Good morning, everybody. Welcome to Antofagasta's half year results call being held virtually for the first time. I'm Andrew Lindsay, I'm head of the London office, and I'll be moderating this call. Anybody who has a question, you'll need to ask it through the live event Q&A. If you're looking at your screens, there's a symbol at the top right, couple of rectangles, one of them with a question mark on it. If you click on that, you'll be able to ask a question, and I will try and ask that. Clearly, if everyone's asking similar questions, I may not ask your question verbatim. Okay, I'll now hand over to Iván.
Thank you, Andrew. Greetings to everyone. We've just released our results for the first half of the year this morning. You've seen our figures and numbers. The intent is that we have a Q&A session now. Let's proceed according to that. Andrew will moderate providing the questions. We hope to be able to address all your queries. Thank you.
Okay, the first question I have is from Ian Rossouw at Barclays. Iván, you mentioned in the presentation that mine development and maintenance has resumed. Can you talk about the extent of the backlog, when you'll be able to catch up with this backlog, and whether this could potentially impact planned production levels in 2021?
Okay. Yes, I would say, as we've communicated in the past, when COVID-19 began, we had to make changes, moving some of our workforce to teleworking, which happened very quickly and continues to this day. Also changes in some of our routines, essentially around mine development and maintenance. That was late March, and I think we saw the impact of that during the most part of the second quarter.
Since then, the peak of cases in Chile has passed, and what we have seen is that we're able now essentially to move the number of people that we required for maintenance and also the absenteeism levels that we were experiencing in mine development have come down.
I think where we stand today is that we are in a much better position and shape in terms of how the COVID-19 risk is being managed nationally and our ability also with all the measures that we've implemented to provide with the requisite conditions for the number of people that are required for maintenance and mine development to be on site.
This is something which I think is largely corrected now in the sense that we are being able to perform our big maintenance in a way, even though we've also modularized them, but in a way that essentially are not creating any material backlogs. We still have the backlog of what happened in the first part of the second quarter, and we are essentially being focused on addressing those in the course of this year.
We expect by the end of this year or end of first quarter, we basically would be up to date on both mine development and maintenance. We do expect some moderate impact for next year as a result of this. As I say, not of great significance. We believe that our plans will be updated according to these impacts, but that they will be moderate at this stage. As I say, we're essentially seeing that we're able to address this for the most part, in the course of this year and the early part of next year.
Okay. Thank you for that. Second question. This one's from Jatinder Goel at BNP Paribas, Exane BNP Paribas. Are you able to provide any indication of the building blocks towards total 2021 CapEx spend, including both approved and yet to be approved expenditure?
We normally will provide guidance on 2021 CapEx in the third quarter. What we are seeing this year is that we started with CapEx guidance at $1.5 billion at the very beginning. Since then, we've reduced our CapEx guidance to $1.3 billion, and now we're saying it's going to be slightly below $1.3 billion. That's on the back essentially of some project expenditure being deferred as a consequence of COVID-19.
That's the situation this year. What we expect next year is that we will have to undertake some of the CapEx expenditure that's been deferred from this year. Therefore now we're working on the detailed costing and planning for that purpose, which we will be able to release. However, if we had originally planned for $1.5 billion, we're down to $1.3 billion.
Those $200 million we think would have to be spent for the most part in 2021, 2022. I would think of capital expenditure for 2021, probably in line or around or approximate to the original number that we had envisaged for 2020 before we made any adjustment, considering that this $200 million will be deferred to 2021, 2022. We will provide specific guidance on this figure in quarter three.
Okay, thank you. Sticking on the theme of CapEx, a question from Luke Nelson at JP Morgan. It's a sort of double question. Based on the full year guidance of $1.3 billion and the $549 million spent in H1, how much of the balance of around $750 million is going to be spent on mine development, sustaining CapEx, and development capital? The follow-up, which is tied in really, is of the $0.2 billion CapEx reduction this year, how much of this relates to sustaining mine development and development capital? How much, and you've answered the second part, by the deferral to 2021.
I'll ask Mauricio probably to give more details about the breakdown. Generally, what we had in mind initially was that, you will recall, we had the development CapEx was significant in 2020, and it will be in 2021 associated to the Los Pelambres INCO project and also to Zaldívar. We were expecting to spend in those projects north of $650 million. That was the bulk of the expenditure in capital for this year. The balance was sustaining and mine development. Mauricio, you may be able to provide some further background on how the split is between the three components. I think you are on mute.
