 cents in the prior

year. Ater taking account o exceptional items,

earnings per share were 104.7 cents (2011 125.4 cents).

Group cash costs (net o by-product credits) or the ull

year 2012 were 103.0 cents per pound, in line with the

previous year o 101.9 cents per pound. Cash costs

beore by-product credits were 162.8 cents per

pound, an increase on the 155.2 cents in 2011 in line

with orecasts. This increase refected higher on-site

costs at Los Pelambres, partly oset by reduced

costs at Esperanza and El Tesoro.

The LME copper price averaged just over 360 cents

per pound during 2012, compared with 400 cents

during 2011, which had been an all-time record. TheGroups average realised copper price was marginally

I have now been with Antoagasta or just over sevenmonths, and during that time I have been able to get aclear view o the Groups key strengths and opportunities.Firstly the quality o the Groups existing assets and itspeople provides an extremely strong base or our uturedevelopment. Secondly, we have very signicant and high-quality growth opportunities both in terms o optimisingand expanding our existing operations, and also ourpotential or urther green eld development.

Statement rom Diego HernndezCEO o Antoagasta Minerals S.A.


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My experience withAntoagasta to date has

conrmed my initialview that the Groupsexisting strategy is theappropriate one or usto be pursuing.

above the average market price, at 366 cents. In 2011

the realised price had been signicantly below the

average market price, with a realised price o 373

cents, refecting negative provisional pricingadjustments due to the declining price in the second

hal o that year. Thereore, despite the 10% decrease

in average market prices rom 400 cents in 2011 to

360 cents this year, the Groups average realised

copper price decreased by just 2%, rom 373 cents

last year to 366 cents in 2012. Gold averaged $1,669

per ounce over the course o 2012, 6% higher than

the 2011 average o $1,572. The molybdenum price

has weakened considerably over the past two years,

with the average price during 2012 o US$12.7 per

pound representing an 18% decrease on the 2011

average price o US$15.5. The price traded within a

range o US$11 to US$12 per pound during the nalmonths o 2012.

As I have explained, we have achieved signicant

production growth at Esperanza this year, refecting

the ongoing optimisation o the operation, with

throughput levels reaching over 89,000 tonnes per

day in Q4 2012. Work is continuing to achieve the

original design capacity o 97,000 tonnes per day.

The two main areas o ocus are the capacity o

the grinding line and the perormance o the

tailings thickeners.

The review o the Antucoya project, which was

announced on 21 December 2012, is continuing.

The review is intended to provide greater certainty

over the cost position and other relevant parameters

or the project. An updated resource model or the

project is currently being generated, incorporating

additional drill results, which will be used to update

the detailed mine plan. A decision as to whether to

resume development o the project will be taken

when the review is complete. Given the inherent

uncertainties while a review such as this is being

undertaken, we have perormed what we consider to

be a conservative assessment o the projects assets

and accordingly have recognised an impairment o

US$500 million in respect o those assets, o which

the Groups attributable share is US$350 million.

Strategy

My experience with Antoagasta to date has

conrmed my initial view that the Groups existing

strategy is the appropriate one or us to be pursuing.

The Groups strategy is based around three pillars.

Firstly, to optimise and enhance our existing

operations. Secondly, continuing to grow this core

business by urther developing the districts around

our existing asset base in the Centinela Mining

District and at Los Pelambres; and nally, continuing

to develop and search or additional opportunities

including early-stage growth in copper both in Chileand abroad.

My immediate ocus is on ensuring that we optimise

production rom our existing assets, through

debottlenecking or incremental plant expansions. In a

capital intensive industry, especially during periods oparticular pressure on capital costs, this provides the

best opportunities or relatively rapid, lower cost and

lower risk growth.

Our growth opportunities

The Group has achieved signicant growth over

recent years, driven rstly by incremental plant

expansions at Los Pelambres, and then the

construction o Esperanza. This has resulted in the

increase in copper production to the 700,000 tonne

level. Production rom the Groups existing operations

is expected to remain relatively stable at around this

level over the next two to three years. The Group hasa number o opportunities in its current growth

pipeline which are expected to increase production

beyond this level. As I have explained above, the ocus

o the Groups growth opportunities is rstly to ensure

that the potential production rom existing operations

is maximised through debottlenecking or incremental

plant expansions. The Esperanza Sur deposit could

enhance the existing Esperanza mine plan, as well as

having the potential to support an incremental

expansion o the Esperanza plant. There is also

potential or a urther incremental plant expansion

at Los Pelambres. The Encuentro oxides deposit

provides the opportunity to continue to maximise theuse o the existing SX-EW plant at El Tesoro. These

opportunities could potentially start contributing to

Group production rom 2015. In the longer-term, there

are several very large-scale growth opportunities,

including potential or standalone plants at the

Esperanza Sur and Encuentro sulphides deposits,

and major expansion o Los Pelambres.

We are also continuing to develop our portolio o

growth prospects outside Chile. At our Twin Metals

project in the United States we are continuing to make

good progress on the pre-easibility study. During

2012 a signicant drilling programme was completed

which allowed the development o a geological modeland a mineral resource estimate. One o the main

ocus areas is on the development o the most

appropriate metallurgical process or this large,

poly-metallic deposit. With the Reko Diq project in

Pakistan, international arbitration proceedings are

continuing in order to protect our legal rights over

the project.

We have urther expanded our portolio o early-stage

exploration agreements with juniors, with new

agreements over the past year signed relating to

projects in Finland, Zambia, Australia and Canada.

97,000tpdAt Esperanza work iscontinuing to achieve theoriginal design capacityo 97,000 tonnes per day.


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Overview

Statement rom Diego Hernndez

We will continue to review a wide range o M&A

opportunities in the copper sector, but we will retain

our ocus on high-quality opportunities which can

deliver value, and which compare avourably withour extensive internal portolio o high-quality

growth opportunities.

Management team

We have made a number o changes to our

management team and structures during the year

which have urther strengthened the organisation.

