Antofagasta PLC
LSE:ANTO
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
1 408.5
2 410
|
| Price Target |
|
We'll email you a reminder when the closing price reaches GBX.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Antofagasta PLC
You don't have any saved screeners yet
Great. Thank you and welcome to our 2022 Full Year Results. Welcome to those also attending via the webcast and conference call. I am Ivan Arriagada, Chief Executive of Antofagasta. And with me here today, we have our CFO, Mauricio Ortiz; and Rene Aguilar, our Vice President of Corporate Affairs and Sustainability. So, we are going to do a brief presentation on the release of our results today and then we will move to questions and answers.
Okay. So let me start by pointing out to our purpose, which is delivering mining for a better future. I think this encapsulates what motivates all of us at Antofagasta, and which goes beyond the day-to-day tasks that everyone is expected to do in their specific roles. As part of our purpose, our vision of a better future comprises four interconnected areas. So the better future we envisage is for the planet, society, our organizational culture and our people as shown in the slide. We deliver this through our five strategic pillars and those have not changed: safety and sustainability, people, competitiveness, growth and very importantly, innovation, which we see as a key enabler for our business to respond to both today’s challenges and the challenges of the future. And with this strategy, we will deliver value then for all our stakeholders, both economic and social.
So let me now take you through the highlights of our results. Our people are key to what we do and our top priority is and remains safety. And 2022 was a record year, with all our safety indicators improving during the period. So, this is very important and we’re very pleased to report that we had a very successful year with respect to safety. And we also, both successfully achieved our production and cost guidance for the year, with copper production of 646,200 tons at a net cash cost of $1.61 per pound. Despite the temporary reduction in throughput at Los Pelambres due to water restrictions and availability and expected lower grades at Centinela concentrates, our EBITDA was $2.9 billion, and our EBITDA margin remained solid at 50%. Our total dividend for the year is $0.597 per share, which is equivalent to a 100% payout ratio on our underlying earnings.
As a group, we recognize climate change as one of the greatest challenges facing the world. Centinela stopped extracting any continental water at the end of December. And since April last year, all our mining operations have been using 100% of renewable energy, reducing our emissions by nearly 1 million tons of CO2 equivalent since 2020. In 2022, all our operations have achieved the copper market accreditation, which is an important independent validation process with respect to our sustainability practices. We continue to work with the communities this year, making a social investment of $57 million. We also achieved agenda diversity target for the year, and now over 1 in 5 of our employees is women.
Looking to the future, we are creating value through our exploration activities, organic growth projects and innovation. And following 2 exploration discoveries in Chile, we have increased our mineral resources by over 900 million tons this year. And I think that’s an important achievement that we’re also reporting. And all of this is underpinned by a purpose of developing mining for a better future. So let me be a bit more specific around safety. I think we prioritize safety, health and well-being of our workforce and communities. We had no fatal accidents last year and all our safety indicators improved during the year. And 2022, as I mentioned was a record year for overall safety performance.
We continue to reduce our high-potential incidents, recording a 35% reduction and the lowest result in recent years. High-potential incidents are leading indicators of the effectiveness of safety controls and key measures of our success in strengthening them. We aim to keep our lost-time injury frequency rate below a score of 1. And in 2022, the overall group score was 0.84, a 37% improvement. And this was due to strength and control strategies, particularly for high-risk tasks. On safety, our current focus is to reinforce the key principles of our strategy, focusing on empowering our people to understand and manage the risks of the critical task they carry out, ensuring competent and effecting supervision and having determined leadership to strengthen our commitment to zero fatalities and occupational diseases.
Now, let me say a few words about the copper market. Copper is not only a commodity essential for our daily lives, but it also plays an integral role in the future, given its use in the energy transition and decreasing electrification of the world, especially in emerging economies. The copper price fluctuations during the year reflected the broader volatility in the global economy. Higher inflation, the Ukraine war, as well as the strong dollar negatively affected most commodity prices early in the year. But signs of economic recovery fueled by China dropping its Zero-COVID policy led to an upturn in the price. However, economic and geopolitical uncertainty will remain a feature of global markets going forward as we know.
On the supply side, the expectation of a surplus over the next year or 2 have diminished, as lower production has been reported widely and with concerns about how the situation will evolve in some jurisdictions, which have experienced political or economic deterioration. In the longer-term, the fundamentals for demand, growth of urbanization, decarbonization and clean energy targets continue to be supportive for copper demand and our confidence in copper in the long-term.
The longer term challenges to supply growth also remain. Lower-quality deposits, increasing technical complexity and higher environmental and social expectations, all of which are limiting the expected rate of supply growth. At Antofagasta, we have a growing mineral resource base as we’ve sort of increased this year in 1 billion tons. And the ability to unlock them and we are well positioned to continue to grow, especially with our organic resource space.
Let me refer briefly to Chile. In Chile, the government presented a revised draft mining royalty bill to Congress in October, which changes the structure and increases the rates compared with the current royalty applicable in Chile. This draft was approved by the Senate Mining and Energy Committee in January and has now passed to the Senate Treasury Committee for discussion and possible revision. So it’s now sitting in Congress. The bill will then be debated in the Senate before being passed to the lower house for its consideration, and if approved, it then would become law.