Sure. No. Thank you. Thank you, Iván. Well, as you said, we are going to provide a detailed guidance on Q3 production report. The thing that we can split now is the actual CapEx expenditure over the first half. That number was, roughly speaking, 50% associated to development CapEx, mainly in Los Pelambres expansion, and the other 50% is split in 2/2 associated to mine development and sustaining CapEx.
In term of our overall number, which comes down from $1.5 billion to $ 1.3 billion, it's worthwhile to mention that there is some savings from a weaker peso. Something like 30% out of that reduction is coming from weaker peso, and the rest are going to be scheduled for following periods. That is what I can comment.
Thank you, Mauricio. Andrew, I think you are on mute.
All right. Okay, sorry. Next question is on the Los Pelambres desalination plant from Ioannis Masvoulas from Morgan Stanley. Given the tougher operating environment, what is a realistic timeline for bringing this plant into operation? Can you commission the plant prior to completing the concentrator expansion?
In respect of the desalination plant, as we've mentioned and have shared with you, at the onset of COVID-19, we made the decision to suspend construction of the project on the basis that it was very difficult to keep the sanitary risk managed in a way, at the beginning, that we thought was consistent with the need to protect the health of the workers, especially because of restrictions on camp and transport.
That has basically introduced a delay in the original schedule that we had of six months. Because we suspended for 4.5 months , we needed time to demobilize and are ramping up, that also takes some time. It's not done from one day to another. We have a delay of six months built into our schedule today.
I think going forward, what we're contemplating is reformulating, in a detailed way, the project execution plan, which is currently work that's being done, integrating fully the COVID-19 protocols on the assumption that COVID will be with us until the end of 2021 at least. Therefore, we're taking that, I would say, reasonable, but maybe slightly conservative approach, but we want to do it on that basis.
That detailed work of rescheduling what that impact is currently being done. In addition, as we've also mentioned, we did make some changes in the scope of the diesel plant in the sense that we are creating the ability to be able to expand in a phased way from the current 400 to 800 L per second in a separate project in the future once we get the environmental permits to do so.
That is essentially what we're looking at right now in terms of the detailed execution plan. We will have the information and be provided before the end of the year. Obviously, we're trying to compress as much as possible any requirement for extra time beyond the six months that we've already built into the schedule. We are positive that this work will yield a realistic construction schedule, which will allow us to continue to build this facility in the shortest time possible.
The desalination plant is decoupled from the concentrator in the sense that these projects can be looked at separately, and therefore our priority certainly is the desalination plant. As I say, they are decoupled from a construction point of view. There's no interdependence from the two, and one can be performed under a separate schedule than the other.
Our priority is to do the desalination plant in the sense that this provides a de-risking of the water supply for Los Pelambres. Also from a work point of view, it does involve less workforce on site at Los Vilos because of the type of work that's required. We've just assigned the big contract for the marine works, so that's already been done and the teams are mobilizing. We just finished the shaft, and are sinking the shaft for the desal plant, so that work is progressing well.
We will provide a detailed schedule update before the year-end to see how all of this plays into the final construction schedule. We're positive about continuing construction, certainly in the desalination plant. As I say, this is or can be thought of as separate or decoupled with the construction of the concentrator plant, which is also part of INCO. From a construction point of view, they are separate.
Okay, thank you. We've had a couple of questions on the CapEx for the increase from 400 to 800 L. I'll just ask one of them from Jatinder. How different would the total CapEx from the incremental 400 L per second desal plant be versus the $500 million for the construction of the same size plant that we're doing at the moment? What is the realistic spending timeline?
Well, that's exactly, as I say, I'm not sure. I'll ask you to speak a bit louder, Andrew, because I didn't get fully the question. I understand that the question relates to the CapEx for the desalination plant expansion. I would say that we are doing In this phase, we're not doing the expansion to the 800 L per second.
What we're saying is that we will create the facilities such that the project can be undertaken in a very smooth and swift way when the environmental permit is approved in a subsequent stage. The investments that we're doing today, which we've sort of assessed as being approximately $150 million, relate to changes in some of the piping and some of the layout which will allow basically a bigger plant to be constructed.
Now we believe doing it now is more capital efficient, and therefore will provide efficiencies on our investment in terms of per liter basis in the overall project. Now, I would not expect the expansion from 400 to 800 L would be significantly different to the capital expenditure per liter that we've invested in the 400 L, except for the efficiencies that we're achieving in this $150 million. I think that gives you a reasonable benchmark to contemplate for the cost of the additional water.