During the rst hal o the year we made a number

o appointments at the operational level. Andre

Sougarret was appointed as General Manager o

Esperanza in March, having previously been with

Codelco in Chile. In May Alberto Cerda joined LosPelambres as General Manager, having previously

worked at Kinross and prior to that with Xstrata in

Chile. At El Tesoro, Sergio Parada was appointed

General Manager in July, having most recently worked

or Anglo American in Chile and beore that or

Codelco. Between them they bring a great deal o

experience and technical expertise to the Group.

There have also been some internal moves at the

operational level, with Ramon Jorquera moving rom

Michilla to become General Manager o Antucoya,

and his place as General Manager at Michilla having

been taken by Patricio Troncoso, a member o the

Antoagasta Minerals management team and a ormer

CFO o Michilla.

At the Antoagasta Minerals corporate centre, I have

also implemented some changes to the senior

management team. The Finance and Corporate

Development unctions have been separated into two

areas to ensure we give maximum ocus to these two

key areas. Alredo Atucha has joined rom BHP Billiton

as the Vice-President or Finance. We have also

separated out our Human Resources unction into a

separate Vice-Presidency area; Ana Mara Rabagliati

has joined the Group to head up that team, having

previously been with Masisa in Chile.

SafetyI deeply regret the death o a worker at Michilla in

January 2012. As a result, Michilla strengthened its

health and saety guidelines and awareness-raising to

workers and lessons were shared with the other

operations. In 2012 Antoagasta Minerals ormalised

a division-wide health and saety policy to ensure the

mining operations, projects and exploration

programmes take a consistent approach. During 2013

a division-wide saety management process will be

implemented. The lost time injury requency rate

(LTIFR) and all injury requency rate (AIFR) in the mining

division in 2012 were at their lowest levels in ve years.

Challenges facing the industry

The Groups most immediate growth opportunities

are based in Chile. Cochilco, the Chilean governmentcopper organisation, expects approximately US$100

billion o investment across the industry in the next

decade on developing new projects. This is expected

to increase production to 8.1 million tonnes per annum

in 2020 compared to 5.4 million tonnes in 2012.

However, the industry aces signicant challenges

and competition or vital resources as we pursue

that development and production growth.

The rst is energy. In order to achieve the orecast

output, electricity consumption is expected to double

over the next eight years and will require signicant

investment. Given recent permitting issues or power

generation projects we see this as a key challenge tothe industry. The supply o labour is an increasingly

important issue in Chile a 50% increase in the

current operational workorce will be required to

meet orecast 2020 production levels and by 2014

in absolute terms we will need a urther 190,000

workers. As the industry moves towards use o sea

water there is less pressure on resh water sources.

However, given the location o certain assets and the

requirement to desalinate at least some o the sea

water used, there will be an additional demand or

electricity to pump and treat the sea water. We are

also seeing a decrease in average ore grades, both

at existing operations and new projects.The Antoagasta Group is playing a leading role in

addressing these challenges. We are investing in

renewable energy sources across our operations in

the orm o solar and wind power, as well as exploring

or renewable energy sources in particular,

geothermal energy. We are addressing the labour

constraints by ensuring the stability o our existing

workorce through labour contracts and by

implementing training and support systems to aid

development and productivity. We are also actively

involved in hiring and training new workers, including

a large number o women, in our operations. We are

also leading the industry on our use o sea water ormining operations in 2012, sea water made up 44%

o our total water consumption as a Group.

The challenges which ace the Chilean mining industry

are signicant, however I am very proud o the

leadership that the Group is displaying, and am

committed to driving innovation and development

or people to enable Antoagasta to stay ahead o

the curve.

We have made anumber o changes toour management teamand structures duringthe year which haveurther strengthenedthe organisation.


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Delivering valueOur strengths

We are ocused on copper andup-stream mining activities.

Our management team has a wealthoexperience in the mining industry

and a track record o deliveringorganic growth.

Our success is enabled by the qualityo our existing assets and growthpipeline, strong capital returns anda stable and avourable geography.All o this is underpinned by oursustainable approach to explorationand development.

Te ollowing pages illustrate how wedeliver value through our strengths.

Quality, ocusand experience


Outlook

Group copper production in 2013 is expected to be

approximately 700,000 tonnes, broadly in line with thelevel achieved in 2012. A slight increase in production

at Esperanza due to higher average plant throughput

levels is expected to be oset by a slight decrease in

grades at Los Pelambres. In terms o the Groups key

by-products, gold production is orecast to be

260,000 ounces, and we expect to produce 8,000

tonnes o molybdenum. The reduction in our

by-product production compared with 2012 refects

an expected decrease in average gold and

molybdenum grades.

Copper has traded within a range o between 350 to

370 cents per pound since the year end, compared

with the price at 31 December 2012 o 359 cents.There continues to be a tight market with relatively low

levels o visible stocks. Although additional production

is expected to come on-stream in 2013 we remain

positive on the longer-term undamentals o the

copper industry and expect an increase in demand

growth in both China and the United States. While it is

anticipated that there could be a shit rom a market

decit to a marginal surplus during 2013, the market is

expected to remain tight. Gold has weakened slightly

subsequent to the year-end, dipping below $1,600

per ounce in late February, compared with the price at

31 December 2012 o over US$1,670. The

molybdenum price has continued to trade within a

range o between US$11 to US$12 per pound

subsequent to the year end.

Overall, I am pleased to be able to say that the

Groups operations are perorming well, and the

commodity markets remain positive. These provide an

excellent base to continue to realise ully the Groups

signicant potential or urther growth.

Diego HernndezCEO Antoagasta Minerals S.A.

11 March 2013


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Overview


QualityExisting assetsTe large majority o our production comes rom large,long-lie, low-cost mines.

80% o our copper output is rom our Los Pelambres and

Esperanza mines, which have signicant gold and molybdenumby-products, resulting in low net cash costs. Tis helps to ensurethe strength o our operations throughout the commodity pricecycle. Te average remaining mining lie o our existingoperations is approximately 15 years, with scope to signicantlyextend this period with our existing mineral resource base.

Growth pipeline

Te Group has a substantial organic pipeline, predominantlyin Chile. Te Groups mineral resources in the areas aroundits existing operations in the Centinela Mining District andat Los Pelambres provide the opportunity to rstly improvethe useul lie and utilisation o the existing assets, as well asproviding the potential or major incremental volume growth.