As regards to the new constitution, it was rejected in a national referendum in September last year and since then a framework has been developed, which provides for certain consensual principles or boundaries within which a new text is to be developed. A new constitution council will be elected in May, which will work with the committee of experts to draft the constitution. And this will be put to a vote in a national referendum in December this year.
Having said this, I would like now to pass over to Mauricio, who will give you some more detail on our financial performance for 2022. Mauricio?
Thank you, Ivan and good morning to everyone. Well, in a volatile global environment with higher inflation, logistical constraint and climate change events such as the drought at Los Pelambres, our financials remained robust, driven by the operational and cost discipline across all our assets. However, these factors were reflected in our full-year financials performance when compared with the exceptional 2021.
Net cash cost in 2022 were in line with our guidance, but higher last year due to the impact of the lower copper volumes and higher energy and higher input prices, along with general inflation. Despite lower production and higher cost, our EBITDA margin remained strong at 50%, 15% lower than in 2021, but mainly reflecting the lower realized copper price, which was down 14%.
In this changing world, our robust balance sheet, which has a net debt EBITDA ratio of only 0.3x is an important attribute of our company. It’s enabled us to make capital decisions from a position of a strength and stability. The 14.1% return on capital employed was mainly explained by our lower earnings on the back of the lower revenue, but also for that $480 million we have invested during the year in our expansion at Los Pelambres that has not yet come into operation.
Our underlying earnings were $0.597 per share, but this year, we have an exceptional gain of $945 million following the completion of the Reko Diq transaction. This increases our earning including exceptional items to $1.555 per share and 19% higher than in 2021. And finally, having assessed all the decision factors in our capital allocation framework, our total dividend for the year is $0.597 per share, which is equivalent to a payout ratio of 100% calculated against our underlying net earnings.
Now, let me take you through a summary of our production and costs. As guided, copper production was just above 646,000 tons, 10% lower than in 2021, mainly due to the temporary reduction in throughput at Los Pelambres because of the drought and the expected lower grade at Centinela Concentrates. To address the decline in grades, we are actively focused at enhancing our – the operational reliability and the utilization rate of our plan and equipment. We have made further progress in these areas with Centinela Concentrates and Antucoya achieving record throughput rates for the year, exceeding their design capacity. This remarkable achievement is a testament to the skills and the disciplines of our people at the mine site, as well as the effective integration of our new remote operations center.
The complex global environment in 2022 with constrained logistic chains and the continued inflationary pressures had a significant impact on important inputs such as diesel, sulfuric acid and explosive, while this was mitigated by the weaker Chilean peso. All these factors accounted for $0.25 per pound of our increase in cash cost before by-products. Lower production also adversely affected costs. However, this was partially mitigated by the benefit from our Cost and Competitiveness program, which helped to reduce cost by $0.07 per pound. Overall, our net cash cost for the year, were $1.61 per pound.
Despite the challenging global conditions, the creativity of our people, coupled with the benefit from our investment in advanced technologies, delivered outstanding results in 2022. Through the use of advanced analytics and machine learnings, we have been able to improve the efficiency of our consumption rates, for instance, by optimizing the consumption of sulfuric acid and the grinding materials. We have been able to improve their cost per unit of production.
Procurement and contract management discipline remained as the main contributor to our cost and competitiveness program, where detailed planning coordinating purchase across our operations and careful administration of the contracts has delivered $52 million of structural savings. One initiative we are very proud of is the Centinela concentrator operating at above the same capacity. In 2022, daily throughput reached 109,000 tons, which is 4% higher than the design. In 2023, we expect to capture the benefit of this along with higher concentrate grades, driven by better flotation performance.
In summary, in 2022, we have a very good year for our Cost and Competitiveness program. We achieved more than double its target, yielding benefits for $124 million. For 2023, we have set ourselves a target of at least $60 million of CCP benefits. Our EBITDA was $2.9 billion, and our EBITDA margin, as Ivan said, was a robust 50%. The bulk of this $1.9 billion decrease in EBITDA compared with 2021 was from lower sales volume and the lower copper price. These 2 factors accounted for more than $1.6 billion of the decrease and higher mining cost also contributed to the fall. Exploration and evaluation increased by $10 million to $113 million, mainly explained by our exploration work at Cachorro, where we increase resources and our new Encierro deposit.
Our associates and joint ventures have decreased their contribution to EBITDA by $17 million. And the transport division increased its contribution by $11 million, mainly due to the better sales as contracts signed in previous period ramped up. This led to a record year of tonnage transport in 2022. Overall, our EBITDA margin remained strong, even in a challenging year marked by inflation and lower production.
Consistent with our financial discipline, we have maintained our strong balance sheet with a net debt to EBITDA ratio at the end of the period of 0.3x. Net debt was $886 million at the end of the period, compared with the net cash of $541 million at the end of 2021. This movement is largely explained by 3 factors; $2.8 billion of EBITDA from subsidiaries, our $1.9 billion investment in mine development, sustaining CapEx and the Los Pelambres expansion project, all of which are targeted at securing our production profile for the upcoming years and more than $1.2 billion paid in dividends, which reflect our commitment to sustainable shareholder returns.
