Strong earnings growth and improved margins
Antofagasta plc CEO Iván Arriagada said:
“We have continued to invest through the cycle while maintaining our focus on cost discipline and operating performance. As a result, as copper prices rose in 2017 Antofagasta had another successful year completing the development of Encuentro Oxides, meeting our safety target of zero fatalities and achieving both our production and cost guidance.
“EBITDA increased by 59% to $2.6 billion with operating cash flow rising to $2.5 billion. Testament to the improved copper market and our continuing cost management programme, our EBITDA margin rose to 54% – the highest level since 2012 when the copper price was 30% higher. As a result of this performance the Board has recommended a final dividend of 40.6 cents per share which, combined with the interim dividend, brings the total dividend for the year to 50.9 cents per share, an increase of 177% on 2016, and represents a cash payout of 67% of earnings.
“Our priorities for 2018 are continued capital discipline and the next phase of our growth - notably the review and expected approval of the Los Pelambres Incremental Expansion project and progressing expansion plans at Centinela.”
HIGHLIGHTS
Financial performance
- EBITDA(1) for the full year was $2,586.6 million, 59.1% higher than the previous year as revenue increased by 31.1% on higher realised metal prices
- EBITDA margin(2) strengthened to 54.5%, the Group’s highest margin since 2012
- Operating cash flow of $2,495.0 million, up 71.2% compared to the same period last year on the back of stronger margins and higher sales
- Free cash flow(3) for the year of $1,199 million
- Capital expenditure increased to $899.0 million as planned, $103.9 million higher than in 2016. The increase partly reflected increased capitalised stripping costs at Centinela and Antucoya, and higher sustaining capital expenditure
- Attributable net debt fell by $458 million to $42 million, reflecting strong operating cash flow and capital discipline
- Earnings per share from continuing operations and before exceptional items of 76.1 cents per share, a 119% increase on 2016
- Final dividend of 40.6 cents per share declared, bringing the total dividend for the year to 50.9 cents per share, a 177% increase compared to 2016 and, at 67%, is above the Company’s minimum payout policy of 35% of underlying net earnings per share.
Operational performance
- The Group achieved its goal of zero fatalities during 2017.
- Group copper production for the full year was 704,300 tonnes, in line with guidance and 0.7% lower than in 2016. This was due to the impact of the expected lower grades at Los Pelambres and Centinela, which was offset by Encuentro Oxides coming into production in October and following the completion of the ramp-up at Antucoya in 2016
- Group cash costs before by-product credits(1) for the full year were $1.60/lb, 6c/lb higher than last year due to the expected decline in grades at Los Pelambres and Centinela, higher input prices and a stronger local currency
- Group net cash costs(1) for 2017 were $1.25/lb, 4.2% higher than in 2016, but below guidance reflecting higher than expected by-product revenues.
Outlook for 2018
- Group production in 2018 is expected to be 705-740,000 tonnes of copper, 190-210,000 ounces of gold and 11,500-12,500 tonnes of molybdenum (as previously announced). Copper production is expected to grow quarter-by-quarter through the year as grades improve, with approximately 45% of the year’s production expected in the first half of the year
- Group cash costs in 2018 before and after by-product credits are expected to be $1.65/lb and $1.35/lb respectively (as previously announced) and decrease during the year as quarterly production increases
- Cost savings of $100 million targeted under the Cost and Competitiveness Programme which have been included in the unit cost guidance figures
- Capital expenditure for 2018 is estimated at $1.0 billion (as previously announced).
Other
- Labour negotiations at Los Pelambres, Centinela and Zaldívar successfully completed. The last of the Group’s negotiations for the year, at Los Pelambres, is currently in mediation the union members having rejected the last offer from the company on 9th March. Mediation is expected to last one to two weeks from this date
- Encuentro Oxides project completed some 5% under budget
- Los Pelambres Incremental Expansion Phase 1 EIA approved and capital estimate updated. The project’s capital estimate has been updated with current pricing projections, advanced detailed engineering and a project execution plan to a revised estimate of $1.3 billion. This figure includes the concentrator plant expansion and pre-stripping at $780 million and the desalination plant and water pipeline at $520 million. The desalination plant will serve as a back-up water supply for the existing operation in conditions of severe drought and for both phases of the expansion. The project is expected to be submitted for approval to the Board during the second half of 2018 once ancillary permits to the approved EIA are in place and the 2021 start-up of the project remains unchanged.
| YEAR ENDING 31 DECEMBER | 2017 | 2016 | % | |
|---|---|---|---|---|
| Group revenue | $m | 4,749.4 | 3,621.7 | 31.1% |
| EBITDA(1) | $m | 2,586.6 | 1,626.1 | 59.1% |
| EBITDA margin(1)(2) | % | 54.5 | 44.9 | 21.4% |
| Underlying Earnings per share (continuing operations, before exceptional items) | Cents | 76.1 | 34.7 | 119.3% |
| Earnings per share (continuing and discontinued operations, after exceptional items) | Cents | 76.2 | 16.0 | 376.3% |
| Dividend per share | Cents | 50.9 | 18.4 | 176.6% |
| Cash flow from operations (continuing & discontinued) | $m | 2,495.0 | 1,457.3 | 71.2% |
| Capital expenditure(4) | $m | (899.0) | (795.1) | 13.1% |
| Attributable net debt at period end(1) | $m | (41.6) | (499.5) | (91.7%) |
| Average realised copper price | $/lb | 3.00 | 2.33 | 28.8% |
| Copper sales | kt | 709.0 | 698.5(5) | 1.5% |
| Gold sales | koz | 218.2 | 271.4 | (19.6%) |
| Molybdenum sales | kt | 9.6 | 7.2 | 33.3% |
| Cash costs before by-product credits(1) | $/lb | 1.60 | 1.54 | 3.9% |
| Net cash costs(1) | $/lb | 1.25 | 1.20 | 4.2% |
Note: The financial results are prepared in accordance with IFRS, unless otherwise noted below.
(1) Non IFRS measures. Refer to the alternative performance measures in Note 28 to the preliminary results announcement
(2) Calculated as EBITDA/Group revenue. If Associates and JVs revenue is included EBITDA margin was 50.1% in 2017 and 41.1% in 2016.
(3) Cash flow from operations less net interest, tax paid and total capital expenditure
(4) On a cash basis
(5) Includes pre-commercial production sales at Antucoya of 11,800 tonnes.
Investors – London
Andrew Lindsay alindsay@antofagasta.co.uk
Andres Vergara avergara@antofagasta.co.uk
Telephone +44 20 7808 0988
Media – London
Carole Cable antofagasta@brunswickgroup.com
Will Medvei antofagasta@brunswickgroup.com
Telephone +44 20 7404 5959
Investors – Santiago
Francisco Veloso fveloso@aminerals.cl
Telephone +56 2 2798 7000
Media – Santiago
Pablo Orozco porozco@aminerals.cl
Carolina Pica cpica@aminerals.cl
Telephone +56 2 2798 7000