Antoagasta is also developing a longer-term pipeline ointernational growth opportunities.

36%Growth in copper production

since 2010.

4 operatingminesAntoagastas our operating minesproduced over 700,000 tonnes o copper

in 2012.

15years

Our operating mines have an averageremaining mine lie o 15 years.

15.2bn tonnesThe Groups mineral resource baseas at 31 December 2012.

698,000Forecast tonnes o copper

production in 2013.


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MICHILLA

ANTUCOYA

EL TESORO

ESPERANZA

LOS PELAMBRES

TOCOPILLA

ANTOFAGASTA

COPIAPO

OVALLE

CHNARAL

LA SERENA

COMBARBALA

ILLAPEL

LOS VILOS

CALAMA

COCHABAMBA

RIOMULATO

TUPIZA

BAQUEDANO

VIACHA

LA PAZ

ORURO

AUGUSTA

VICTORIA

TALTAL

AMINCHA

UJINA

MEJILLONES

PRAT

LAQUIACA

OLLAGE

UYUNI

ATOCHA

VILLAZON

POTOSI

SUCRE

A GUAQUI

SOCOMPA

BOLIVIA

ARGENTINA

PERU

CHILE


SustainabilitySustainable development orms an integral parto Antoagastas decision-making processes andsupports the achievement o our business strategy.

Operating sustainably allows us to maintainour social licence to operate and to attract andretain talent.

Te mining division has a social andenvironmental strategy that prioritises the healthand saety o employees and the development olocal communities, as well as protection o theenvironment through operational eciency.

GeographyAll o our current mining operations and ourlargest growth projects are in Chile one o the

worlds most developed and stable miningcountries in the world.

Capital returnsAntoagasta has a consistent record o signicantcapital returns to shareholders, having distributedat least 35% o its net earnings as dividends in eacho the past seven years.

85%Percentage o water used in Antoagastasmining operations that is recycled.8,000Reduction in annual tonnes o CO2emissions at El Tesoros electro-winningplant through construction o thermo-solar power plant.

US$971mTotal dividends declared in 2012.

44%44% o all water used in our

mining operations issea water.


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Overview


FocusCopper

We are a ocused copper mining company.All o our mining operations, projects and growthopportunities are predominantly copper assets,

which also contain by-products. Copper sales

represent over 80% o our revenues.

Up-stream mining activitiesOur operations are ocused on the coreup-stream mining activities, as this is where

we consider most o the value in the productionchain is realised, and so we have no smelting

or abricating capacity within the Group.

US$6,740mRevenue o Antoagastas

operations in 2012.

16,000Employees and contractors

across the Groupsoperations.

709,600Tonnes o copper produced in 2012.

103 cents/lbWeighted average cash costs(net o by-product credits) in 2012.

100%Our operations are entirely oundedon up-stream mining activities.


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ExperienceOrganic growthOver the past ve years we have increased ourcopper production by over 60% as a result o thesuccess o our in-house exploration activities

which, during the same period, have more than

tripled the mineral resource base o our subsidiaries.

We have a proven track record o successul projectdelivery designing and constructing operations

which maximise the value o our mineral deposits.

ManagementWe have a highly experienced Board and executivemanagement team. Te Board is led by Jean-PaulLuksic, the Executive Chairman, who has been aDirector o the Company since 1990. Te Board

also comprises nine Non-Executive Directors,who between them provide a considerable deptho experience o business in Chile and theinternational mining industry, as well as thecapital markets and the regulatory environment.Te mining division is led by Diego Hernndez,appointed as CEO o the division during 2012.He is a mining engineer and brings a greatdepth o experience o the mining sector acrossSouth America, and in particular o the Chileancopper industry.

>3xOver the past fve years wehave more than tripled the

mineral resource baseo our subsidiaries.

60%Growth o copper production in

fve years.

US$300mInvestment in exploration and evaluationby the Group in 2012.


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Strategic review

Strategic review


19/176


Our business model 18

Strategy or the mining business 22

Our marketplace 24

Key perormance indicators 28

Risk management 30


20/176

Income

Investment

35 years35 years 21 3

Strategic review

Te mining liecycle: overviewCreating valueWe have consistently created value or ourshareholders as a result o our expertise in thediscovery o copper resources and the subsequentdevelopment and operation o copper mines.The organic growth we have achieved as a result o our in-house

exploration work has allowed us to exercise ull control rom theoutset over how our projects are developed. Given that much o the

potential value o a mining project is realised (or lost) during the

evaluation stage when the optimal nature o the project is determined,

this control has enabled us to maximise the value we can create rom

our mineral deposits.

Esperanza Sur

Resources:2.3 b tonnes at 0.36%

copper + by-products

More on page 46

Encuentro

Resources:1.3 b tonnes at 0.40%

copper + by-products

More on page 46

Los Pelambres Project

Resources:5.6 b tonnes at 0.52%copper + by-products

More on page 46

Exploration projects

Major exploration programme

throughout Chile

Earn-in agreements in North America,

Latin America, Europe, Arica and

Australia

More on page 48

Twin Metals

Pre-easibility study under way

Mineral resource estimate completed

Includes Franconia assets acquired in 2011

More on page 47

Our business model

3

2

3

ExplorationOur in-house exploration activityhas more than tripled the mineralresource base o our subsidiariesover the past ve years. Ourin-house team is ocused in Chileand Peru; urther aeld wenormally work with local partners.

EvaluationEective evaluation and projectdesign are key to maximising thepotential value o a mining project.

Investment versus incomeMining is a long-term business. Timescales can run in decades.

The period rom initial exploration, through evaluation andconstruction to the start o production will oten be in excesso 10 years. Then, depending on the nature o the project andmarket conditions, it can take more than ve years o operationto recoup the initial investment.

Thereore, mines usually plan to exploit higher grade areastowards the start o the mine lie in order to maximise incomerom the operation. As a result, average ore grades oten declineover time, with production volumes decreasing along with revenues.This, however, depends on commodity price levels, which tend

to be cyclical. Long-lie and low cost operations increase thelikelihood o being able to benet rom several highpoints inthe commodity price cycle, while withstanding the troughs.