As you’re aware, our capital allocation framework is fundamental to all our financial decisions, and which also considers our climate resilience. Everything is underpinned by our strong operating cash flow, where our operational discipline allows us to achieve our annual production and Cost and Competitiveness program targets, and our gold and molybdenum by-product revenue stream from our 2 largest mines, Los Pelambres and Centinela, allows us to control our cost and capture price increases in these products. Then we invest, through the cycle, in sustaining capital programs and mine development, exposing the ore that will be mined in the following periods.
Next, we fulfill our minimum commitment to our shareholders by paying 35% of our underlying net earnings as dividends. With our excess cash flows, we consider the strength of our balance sheet and then assess our growth projects, which must be in line with our stringent return on risk criteria. If nothing fits our criteria, we return this excess cash to our shareholders as part of our dividend policy. Following this disciplined framework allows us to invest and deliver consistent returns to our shareholders through the cycle. And the Board has recommended $0.597 per share as total dividend for 2022, which is 100% of underlying net earnings, excluding the Reko Diq transaction.
Now, Rene will give you some more details on our sustainability performance. Rene?
Thank you, Mauricio, and good morning to everyone. Sustainability at Antofagasta is about deploying strategy that improves the lives of our employees and embraces and support the development of our surrounding communities, while at the same time managing environmental impact of our operations. This is why it has been important for us to implement recognized sustainability standards. And this year, all four of our mining operations were independently assessed against 2 benchmark industry-responsible production standards, The Copper Mark and ICMM performance expectations. It is also important that we provide reliable information to our stakeholders regarding our performance. And so last year, we started publishing online our ESG data book, which we will update quarterly. Our strategy allow us to put back more into society, the environment and the global economy than we take out. We do this by setting ourselves goals and climate change, diversity and inclusion by joining global challenges, protecting our employees, developing our suppliers, as well as how we address our environmental impact, so that overall we have a net positive end result from nature.
The group’s diversity and inclusion strategy, launched in 2018, has transitioned from an awareness-raising phase about unconscious bias and discrimination to introducing inclusive practices as an integral part of how we work. We are deepening our inclusive organizational culture, which supports the retention of all people, whatever their gender, race or sexual orientation. In a key initiative, we ran a campaign on respectful behaviors and held workshops on respectful environments. In 2022, we increased the proportion of our female employees to 20.6% compared to 17.4% in 2021, meeting our goal for the year. This is a steady improvement since 2018, and we have more than doubled our female participation since then. We have now set a new gender diversity goal for women to represent 30% of our employees by 2025.
As Ivan mentioned, we are committed to the environment and mitigating and adapting to climate change. All mining operations have been using 100% renewable energy since April 2022, with an estimated emission reduction of nearly 1 million tons of CO2 equivalent of our Scope 2 since 2020. With this reduction, we met our 30% reduction commitment 3 years early, and we will soon set ourselves a new medium-term emission reduction goal for 2030 and a Scope 3 reduction target. We have already begun working on decarbonization plan for all our operations, defining the baselines, the replacement plan for haul trucks, the projection of energy inputs, as well as agreeing the assumptions for current and future technologies. The final plan will clearly indicate the steps we must follow to be carbon-neutral by 2050 or sooner if the available technology allows it.
In 2022, water used rates of our mining operations ranged from 79% at Los Pelambres to 94% at Zaldivar. With the completion of the Los Pelambres desalination plant this year and following its expansion, we are on track for sea and recirculated water to be more than 90% of our total operational use by 2025. We aim to develop social programs and projects in partnership with communities that lead to significant improvements in people’s quality of life and increasing their access to goods and services. In 2022, we increased our social value-creation investment to $57 million, up from $48 million the previous year. Although this financial contribution is significant, the real value lies in the social impact created.
Over the last 5 years, we have assessed the impact of 15 social programs in 6 strategic areas; water management, productivity support and entrepreneurship, community infrastructure, education, employability and supply development. This year, two areas of focus have stood out in terms of programs that promoted equity and access to basic goods and equal opportunities and have the biggest impact. We continue to enhance access to drinking water for human consumption and irrigation in rural areas near our operations. And we also intensify our EnRed program with over 20 initiatives aimed at addressing the infrastructure and digital skill deficits in the communities in our area.
Now, I pass you to Ivan.
Thank you, Rene. And so I’m going to close with a reference to guidance for this year and also progress on our growth projects. So for this year, copper production will be in the range of 670,000 tons to 710,000 tons, which reflects essentially the completion of the Los Pelambres desalination plant and concentrator expansion during the year, partly offset by lower grades at Centinela Cathodes. During the year, copper production is expected to increase quarter-on-quarter, mainly due to the production profile at Los Pelambres, and it’s something that we also witnessed in 2022.
Group cash costs in 2023 before and after by-product credits are expected to be $2.20 before by-products and $1.65 after by-products. As always we remain very focused on productivity. And on the back of what has been achieved recently, we’re now targeting savings of at least $60 million under our Cost and Competitiveness program for 2023. We expect this will offset some of the other inflationary cost pressures we will see during the year.