Sorry, I'll speak up a bit this time. The second part was, what's the realistic timeline for the expansion to 800 L?
We think that in the case of timeline, the critical path really is given by the permitting. Our expectation is that we will initiate the permitting early next year and that this may well take the full of 2021 and part of 2022.
If it does take, say, 18 months, then we would be in a position to start building the expansion in the second half of 2022. With the pre-investments having been made, we consider that the execution of that expansion can be compressed and therefore, it probably would take from that moment in time around another 1.5 year to actually have the water available from the incremental expansion. That means that water would essentially be available around 2024.
Okay.
I'm talking here about preliminary sort of dates. As I say, we don't control the permitting process. If it does take a bit longer, obviously those dates get changed. It's just to give an outline of what the likely timing might be.
Okay. Just got another couple questions here on the desal plant. One is short, and I think you partially answered it already. Why was the scope change made mid-project during phase one of the Los Pelambres expansion?
Sorry, what was that?
Sorry, I don't speak up. Why was the scope change made mid-project for the desalination plant?
Yeah. I think what we've seen, I think is the evolving nature, if you want, in a very fast pace of the impact of climate change. I think there is much more reliable modeling now that we've been able to look at, and this is something that we've been observing over the years. I think last year, 2019, was a year which was extremely dry among 10 years of drought, and it just evidenced how significant the drought condition could become in one single year.
I think what we've seen since is that 2020 has been a better year from a rainfall point of view. The view we took was as we were building the plant, we've got more information. We understand better the modeling around the likely impacts of climate change in the central area of Chile.
That is important because if you look at those models, there's going to be more rain, in fact, in parts of the north. There's going to be more rain in parts of the south, but it's in the central area where Pelambres and other facilities are located, where there's likely to be less rain. Those models became more reliable.
We got more information, and we decided, therefore, to respond at the time that we felt we could still do it in an efficient way so that we could take advantage of the fact that we're starting to build a desal plant now. There are some, as I say, advantages of addressing this now from the point of view of capital efficiency, and therefore, we felt this was the right moment to do it.
It was not within the original design, as has been pointed out, we felt that we had the conditions to make this change. This is something that is facilitating the build up to 800 L. We're not changing the plant now, it's about some of the intake and transport system, which we could do now at gaining capital efficiency. On the back of that additional information and assessment of risk, we made this choice now. That's the reason.
Thank you. Okay, last question on the desalination plant, I think. This one's from Jatinder again at Exane BNP Paribas. How much of your water requirement will be met from an 800 L per second desal plant at the 205 kilotons per day milling rate? Do you foresee any scenario where you'll need to move to 100% desalination?
On the sizing of the 800 L, basically allows for the plant to run at full capacity. We recycle 85% of the water that we use in any event. The 800 L is the makeup of water that we need, which, in addition to the water that we recycle, is used in the system for the purposes of production.
In our measurements, considering how much we recycle and the scope there is still to improve that, our view is that this 800 L per second, when built and available, essentially will make up for the totality of the makeup requirements needed to run the plant at the expanded capacity. This is intended to achieve that purpose.
Okay. Thank you. Another water question, now about Zaldívar. "Zaldívar has applied for an extension." This is from Ed Sterck at BMO. "Zaldívar has applied for an extension to its water abstraction license, yet Escondida can now supply 100% of its needs from desalinated water. How much pressure is there for Zaldívar to move to desalination? Can the project support the cost of desalination? Can additional water be sourced from Escondida?" If I can add in a further question from someone else, and can you please give an update on the progress of the application to extend your water extraction permit at Zaldívar?
Yeah. Indeed, in the case of Zaldívar, I think the conditions are very different to the one at Escondida. Zaldívar is certainly a much smaller operation, and the water requirements at Zaldívar are around 200 L per second. We have rights for around 500 L, so we extract around 38%-40% of the water rights that we have, and those numbers are well below the natural recharge of the aquifer in which we have our water extraction.
Now, it's also different in the sense that the current mine life that we have for Zaldívar substantially, essentially, runs out of minerals by 2031, and therefore, since we have permits today to 2025, we have a shorter lifespan to provide for with this water extension.
For all those reasons, we think this is very different to Escondida, and we believe, and this is according to our modeling, that it is possible, therefore, for us to extract the 200 L under a permit in a sustainable way, according, as I said, to our hydrological models, because this is well below the natural recharge of the aquifer where the water is extracted. From that point of view, I think we've provided this permit, which we started a time ago, and where it sits today, basically we have a model from a hydrological point of view, which is now validated and complete.