1


21/176

35 years 25+ years4 5 6 7 8


Our strategy

The strategy or growing our mining businessis based around three pillars:

ConstructionConstructing a mine requires ahigh level o up-ront capitalinvestment. Eective managemento the costs, timing and eciencyo construction is needed tomaximise a projects return oninvestment.

OperationsOur operations are long term.In order to remain sustainable,we need to operate in waysthat benet all stakeholders.

Esperanza

Start o operation: 2011

End o mine lie: 2026

Years o operation:2/16

2013E copper production:

170,000 e

More on page 40

Los Pelambres





390,000 e

More on page 38

El Tesoro





100,000 e

More on page 42

Michilla





38,000 e

More on page 44

Antucoya

Development temporarily suspended

while project review completed.

More on page 47



3

2

1The existing

core business

4 5 6 7 8

Page 22


22/176

Strategic review

Our business model

Exploration

Successul exploration is

undamental to the long-term

uture o a mining company. Over

the past ve years, we have more

than tripled the mineral resource

base o our subsidiaries as aresult o our own in-house

exploration activity.

Generally, we conduct exploration

activities ourselves in the areas in

which we have the deepest

experience, namely Chile and

Peru. In particular we are ocusing

on the Centinela Mining District in

northern Chile where we own or

control a number o properties

containing both sulphide and

oxide resources and already

have existing operations.

For early-stage exploration outside

o these areas we know best, we

normally work through partnerships

with other companies already

established in those locations.

Evaluation

The ability to prove-up mineral

resources into ore reserves during

evaluation is key to realising the

potential value o a mining project.

We have a great depth o

experience in designing projects

which make best use o complex

mineral deposits, using innovative

technical solutions across a wide

range o environments. Typically

we contract an external

engineering rm to take the lead

role in conducting the evaluation

studies, under the close control o

an owner's team rom the Groups

projects team.

Sustainability is integral to our

evaluation process, and we seek

to maximise social and

environmental value through

the design o our projects.

Construction

The construction o a mine is a

capital intensive process. Eective

management o the costs, timing

and eciency o the construction

can be essential to a projects

overall return on investment. Wetypically use a specialist principal

engineering, procurement and

construction management (EPCM)

contractor to manage the

construction process, under the

close control o our projects team.

Operations

Our operations are ocused on

our core, up-stream mining

activities, typically rom low-cost,

long-lie mines.

We believe that most o the value

in the copper production chain is

realised by the up-stream mining

activities, and so we have no

smelting or abricating capacity

within the Group.

In order to maintain our long-term

sustainability, we need to operate

in ways that benet local

communities and the environment.

Initial mine plans oten change

over the course o a mines lie

through improved processes,

browneld expansions or theincorporation o additional

reserves, which can add

signicant extra value over

the long term.

Marketing o our production is

undertaken by our in-house

marketing team, allowing us to

develop long-term relationships

with key customers, and a close

understanding o the end market.

Governance

The Antoagasta plc Board is responsible or the long-term success o the Group, or its leadership and strategic direction, and or oversight o the

Groups perormance, its risks and internal control systems. The Groups businesses are divided into three divisions: mining, transport and water.

The mining division Antoagasta Minerals represents over 90% o the Groups earnings.

The Business Development Committee ocuses on the mining divisions growth opportunities

reviewing potential transactions and project expenditure.

At an operational level, the

Executive Committee approves

capital expenditures by the mining

operations and monitors their

perormance.

Te mining liecycle: in detail


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Key relationships

Customers

Most o our sales o copper and molybdenum aremade under annual contracts or longer-term

ramework agreements, with sales volumes agreedor the coming year.The majority o sales are with industrial customers who rene or urtherprocess the copper smelters in the case o our copper concentrateproduction and copper abricators in the case o our cathode production.Our in-house marketing team seeks to build long-term relationships withthese core industrial customers.

More than 75% o our sales are made to customers located in Asia.Our metals sales pricing is generally based on prevailing market prices.

Employees

We directly employ approximately 6,000 people,

who work alongside approximately 10,000contractors at our operations and projects.Mining is an inherently risky activity. Ensuring the health and saety oeveryone who works or us is an absolute priority: rst and oremost it isan ethical obligation or the Group.

Skilled workers are in short supply throughout the mining sector in Chile,and so we have launched an apprenticeship programme or school leaversand a graduate trainee programme to attract young proessionals, and wehave in place a talent management system to identiy and develop internalcandidates or critical management positions.

Relationships with trade unions based on mutual respect and transparencyhelp us retain workers and avoid labour disputes, contributing to theproductivity and eciency o our business.

Contractors

Te number o contractors working orAntoagasta varies considerably accordingto business need and the current levelo construction activity.Recently there have been approximately 10,000 contractors working at theGroups operations and projects, compared with 6,000 direct employees.

Contractors are vitally important to our mining operations and we aim tobuild long-term relationships with contractor companies based on highstandards. Health and saety targets are included in their perormancecontracts and we assess their compliance with saety, human rightsand labour standards by internal and external audits.

The minimum wage that Antoagasta Minerals sets or contractor employeesis almost double that set by Chilean law, and contractor sta have thesame access as our own employees to acilities at our mining camps.

Local stakeholders

It is not possible to operate a mine successullywithout the co-operation and agreement oa broad range o stakeholder partners.Positive relationships with the communities near to our sites is critical to thesmooth operation o the business and its uture growth. Having clear socialpolicies and engaging regularly with community members helps to managepotential conficts and maintains the Groups social licence to operate.

All o our operations designate a manager to oversee relationships withexternal stakeholders such as communities, local authorities and localmedia, among others. An open door policy encourages suppliers to raiseany issues or concerns. They are audited regularly to ensure compliancewith the law and company standards.

Government and public authorities

Political developments and changes to legislationor regulations can aect our business: in Chile,the UK, or other countries where we havedevelopment projects or exploration activities.We monitor new and proposed legislation to enable us to anticipate,mitigate or reduce possible impacts, and to ensure we comply with all legaland regulatory obligations. We work with industry bodies to engage withgovernments on public policy, laws, regulations and procedures thatimpact our business, including on issues such as climate change andenergy security.