CapEx, capital expenditure is expected to be $1.9 billion, as sustaining and mine development expenditure increases to approximately $1.5 billion. This increase reflects inflation, higher mine development at Centinela Concentrates, detailed engineering on the Los Pelambres desalination expansion and concentrate pipeline sustaining CapEx and the expansion of the tailings storage facility at Centinela. However, although there is some pre-investment expenditure on the Centinela Second Concentrator project, this estimate does not include project execution expenditure on that project for 2023.
Reliable and responsible copper producer is what we aim to be and to achieve. And we will talk a little bit about our pipeline portfolio. We have a variety of exploration late-stage projects which are in different phases, as you will note in the slide of evaluation and we will generate organic growth for the company, including a new recent discovery, which we call Encierro, which we are including for the first time in our reserves and resource statement, joining the Cachorro project, which we included before the first time in 2021.
We have a huge mineral resource base of over 19 billion tons, of which some 7 billion tons are in the Centinela Mining District and 6 billion tons are at Los Pelambres, giving us options to develop our inventory at a time when copper supply is becoming increasingly constrained. We expect our Cuprochlor-T leach process will be adopted at our operations over the next few years, and this will allow us to maximize the utilization of our leach assets and processes – processing ore that might otherwise have been uneconomic. In the meantime, we will continue to remain alert to any attractive external opportunity that may become available.
So to give you a brief update on some of the growth projects. At the end of last year, the Los Pelambres expansion project was 93% complete in terms of construction, with both the desalination plant and concentrator plant expansion due to be in production during the second quarter of this year. Progress continues on the other hand with the engineering and pre-investment studies for the Centinela Second Concentrator. And in line with a disciplined approach to capital allocation, the project will be sent to the Board for final investment approval we expect during 2023, following completion of the Los Pelambres expansion project and once there is sufficient clarity on the outcomes of the ongoing discussions on the mining royalty and tax reforms in Chile.
With respect to our recent exploration success during 2022, we increased our mineral resources by over 900 million tons, with over half of this coming from two recent exploration discoveries, Cachorro in the north of Chile, which reported its first inferred resource in 2021, and this will increase by over 70% last year to 242 million tons at 1.21% copper. This makes the project one of the most important manto-type deposits in the northern coastal belt in Chile. Also it lies between Antucoya and Centinela, and so may benefit from the use of their facilities.
The Encierro project on the other hand is in the Chilean High Andes, 100 kilometers East of the city of Vallenar and 600 kilometers north of Santiago. And it declared its maiden inferred resource in 2022. The deposit is a complex copper-gold-moly miocene porphyry deposit with inferred resources of 522 million tons at 0.65% grade copper. We will continue to drill these deposits and advance them through the development cycle over the coming years.
Now, let me say a few words about innovation and technology. We are proud to report that last year we inaugurated our first 100% autonomous operation at Esperanza Sur pit with a fleet of 11 and two autonomous drillings. This autonomous project makes it possible to eliminate the operator’s exposure to risk and increases the efficiency and extends the equipment’s lifecycle.
The autonomous drilling equipment has a higher level of utilization, 10% higher than a conventional system. Also the integrated remote operation centers are already operating at Los Pelambres and Centinela. They allow the visualization of real-time data to enable timely decisions to be taken while having a global view of all the processes. This allows a higher level of coordination and improves performance and decreases variability.
During ‘22, as I’ve mentioned, we completed the validation of our in-house patented primary sulfide leaching technology, Cuprochlor-T, and made the technology available to our operations to incorporate in the long-term planning. The project continues advancing. An industrial sized 38,000-ton leaching heap was completed at Centinela in 2021 and results in 2022 confirmed recoveries of 70% or more after approximately 200 days. And pre-feasibility work is now starting at Zaldivar for the primary ore there. The process has the potential to unlock value from previously uneconomic mineral resources and is being considered as an option for the existing operations.
So let me finish now by looking ahead to this year and the opportunities ahead. Safety is always our top priority. We’re committed to having zero fatalities, and we will continue with a relentless focus on protecting the health of our workers and communities. We continue to embed our climate change and sustainability strategy in our decision-making. On the critical resource of water, we will continue to take all necessary actions to mitigate the impact of the drought on communities and our operations. Most significantly, we will start production at our desalination plant at Los Pelambres in quarter two 2023.
We are accelerating the implementation of innovation as today more than ever. It plays a key role in how our company goes forward. We are committed to maintaining a financial discipline, a key attribute of our group, with a focus on value creation and shareholder returns. We are in a strong position to take advantage of the growth in copper demand. We have the embedded tons across our business, the ability to unlock them in a sustainable way and with a responsible and reliable producer we will deliver value to all our stakeholders. 2022 represented a temporary drop in our production profile as we had expected, but looking forward, we see growth coming in the short-term and the longer-term as we advance our project portfolio.
So, thank you for your attention. And now we will take questions starting with the floor and then moving to the virtual questions.
It’s Danielle Chigumira from Credit Suisse. A couple of questions from my side. And firstly, on taxes and royalties, what is your current expectations around the timeline for which that you get visibility on them? And are you still expecting an effective tax rate in the low 40s? Secondly, for Rene on sustainability, so, you’ve got a track record of surpassing the emissions reductions targets ahead of time. What kind of visibility are you still waiting on in order to set targets specifically for Scope 1 and 2? And is there any reason why given we’ve got production increasing, why emissions won’t go up every year for the next 5 years? And then finally just on Zaldivar. What’s the timeline for the pre-feasibility study on Cuprochlor?
Yes. So on taxes and royalty, I think the – what the government has indicated is their willingness to try to close that discussion ahead of the next budget and as soon as possible. The next budget would sort of be discussed at the beginning of the second half of this year. So that’s the timeline that they have declared and that was sort of see them working to. In terms of where the reform lands, I mean, our view is that the fiscal terms are very important in terms of the stability and predictability that they provide for investment decisions. And therefore, stability is key and the level needs to be such that Chile remains competitive when compared to other jurisdictions. And I think that’s what we’ve been conveying to the authority when it comes to the level at which taxes need to be set, so that competitiveness against other key mining jurisdiction, especially those that produce copper is retained. So that’s on royalty.
I think on sustainability, yes, we’ve been successful in achieving our target that we set ourselves. And I think a lot of that has come out of the conversion that we were able to achieve in some of our energy supply contracts. And now, as Rene was saying, we are in the process of setting our new target for Scope 1 and Scope 2 specifically. And that depends on the improvements that we’re able to identify in terms of project work on energy consumption efficiency. And that’s basically what we want to get full visibility to us so that we move to a new commitment. So, our commitment is founded on the visibility and certainty around being able to achieve those improvements and changes. And we are well advanced in those. So, I think we’re in good shape to be able to refresh our target as it relates to Scope 1 and 2. Scope 1 also involves haulage. And from that point of view, we know that the technology is for replacing diesel in trucks is not yet available, but we’re actually – we’re very active in terms of being testing both battery-assisted haulage trolleys, which we’ve been looking at as a possibility in Pelambres and also hydrogen. But we know that technology has still to develop, but I think advanced in terms of being able to understand and test specific solutions in our sites. So, a lot of work has been done – is being done there.
And in respect of Scope 3 which we didn’t cover, but I think it’s important that we also include. I think we’re doing two things. I mean, one is that we did commit with our suppliers last year to work together on achieving reductions in emissions in their processes and help them or assist them in that activity. And we’re now in the stage of developing the specific plans, but that commitment was made and was put in place last year. And I think that was a very significant step forward for us in terms of just agreeing to work in that direction. It’s something that we sort of explicitly did.
Now, that means that we’re changing some of our processes internally. For example, when we bid now for goods and services, we look at the [Technical Difficulty] and therefore, we rank them according to how they come up with emissions, which is something that we weren’t doing before. And also what we do is that we use and I think we’ve shared this with you before, a shadow price for carbon emissions at $100 a ton of CO2. And therefore, we also calculate how do these alternatives rank when you factor in that cost of emissions? So, that reference is also available when decisions are made. So, we’ve got a very broad set of issues that we’re addressing to be able to move forward in Scope 3. And then as we understand more and more, our expectation is that we will be able to set a target with respect to Scope 3 and we’re really diligently trying to work to achieve that by the end of this year 2023. So, that’s on the sustainability.
And then finally on Cuprochlor and we’re doing – we’re finalizing the sort of pre-feasibility at Zaldivar, and then we expect the feasibility is something that which will be basically undertaking between the end of this year and next year and 2024. So by 2025, we basically have the feasibility ready. But I think the key around the pre-feasibility, so the viability of being able to exploit a primary sulfide work will be completed this year 2023, the pre-feasibility. Okay?
Dan Major from UBS. Two lines of questions from my side. Firstly, on CapEx, quite a big step-up in sustaining and mine development CapEx from $1 billion to $1.5 billion. Can you give us latest estimates of medium-term sustainable sort of rate of mine development CapEx, including the expansion of Centinela? And then secondly, on the dividend, will you look at the proceeds from Reko Diq as an opportunity for a special distribution or is that sort of included in the broader capital allocation discussions? And the fact that you’ve booked the provision – well, write-off of $945 million, does that suggest that the tax payable on that’s going to be fairly limited? Yes, those are the questions.
Yes. So, I’ll ask Mauricio to comment on the CapEx. But I think on the dividend, maybe just to say that the basis on which we’ve determined the payout for this year is the earnings from last year without including the Reko Diq element because that’s sort of an extraordinary element. Now, we have yet to receive – I mean we’ve got to receive the proceeds. We’re expecting that, that will happen in 2023. And I think the decision around those funds will be made then at that time by the Board, according to, as you say, the sort of a capital allocation framework that we have. But we do consider them to be extraordinary from the point of view that they don’t come from the ordinary course of business as the earnings on which the dividend was calculated or determined in this year. So that’s the logic there. But Mauricio, do you want to talk about capital expenditure and mine development?