The Group assesses political risk as part o its evaluation o potentialprojects, including the nature o oreign investment agreements in place.Political, legal and regulatory developments aecting the Groupsoperations and projects are monitored closely. The Group utilisesappropriate internal and external legal expertise to ensure its rightsare protected.

We recognise that we cannot run our

business in isolation. Tereore our modelis underpinned by a series o relationshipswith stakeholders at local, national andinternational level, which contribute tothe long-term success o the business.

Page 24

Page 55 and 116


24/176

Strategic review

Te strategy or growingour mining business isbased around three pillars.

Strategy or themining business

Te existing core business



3

2

1The existing

core business

Te rst pillar o our strategy or the miningbusiness is to optimise and enhance our existing

core business the Los Pelambres, Esperanza,El esoro and Michilla mines.

Actions and achievements in 2012

Recordyearforcopper,molybdenumandgoldproduction, with 709,600 tonnes o copper (a 10.8%increase on 2011), 299,900 ounces o gold and 12,200tonnes o molybdenum.

Netcashcostsremainedstableat103.0centsperpound (2011 101.9 cents).

Signicantprogressinoptimisingtheoperationo Esperanza, with average plant throughput levelsincreasing to 89,200 tonnes per day by Q4 2012,compared with 70,400 tonnes per day in the rstquarter o the year.

Objectives or 2013

Copperproductionforecasttobeapproximately

700,000 tonnes in 2013, broadly stable comparedwith 2012.

Netcashcostsforecasttobeapproximately140centsper pound, refecting reduced by-product productiono molybdenum and gold, as well as increases inoperating costs.

SignicantelementofworkrequiredtodebottleneckEsperanza expected to be completed in 2013, with thetarget o reaching original design capacity o 97,000tonnes per day o plant throughput during 2014.

1

Page 38 to 45


25/176


Organic and sustainablegrowth o the core business


15.2bn tonnesThe Groups mineral resource base asat 31 December 2012.

Te second pillar o the strategy is to achievesustainable, organic growth rom urther

developing the areas around our existing assetbase in Chile.

Te third pillar o the strategy is to look orgrowth beyond the areas o our existing

operations both in Chile and internationally.Te primary ocus is on potential early-stagedevelopments.


CentinelaMiningDistrictfeasibilitystudyhasprogressed, with a rened ocus on the EsperanzaSur and Encuentro Oxides projects.

Workonthepre-feasibilitystudyintothesignicantgrowth potential or Los Pelambres has continuedto advance.


CompletionoftheinitialUS$130millionfundingcommitment o the win Metals project as part o thecontinued work on the projects pre-easibility study.

Decisiontakentotemporarilysuspendthedevelopmento the Antucoya project, in order to undertake a ullreview o the project, to provide greater certainty overthe cost position and other relevant parameters orthe project.

Initiationofinternationalarbitrationproceedingsinrespect o the Reko Diq project, in order to protectthe Groups legal rights in respect o the project.

Objectives or 2013

ContinuedworkonCentinelaMiningDistrict

easibility study, and progress with the environmentalpermitting or the Encuentro Oxides project.

Completethepre-feasibilitystudyfortheLosPelambresgrowth opportunities, and approve the scope o theeasibility study.

Objectives or 2013

ContinuedworkontheTwinMetalspre-feasibility

study, including completion o an evaluation o theoptimal metallurgical process or the project.

CompletionoftheAntucoyaprojectreview,includingupdated resource model and mine plan, to allowdecision as to whether to resume development othe project.

ContinuedexplorationactivitiesinChile,withaparticular ocus on the wider Centinela MiningDistrict, and continued progress in existing explorationagreements and entering into urther agreements with

partners internationally.

2 3

Page 46 Page 47 to 49


26/176

Strategic review

Ourmarketplace

Our customersTe most signicant end market or the Groupsproducts is Asia with just over 75% o the Groupsrevenue generated rom sales to the region.

A signicant proportion o the Groups sales o copper concentrate aremade under long-term ramework agreements. These contracts will typically

set out the annual volumes to be supplied, with the pricing o the containedcopper in line with London Metal Exchange (LME) market prices.A deduction is made rom LME prices in the case o concentrate, to refecttreatment and rening charges (TC/RCs) the smelting and rening costsnecessary to process the concentrate into copper cathodes. These TC/RCshave typically been determined annually and are normally in line with termsnegotiated across the market.

A signicant proportion o the Groups copper cathode sales are also madeunder annual contracts, which again speciy volumes to be supplied and arepriced in line with LME market prices. In transactions between producersand consumers a premium or discount over the metal exchanges price isnegotiated to refect the dierences in quality, logistics and nancing thatcan be agreed compared with the metal exchanges alternatives.

Similarly, the Groups molybdenum contracts are made under long-term

ramework agreements with pricing usually based on Platts average prices.Across the industry neither copper producers nor consumers typically makeannual commitments or 100% o their respective production or needs andthereore producers normally retain a portion to be sold on the spot marketthroughout the calendar year.

The prices realised by the Group during a specic period will dier rom theaverage market price or that period because, in line with industry practice,sales agreements generally provide or provisional pricing at the time oshipment with nal pricing based on the average market price or the monthin which settlement takes place.

For copper concentrate the period or which sales remain open untilsettlement occurs is, on average, three to our months rom shipment date,compared to copper cathode sales which remain open or one month romshipment on average. Molybdenum sales remain open on average or

two months rom shipment, and settlement or gold content o copperconcentrate sales occurs approximately one month rom shipment.

Our productsOur mining operations produce copper withby-products o gold, molybdenum and silver.Los Pelambres and Esperanza produce copperconcentrate containing gold and silver which is

sold on to smelters or urther processing andrening into copper cathodes as well as theproduction o silver and gold. Te El esoro andMichilla mines produce rened copper cathodes.Los Pelambres also produces molybdenumconcentrate which is sold to molybdenumroasters or urther processing and rening.

Copper

The principal end markets or rened copper are construction and electricaland electronic products, which account or more than 65% o globalcopper demand, ollowed by industrial machinery, transport and consumerproducts. The price o copper is typically determined by the major metalsexchanges the London Metal Exchange (LME), the New YorkCommodity Exchange (COMEX), and the Shanghai Futures Exchange(SHFE). The price o copper is aected by supply-demand undamentalsas well as being infuenced by nancial investors which can lead to volatileand cyclical movements.

Gold

Gold is used as an investment asset and or jewellery and various industrialand electronic applications. Gold can be readily sold on numerous marketsthroughout the world. Benchmark prices are generally based on LondonBullion Market Association quotations.

Molybdenum

The main use o molybdenum is as a key alloying element in steel although itis also used in other products such as catalysts. Contract prices are typicallybased on price benchmarks such as those reported by Platts.


27/176


The Groups average realised price in 2012 was marginally above the LMEprice at 366c/lb, which refected net positive provisional pricing adjustmentso US$81 million. In 2011, despite historically high LME prices, due to adeclining price in the second hal o that year, realised prices were 373c/lb.Thereore, despite a 10% decrease in average LME prices during 2012, theaverage realised copper price o the Group decreased by just 2%.

Me u

In 2013, increased copper supply is expected rom greeneld and browneldgrowth projects as well as existing operations due to improved operational

perormance. Demand will continue to principally be supported by Chineseconsumption as well as expected improvements in the US housing market.While Chinese bonded warehouses restocked during 2012, due in part tolimited access to credit, manuacturers were orced to run down inventories.In 2013, it is expected that this trend could be reversed due to Chinareducing its cathodes imports and manuacturers restocking.

The consensus price orecast or 2013 is approximately 365c/lbwhich indicates that the market is expected to remain tight.

Copper concentrate

2012 me efmce

The concentrate market remained in signicant decit with scarcity ocopper concentrate relative to available smelting capacity a common themethroughout 2012. This was refected by continued low spot treatment andrening charges (TC/RCs), particularly during the rst nine months o theyear. The tightness o the market was a result o production constraints atlarge-scale operations, and expansion to Chinese smelting capacity byaround 500,000 tonnes during the year.

Me u

Current consensus estimates suggest that this decit will continue or aprolonged period, as urther smelting capacity, principally driven by China,enters the market in 2013. Annual negotiations are continuing with respectto 2013 charges at around or below US$70.0 per dry metric tonne oconcentrate or smelting and 7.00 cents per pound o copper or rening,which refects a tight market.

During the rst two months o 2013 spot TC/RCs have been trading atlower values than those agreed in the annual negotiations as a result o

the tight market.

Gold

Gold prices remained strong throughout 2012 averaging US$1,669 perounce compared with US$1,572 per ounce in 2011.

Molybdenum

Prices ollowed a downward trend in 2012, alling rom an average priceo US$13.8 per pound in January to US$11.4 per pound in December.The average price was US$12.7 per pound during the year, compared withUS$15.5 per pound in 2011. Economic turmoil aected sentiment in themoly market, urther impacted by a market that remained in surplus duringthe year. The undamentals in the near term appear less certain than a yearago, with additional supply expected over the coming years through urther

expansions o current operations as well as new projects coming on-stream.The 2013 market consensus is or an average price o US$13.2 per pound(ranging between US$12 to US$14 per pound).

Average LME copper price

Cents per pound

2012

360.6

400

350

300

250

200

150

100

50

0

2004

130.0

2005

167.1

2006

305.3

2007

323.3

2008

315.3

2009

234.1

2010

342.0

2011

399.7

Market environmentRefned copper

2012 me efmce

Te average LME copper price over the courseo 2012 was 361 cents per pound, representing a

9.8% decrease rom record 2011 levels. Weaknessin the global economic environment whichincluded uncertainty around growth in China,the key consumer o copper, recession in Europeand fat demand conditions in the US, putdownward pressure on prices, countered bysustained tightness in supply. Consumption wasparticularly weak during the rst hal o the year,however, underperormance in global productionlent support to prices.

366c/lbThe Groups average realised copper pricein 2012.

2%The decrease in the Groups averagerealised copper price in 2012 comparedto 2011.


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2010-2012 weighted average net cash

cost (including by-product credits)

104.0

Cents per pound

3.5

1.5

101.9

0.74.9

11.7

8.23.9

3.0 103.0

2010

L

osPelambres

Esperanza

ElTesoro

Michilla

L

osPelambres

Esperanza

ElTesoro

Michilla

2011

2012

Strategic review

Our marketplace

Key inputs and cost baseThe Groups mining operations are dependent on a range o key inputs,such as mining equipment (including the supply and maintenance ovehicles and replacement parts such as tyres), electricity, labour and uel.In the case o a copper concentrate producer such as Los Pelambres orEsperanza, steel balls used in the milling process are also a signicant inputcost. With cathode producers using the SX-EW process, such as El Tesoroand Michilla, sulphuric acid is a key input. The availability and cost o theseinputs can be key operational issues, particularly during times o strongdemand or commodities. The Group has strong supplier relationshipswhich ensure it is in a position to identiy opportunities to reduce costsand improve the quality o the key services and inputs that are requiredat the operations.

The Groups key operations o Los Pelambres and Esperanza havesignicant gold and molybdenum by-products, resulting in low net cash

costs. The Groups overall costs sit in the second quartile o the cost curve.The competitive cost nature o these key operations has allowed theGroup to keep the Groups average net cost position stable, despite strongindustry cost pressures. The orecast net cash cost position or 2013 isapproximately 140 cents per pound, an increase compared with the 2012net cash cost o 103 cents per pound. This increase in estimated costsis mainly due to lower by-product volumes and higher operating costsincluding energy.

Labour

Secure supply o labour is a key operational input or the Group. Labouragreements with unions are in place at all o the Groups mining operations,generally covering periods o between three to our years. The next labournegotiations are expected to start in 2014. In 2011, new agreements weremade with six o the total 13 labour unions across the Group. Contractorsare a signicant part o the Groups workorce at all o the operations,although the ratio o employees to contractors varies. At Esperanza the ratiois 1:1 (i.e. one employee or each contractor) whereas at Los Pelambres,the ratio is 1:4.