Sure. Well, on Capex, just a brief comment. Well, previously, we have a range, we were moving in a range between 600 and $800 million per year. So as we announced a couple of release before, we are moving up for the next 3 years that means this year and the next 2 years to a number around $1 billion as an average. That’s mainly explained by two reasons. One is we’re opening phases, new phases in Centinela district, basically, Esperanza Sur and Esperanza. They are going through opening new phases and these two open pits, and also we are undertaking relevant or important overhauls in two things. One, expanding or increasing our tailing deposit capacity, either in – both in Los Pelambres and in Centinela as part of the sustaining CapEx of course and also overhaul at major mines at the waters at Centinela and also included in this guidance of $1 billion average for the next 2 years, we are including also the necessary works to relocate the concentrate pipeline on the additional model in the diesel plant in Los Pelambres. So basically, we are investing in sustaining CapEx, as we said, in order to enable production going forward and the risk production going forward, maintaining our capabilities to produce copper through the cycle.
And so just to follow-up on the tax on Reko Diq, should we assume that you received largely the $945 million revisioned in cash?
We don’t expect tax on that proceeds. Of course, we need to complete the evaluation through the old jurisdiction that we’re involved, but we don’t expect tax.
[Technical Difficulty]. Couple of questions just around production. You did mention the expectation for quarter-on-quarter growth throughout the year, but could you perhaps put it in bands, H1 versus H2? And what’s the type of split you’re thinking about? Is it 45, 55, or something more pronounced? And then the second one is around absenteeism at the mines. How has that been progressing, and what assumptions have you put underlying that ‘23 production target?
Yes. The production quarter-on-quarter is largely driven by the fact that the water availability for Pelambres will be in place in quarter two. And therefore, because the first 3 months of the year are the dry season, then we run Pelambres when there is water limitation at a lower throughput. So, we’re not actually using all the capability that we have in terms of planned capacity. And therefore it’s – when water becomes available, then basically Pelambres is able to run at a higher throughput, which is sort of double the rate at which it would be running in the first quarter. So, that’s the sort of difference that we have. It’s essentially driven by Pelambres.
And in terms of absenteeism, I think what we saw, traditionally, absenteeism was around 3% when we had COVID. And after COVID, that went up. In some locations, we witnessed in some projects, and this was also reported across the industry in Chile and elsewhere that absenteeism went as high as 25% or 30%. Now we’re back down to numbers, which I would place between 6% and 8%. So, we’re still above what’s the situation pre-COVID. And I think with the economy now going into a slower growth phase out of the control and inflation, we expect that, that will probably converge towards sort of historical levels. But yes, we are running with absenteeism levels, which are higher after COVID than what we had before. And I think this also has to do, we think, with the change in the way of working and expectations generally on people and how those have evolved, which makes it suddenly more challenging. But at levels between 6% and 8%, it’s something that we can manage. And we’ve also changed the way of working and I think that’s also having an impact in terms of being able to attract new people and helping to reduce that further to the levels of 3% that we would expect to see sort of a normal case.
Ian Rossouw from Barclays. Three questions. Just on – just pushing you a bit on the sustaining CapEx, so, you said earlier, Mauricio, that it’s $1 billion over the next few years, but this year is $1.5 billion. Should we expect next year and the year after to come back to $1 billion or somewhere in between? Second question just on the minority dividends, there you only paid $80 million in the first half and the second-half zero. You can see quite a bit of cash building up at some of the assets, particularly at Los Pelambres. Should we expect some catch-up payments on that in this year? And then if you could just help us think how should we think about your expansion plans, I guess, the remaining CapEx at Pelambres? Will you fund that from debt within the assets? So you will channel up most of the cash flow at the asset to the parent company? And likewise, just how we should think about that for Centinela? Sorry. And then last question just on Zaldivar recoveries there. Obviously, that’s still being quite disappointing with this, I guess this leaching project that’s completed, where should we get in there? And what other – and I guess what’s the sort of end goal there on recoveries longer term?
Yes. So, let me start with that one and then Mauricio will address the financial questions. But on Zaldivar, we implemented the Chloride Leach as the processing route to be able to leach low-solubility secondary sulfides and that’s a proven maybe one processing route now. What we saw during the years ramping up to the levels of recoveries that we are targeting is a bit more extended than we had anticipated. I think the good news I would say is that the project is operating as expected from the point of view of the levels and concentrations of chloride. And the second one is that in the fourth quarter, we saw an uptick in recoveries, which is sort of nearing now the sort of levels that we expected at this stage. So, the sort of recoveries that we are getting in the secondary sulfides are north of 60% now, and therefore, that’s good and that’s continuing in the course of 2023. So, we think that now that process has become – this is a chemical process that’s become active and therefore, we are now heading into this type of recoveries that we expect. But it has been a bit more than we had anticipated, but we are getting there. So, we are positive about where this is heading from that point of view. Mauricio, do you want to address the financial question?