103.0c/lbWeighted average net cash cost (includingby-product credits) for the Group in 2012.

1:4The ratio of employees to contractorsin the workforce at Los Pelambres.This ratio varies between operations.


29/176


Electricity supply

There are two energy grids rom which the Group takes its energy

requirements the northern grid (SING) which supplies the Esperanza,El Tesoro and Michilla mines and the central grid (SIC) which suppliesLos Pelambres. In the SIC approximately 40% o the energy is provided byhydroelectric plants with the remainder being provided by coal, LNG anddiesel uelled plants whereas in the SING approximately 80% o the energycomes rom coal red power stations. Due to its reliance on hydroelectricpower generation, the southern grid is exposed to fuctuations in theweather conditions.

The Group procures its electricity supply through long-term contracts ateach o its mines. The cost o electricity under these contracts is, in mostcases, linked to either the current cost o electricity on the Chilean grids orthe costs o generation o the particular supplier, with the latter subject toadjustments or infation and generation uel input prices. In the case o LosPelambres, 2012 was the nal year o its previous long-term energy supplyagreement. The main energy contract at Los Pelambres was xed or a

two-year period which came to an end in December 2012 under the existingenergy supply agreement. In January 2013 Los Pelambres started a newenergy contract based on the spot price o the central grid which is higherthan the price paid under the previous contract and is thereore expectedto increase the energy costs over the course o 2013. Los Pelambres iscontinuing to review options to secure its uture energy requirements.

Also during 2012, Michilla secured a new electricity supply contract that willlast until the end o 2015, with an option to extend until the end o 2018.

Sulphuric acid

The Group also normally contracts or the majority o its sulphuric acidrequirements or uture periods o a year or longer, at specied rates.In most cases contractual prices will be agreed in the latter part o theyear, to be applied to the purchases o acid or the ollowing year.

Water

The Group has a secured water supply or each o its operations with thenecessary permits in place to use surace water as well as water romnearby wells. The Group has also pioneered the use o sea water or itsmining operations in Chile, with both its Esperanza and Michilla mines usinguntreated sea water. The Group now uses approximately 40% sea water toull its water demands. Future projects in Chile including Antucoya are likelyto use sea water in order to limit the eect that the Groups operations willhave on the water supply to local communities.

Oil price

The main use o uel at the operations is in the trucks used to transport ore

extracted rom the mine site to the plant or processing, as well as to movewaste rock rom the mine site to the waste dumps. Improving uel eciencyis a strategic priority or the Group with the number o litres o uel consumedper tonne o material extracted being a key measure or the operations.During 2011 the Antoagasta Minerals corporate centre entered into a newcontract to cover the uel needs o the current operations.

Exchange rate

The Groups costs are also impacted by the Chilean peso exchange rate,as on average across the Groups mining operations approximately 40% ocosts are denominated in Chilean pesos. However, the economic exposureto fuctuations in the Chilean peso exchange rate is partly mitigated by anatural hedge, as the copper industry is a major component o the Chileaneconomy, and movements in the copper price and Chilean peso tend to becorrelated. The Chilean peso remained strong during the year averaging

Ch$486.8/US$, compared to an average rate o Ch$483.4/US$ in 2011.

Michilla has hedged a portion o its operating costs denominated in Chileanpesos to limit its exposure to the eect o movements in the exchange rate.

Other purchasing and service contracts

The Group has a range o other longer-term purchasing contracts andservice agreements, with the supply o tyres being one o the mostsignicant. The operations typically have ve-year supply contracts inplace to meet their tyre requirements. The operations also have contractswith a range o suppliers to subcontract certain services including vehicleand equipment maintenance as well as other logistical services. Althoughthe contracts are normally with the individual operations, the tender andnegotiation process is typically co-ordinated by the Antoagasta Mineralscorporate centre to maximise the benets o economies o scale.

Chilean central and northern

grid spot energy pricesUS$/MWh

Northern gr ids (SING) Central grids (SIC)

Source: SIC and SING.

2012 SIC Avg:188

2012 SING Avg:86

150200250300

100500

2011 SIC Avg:182

2011 SING Avg:95

2010 12 2011 06 201112 2012 06 201212

Exchange rateCLP/USD

2012 Avg:489

2011 Avg:483

480

440

400

520

560

2010 12 2011 06 201112 2012 06 201212Source: Bloomberg.


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08 09 10 11 12

3,372.6

4,577.1

6,740.1

6,076.0

US$6,740.1m

2,962.6

Revenue

Strategic review

Key perormanceindicators

Financial KPIsAn analysis o Financial KPIs is

included within the Financial reviewon pages 64 to 69.

Te Group uses KPIs to assess progressagainst our strategy. We measure ourperormance against the ollowing nancial,

operational and sustainability metrics:

Why it is important to us: Revenuerepresents the income rom sales,principally rom the sale o copper as wellas the molybdenum, silver and goldby-product credits.

Performance in 2012: Revenueincreased by 10.9% due to increasedproduction o copper, gold andmolybdenum. This was largely due to thehigher plant throughput at Esperanza.

US104.7 cents

Earnings per share

08 09 10 11 12

104.7

173.1

106.7

125.4

67.7

Why it is important to us:A measure o the prot attributableto shareholders o the Company.

Performance in 2012:The decreasein EPS refects the impairment chargerelating to the Antucoya project. EPSexcluding exceptional items increasedmarginally to 140.2 cents, comparedwith 139.7 cents in 2011.

08 09 10 11 12

3,829.3

,899.8

2,771.9

3,660.5

1,680.7

US$3,829.3m

EBITDA

Why it is important to us:A measureo the Groups underlying protability.

Performance in 2012:EBITDA increased by 4.6% drivenby higher turnover which was partly osetby higher exploration and evaluationspend and increased mining unit costs.