Well, in terms of sustaining CapEx, yes, this year we are guiding $1.5 billion based on the factors that I explained just a couple of minutes ago. We expect to return to something lower than that next couple of – next 2 years, basically, because this year, we are front-end loading some works in this specific grade that I mentioned. In terms of minority dividends, yes, you are right that this year was a year where we will build up cash in our companies basically because we assess that the companies went through, of course, low grades and lower throughput at Pelambres. So, we were cautious about our capital distribution or cash distribution from the company and I think on times of volatile environment was a wise decision. In terms of how we want to work the financing of our projects going forward, of course we have the discipline to optimize the leverage ratios in each of our operating companies, use their balance sheet in order to contribute to the group robustness. And just to give you an example, what we have in our portfolio in terms of Centinela Second Concentrator, we are actively evaluating a project finance in order to optimize the financing of that expansion. And in terms of Los Pelambres, Pelambres has been a very robust asset. We have plenty of options. Of course, we are exploring for the second desal model and the relocation of the concentrate. That could be corporate or other kind of debt, and of course, some combination some healthy combination between debt and equity. But as a main principle, Ian, summarizing to optimize the leverage ratios in a healthy way of our operating company is part of our discipline.
It’s Jason Fairclough from Bank of America. Two questions. One on the Second Concentrator project, and then the other one again on the Cuprochlor. So, on the Second Concentrator, could you just talk to us a little bit about the CapEx number? Again, how live is that given the huge fluctuations we are seeing in some of the input costs for mining CapEx? And with that, I guess how complete is the scope, right? So, for example, is there anything outside the scope that we need to think beyond the number you published? Secondly, just on Cuprochlor, that’s an in-house technology, you guys have developed its IP. Does Barrick get it for free at Zaldivar?
Okay. So on the Second Concentrator, I mean as you know, we have updated the CapEx estimate recently. And in doing so, we have included at this stage and because we have sort of advanced in the engineering all of the scope of the project. And it’s also got some escalation components to it. So, expecting that some of the price do fluctuate and have, or are subject to some level of inflation. So, we think from that point of view, that estimate is a robust expected value of what the capital expenditure for that project will be. Now, we are in an environment, which is volatile and with changes and therefore, obviously we will look at what’s happening. But in essence, what we see is that the inflation is actually coming down and input prices are actually coming down. So, we see limited risk therefore of having to restate that number on the basis of the sort of macro trends that we are witnessing for the next couple of years when we expect to be able to do the construction. So, from our point of view, we think it’s a fair estimate of where the construction cost will fall. And when we did the review, we were quite keen on including some escalation component to it as well and the full scope. Remember that this is a project in which we have been working for a long period of time and therefore, the scope is quite well-defined in terms of the construction. It’s included in that, right? Cuprochlor-T, so yes, this technology, we are very excited about it and obviously it’s part of the extension we think may happen at Zaldivar. And the exact commercial terms under which this would be applied and deployed is something that we still need to sort of work out. But we are very keen at this stage and actually proving that this provides the right solution for the type of ore that we have at Zaldivar. And from that point of view, as we mentioned before, this is being incorporated into our mine plans and it’s the route to grow at Zaldivar.
But we do ultimately see it as an asset that should generate a return for your technology?
Well, I mean we do. I think our focus is primarily on being able to deploy and use it for our own resources. So, that’s what drives us at this stage, but obviously, we see economic value and commercial value in the long-term. But the main application we see in our own ore bodies, it’s been now included as part of a mine plans for Antucoya and Centinela. We are starting to see in a 5-year timeframe some copper coming out of this into our Centinela and Antucoya. So, that’s what drives us and has us excited with respect to Cuprochlor-T, and obviously, the extension for Zaldivar. Okay. If there are no more questions from the floor, then we will move to the virtual questions.
[Operator Instructions] Our first question today comes from Bob Brackett at Bernstein. Bob, please un-mute yourself and go ahead with your question.
Hey. Good morning. Looking at the net cash costs, you provided a bridge from ‘22 to ‘23 explicitly around FX and by-products and you mentioned that inflation would be offset by things you can control. Can you give us a sense of what you see as that level of inflation and therefore, what’s the scale of the things you control offsetting that?
Yes. Mauricio, do you want to take that?
Well, thank you for the question. Well, in terms of – let me split the answer in two pieces. First, in terms of inflation, we have the Chilean inflation and the global inflation. In terms of Chilean inflation, that is mostly offset by the exchange rate and that is what we have seen last year. However, we have the global inflation and that impacts our unit costs. Along that part, we also have the input prices. Input prices has increased significantly since 2021 – in comparison with 2021, driven basically by energy, explosive, diesel and sulfuric acid. So wrapping up, how we control inflation is, we don’t control inflation. If we could, it would be great. But how we manage inflation is, for one side, our peso denominated cost base, which is providing some offset to the local inflation. And in terms of global inflation, one of the characteristic or one of the main features from Antofagasta is having a significant stream of gold and molybdenum, which is mostly help us to tackle that global inflation and that is what we have seen in 2022. So, that is pretty much how we work out the inflation, Bob.
Good. Thank you for that.
Okay. Our next question is from Ioannis at Morgan Stanley. Ioannis, please go ahead and un-mute, and go with your question.
Great. Thank you very much for the presentation. Just three questions left from my side. The first going back to the Centinela expansion project, you have already given some colors about your thoughts on the timing of sanctioning, but I would like to figure out, based on the most recent royalty proposal, do you think the fiscal framework is conducive to you going ahead with it, i.e., is there enough economic value based on the current terms we have seen, or do you expect further improvement before you go ahead? The second question, going back to Reko Diq and the cash proceeds. In case, there is a special dividend as part of your distribution and decision at the time, will this have to wait until the full-year results in 2023, or would you consider distribution as soon as you get the cash? And lastly on molybdenum, we have seen the price surge over the past couple of months. Would you consider focusing on high-grade areas at Los Pelambres and Centinela to potentially lift moly output and improve your EBITDA, cash position, or are you sticking with your mine plan as is across the operations? Thank you.
Yes. So, on the Centinela expansion and what we have said is that it’s very important that we have clarity on the fiscal terms applicable to the project, and I think that’s one element. And then the other one is that – and in discussing the tax reform that we have sort of made this argument that taxes are set at a level in which the industry remains competitive. And I think that’s just a broader statement with respect to where we expect taxes to end and to land. And I think we continue to pursue, basically, that principle. We think there is still discussion that needs to take place in Congress to be able to get to that level. With respect to Reko Diq, I just want to be completely clear that no decision has been made with respect to where the proceeds would go. That will be part of our capital allocation review. Now, we normally do that at least twice a year when we pay the interim dividend and when we pay the final dividend. So, in respect of half-year close and in respect of end-year close. So, this will go into that conversation and into that review, and that’s sort of the cycles in which we would look at that position, so twice a year. And with respect to moly, I think we have been very pleased with how certainly moly has performed in terms of the market fundamentals and price. It’s provided us an interesting revenue stream, and that used to be the case only of Pelambres, but now we actually have operating a moly recovery plant at Centinela. We actually upgraded last year and therefore expect to see more revenue. But in terms of how we mine our deposits, essentially, those decisions are governed by copper, which is the mainstream product that we will get. There could be in the margins some optimization, but that remains the rule. So, we work our deposits in a sequence that is driven basically by copper and moly is a by-product. So, that’s essentially the rule that we have because that provides the optimum economic value for these deposits.
Very clear. Thank you very much.
Thank you. Our next question is from Grant Sporre at Bloomberg. [Operator Instructions]
Hi. Good morning. Thanks for taking the presentation. And just a couple of follow-up questions if I may. Just on the molybdenum market, if you – just a broader question, how sustainable do you see the current price levels? If you have a view on the market, if you could share, that would be great. And then two just smaller questions. Just in terms of working capital, there was a quite a big jump in receivables. Is this just temporary and it will revert to normal, or have you perhaps changed your terms in which you collect your receivables? And then lastly, a small thing, but I guess it sort of points to the Reko Diq proceeds potentially as you made, is that on the cash flow, there is a small equity acquisition of about $67 million. I don’t know if you are able to share what that pertains to. Those are my three questions. Thanks very much.
So, I will address a couple of them and if you could talk about the working capital. So, on the molybdenum, I think that this is a market which produces around 300,000 tons – about 300,000 tons, 350,000 tons a year. We produce 10,000 tons. So, it’s a percentage of that, but it’s small, but not completely irrelevant. And moly is used as an alloy for very special hard metal applications. So, it tends to be from that point of view, cyclical in terms of how its price performs. And therefore, they have been some bottlenecks the way that we look at it recently in terms of production, essentially associated to lower production as a by-product in some of the base copper mines where this is produced. Now, we tend to think that, that will sort of ease and therefore, some of the increase in price is temporary. But fundamentally, we think moly remains strong in the sense that it is required and progressively more needed for the purposes of alloys for noble uses like in aircraft engines and the like. So, maybe there is an element of – so there is an element of cyclicality, certainly, in the price associated to the business cycle and maybe some element of tight supply explaining some of the increase in price that we recently saw and we expect to slightly moderate. On the – the other question was on the – yes, the equity, no, we do participate in small joint ventures from time-to-time associated to some of our exploration activities and we have sort of seen an increase of activity there as we get back from COVID. But there is nothing relevant at this stage for us to share or disclose more broadly. It’s just that. Do you want to address the working capital?
Well, basically, let me explain the working capital movements in the following way. So, basically, on 2022, we run flat. We have higher inventories, mainly explained for two reasons, higher ore inventories in Centinela and Antucoya, but also higher warehouse inventories and supplies inventories. That was driven by the supply constraint that we were mentioning and tackling during the year. So basically, in order to maintain operational continuity and preserve our reliability in our plants, we increased warehouses and operational stocks. That movement was mainly offset by an increase in creditors, mainly due to the higher input prices and in minor degree, debtor decrease due to the lower copper prices. So basically, that are the main movements that accounts for the way we are running flat in term of working capital in 2022.
Also just to complement, Reko Diq is also recorded as a trade receivable. So, that’s a big improvement – sorry, increase as well, which is temporary and associated to that, Grant.
Okay. Great. Thank you for that clarity.
Yes.
Alright. There are no more questions on the line. I will now hand over to Ivan Arriagada for closing remarks.
Thank you. Okay. Well, with that then we will close the submission of the results. Thank you very much for those attending and we look forward to a very exciting 2023. Thank you.