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08 09 10 11 12

709.6

477.7521.1

640.5

442.5

709,600 tonnes

Copper production

08 09 10 11 12

15.2

15.2 bn tonnes

Mineral resources3

6.4

13.4 13.7

9.2

08 09 10 11 12

2.6

2.6

4.4

1.9

3.2

2.8

Lost time injuryfrequency rate1(ltifr)

08 09 10 11 12

45.8

45.8

25.2 24.0

38.544%

41%

20.4

Water consumption4(millions of m3)

08 09 10 11 12

103.0

87.3

104.0 101.9

96.3

US103.0 cents/lb

Net cash costs2


Operational KPIs

Sustainability KPIs

An analysis o the Groupscopper production is includedwithin the review o each operationin the Operational review on pages38 to 45 and within the Financialreview on pages 64 and 69.

An analysis o the Groups cashcosts is included within the reviewo each operation in the Operationalreview on pages 38 to 45 and withinthe Financial review on page 65.

Mineral resources a review othe Groups exploration activities isset out in the Operational review onpages 46 and 49, and the orereserves and mineral resources

estimates, along with supportingexplanations, are set out on pages156 to 164.

Further inormation on healthand saety is provided in theSustainability section on page 56.

1 The lost time injury requency rate is thenumber o accidents with lost time duringthe year per million hours worked.

2 Cash costs are an industry measure o thecost o production and are urther explainedin Note (iii ) on page 167.

3 Mineral resources relating to the Groupssubsidiaries

4 Water consumption relates to miningdivision only.

Continental water

Sea water

Why it is important to us: Saety is a keypriority or the Group with the LTIFR beingone o the principal measures o oursaety perormance.

Performance in 2012: The LTIFR in 2012was 2.6 accidents with lost time permillion hours worked, with the miningdivision having its best ever perormance.We regret the atality o a worker atMichilla in January 2012 and have

strengthened health and saety guidelinesand awareness raising across the Group.

Why it is important to us:We acknowledge water as a preciousresource and are ocused on maximisingthe ecient use o water and utilisingthe most sustainable sources as wegrow production.

Performance in 2012: Across the Groupin 2012, sea water was used in 44% o allactivities, up rom 41% in 2011.

Why it is important to us: Copper is theGroups main product and its productionis a key operational parameter.

Performance in 2012: The Groupscopper production increased by 11%refecting the urther increase inproduction at Esperanza.

Why it is important to us: A keyindicator o operational eciencyand protability.

Performance in 2012: Net cash costswere broadly in line with last yearat 103.0c/lb.

Why it is important to us: Growth to ourmineral resources base has supportedour strong organic growth pipeline.

Performance in 2012: The mineralresources o the Groups subsidiariesgrew by 1.5 bn tonnes, largely drivenby the completion o a mineral resourceestimate at our Twin Metals project.


32/176

Strategic review

Riskmanagement

Eective risk management is anessential element o the Groupsoperations and strategy. Te accurate

and timely identication, assessmentand management o risk are key tothe operational and nancial successo the Group.

Governance

Ensuring that the Groups vision, strategy and objectives are

communicated throughout the organisation, and that appropriate

governance structures and policies and procedures are in place to

embed those key aims and objectives.

Risk management

Ensuring that there are appropriate structures and processes in

place to identify and evaluate risks, and that appropriate controls and

mitigating actions are developed to address those risks. Ensuring

that details of the key risks, and the performance in managing those

risks, are reported on a timely basis to the relevant individuals.

Compliance

Ensuring that the Groups internal policies and procedures and

control activities, as well as all relevant external laws and

regulations, are adhered to.

EntErprisE risk

ManagEMEnt

CoMplianCE

govErnanCE

Risk management ramework

The Groups risk management ramework can be divided into three tiers:


33/176


The Board has ultimate responsibility or determining the nature and extento the signicant risks that the Group is willing to take to achieve its strategicobjectives and or maintaining sound risk management and internal controlsystems. The Directors receive a detailed analysis o the key matters orconsideration in advance o each Board meeting. They also receive regularreports which include analysis o key metrics in respect o operationalperormance, including health and saety, nancial, environmental and socialperormance, as well as key developments in the Groups exploration andbusiness development activities, inormation on the commodity markets, theGroups talent management activities and analysis o the Groups nancialinvestments. This acilitates the timely identication o potential key issues

and any necessary mitigating actions. The Audit and Risk Committee assiststhe Board with its review o the eectiveness o the risk managementprocess, and monitoring o key risks and mitigations. The chairman o theAudit and Risk Committee reports to the ull Board ollowing eachcommittee meeting, allowing the Board to understand and i necessaryurther discuss the matters considered in detail by the Committee. Theseprocesses allow the Board to monitor the Groups major risks and relatedmitigations, and assess the acceptability o the level o risks which arise romthe Groups operations and development activities.

The Groups Ethics Code sets out our commitment to undertaking businessin a responsible and transparent manner. The Code demands honesty,integrity and responsibility rom all employees and contractors, and includesguidelines to identiy and manage potential conficts o interest. An EthicsCommittee, comprising members o senior executive management, isresponsible or implementing, developing and updating the Ethics Code andmonitoring compliance with the Code. An updated version o the EthicsCode was rolled out to the Groups employees in 2011, and during 2012 thisroll-out was extended to contractors working at the Groups operations.

Risk management unction

There is a central risk management unction which has overall responsibilityor risk management activities across the Group. The risk managementunction maintains the Groups risk register, which includes the strategicrisks that cover the most signicant threats to the Groups perormance andthe achievement o its strategy, along with mitigation activities. The riskregister is updated on a continuous basis, and strategic risk workshops areheld at least once a year, in which senior management rom across thebusiness perorm a comprehensive review o the Groups key strategic risksand related mitigation activities. The risk management unction presents to

the Executive Committee (which comprises the Antoagasta Minerals CEOand senior management see page 74 or urther details) at least twice ayear, reporting on the development o the Groups key risks and mitigationsand the risk management process.

The risk management unction reports to the Audit and Risk Committee atleast twice a year, with updates on the key risks and mitigations, summarieso internal audit reviews which have been undertaken in the period, anddetails o the progress o implementation o previous internal auditrecommendations. Specic matters are reported by the risk managementunction to the Audit and Risk Committee on an immediate basis i necessary.

The General Managers o each o the operations have overall responsibilityor risk management within their business. There are also risk co-ordinatorswithin each business, who have direct responsibility or the riskmanagement processes within that business, and or the ongoing

ma

antofagasta 2012 annual report

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