Essentially, the way this works in Chile is that we presented the permit, and we received some commentaries, and we're about to respond to those commentaries, most of which are clarifications around the project description and definition.
Remember that this project also involves some changes in the plant, and therefore, a lot have to do with conditions there, which we have, are upgrading or changing. Therefore, that's the process we're in. In the midst of it now. With COVID-19, the process is going somewhat slower considering that there is a requirement for community participation, and the engagement of community for the purposes of the project has slowed down because it's not possible to meet physically anymore. Therefore, we're working with the authorities to see how we bridge that condition.
In Chile, that has started to be considered now so that the permits don't get stopped. We believe that, in the course of the next month or so, we will be able to resume that participation, so as to be able to progress with the permit.
After that, there will be another round of comments and questions, after which we expect a decision will be made with respect to the permit. That's where we are with the permit itself now. Maybe just one other final point. We do think in a positive about the potential extension of the mine life of Zaldívar beyond what we have today, through the exploitation of the primary ore body, which eventually could provide us the possibility of mining Zaldívar for a much longer time beyond 2031.
That project is something that we've done drilling and we're doing the studies now to be able to complete. If that ends up being a positive economic proposition, obviously the water solution would be different and the project we would expect would have to be able to pay economically for that different water solution.
From that point of view, I want to make a distinction between the current mine of life, which ends in 2031, and the potential extension, which would be mined through accessing this primary ore body. For the current life of mine, since we only have from 2025 to 2031, building a desalination plant is not an economically viable solution. That's why considering that and the fact that we think it's sustainable to continue to extract water for the period of five years, we've submitted this permit.
Thank you. Right now, we have a question on COVID-19 or the effects of it. This is from Christopher LaFemina at Jefferies. Are there any operational changes that you've had to make in response to COVID-19 that may lead to higher operating costs or sustaining CapEx in the longer term?
Certainly, we've had to make adjustments, no question. On average, it's around 30%-35% of our workforce are actually teleworking. We've made changes to the way we move people. We've made changes to some rosters. We are applying sanitary measures and use enhanced health protective equipment. We're using social distancing as a key criteria in our sites, which means that camp and accommodation and catering circuits have become different.
Now, I think that has added some cost. I think in the overall picture of things, those direct costs are not that material at this stage. In the sense that we believe that, in terms of spend, I think to date our spend on these elements is around $38 million or $40 million. Therefore, something which will not change our cost position.
In terms of productivity, what we're seeing is that making these adjustments takes some time, which is happening. It is opening up opportunities to do work also more efficiently. We think the teleworking has allowed us, for example, to reduce camp costs and to reduce transport costs to our benefit.
It has probably indicated as well that in terms of manpower numbers, there are certain activities where we can make adjustments going forward in terms of the manpower requirements needed for certain activities. I think still the balance of this is showing us some opportunities. I'm not seeing any structural change to the disadvantage of COVID-19 at this stage in our operations.
In the case of our projects, and I will make a difference there, I think to the extent that the project is a activity that is finite in the sense that it takes time and a span of time, and the restrictions from COVID-19 mean that we're not going to be able to fully load the manpower requirements that were expected originally, but we may have to have some limitations, then we think it's going to have some cost impact there.
In the case of INCO, as we've disclosed, we have indicated that so far, we believe that adds up to around $50 million, and we still have to estimate what that will mean for what's left of the construction of the project.
In the essence, to the extent that we're able to use camps and accommodations with lower manpower numbers, we're looking at things like pre-assembling differently and modularizing differently some of the construction, but there may be some extra cost there that we have to bear. On the operations, as I say, on balance, nothing structural at this stage, and we're looking at some opportunities.
Thank you. Okay, now a question from Tom Streeter at Streeter Investment Research about renewables. From 2022, all of the group's mines will use only renewable energy. Please can you say how this will work in practice and what kind of cost savings do you expect?
Yeah. In practice, that means that we basically contracted out and changed our contracts such that they are priced on the basis of renewable power generation costs. Since we have a grid, an integrated grid in Chile, part of the contract is that the renewable nature of the energy that we get will need to be certified such that there is an equivalent amount of renewable energy that's been produced by the generators that supply us and provide it to the grid, so that we can ensure that we are triggering the right type of incentive for renewable energy to be incorporated into the grid. That's the way it will work.
We will be priced on a renewable energy basis, and we will have a certificate which will tie the source of energy to a renewable facility, even though we have an integrated grid. In terms of cost saving, I think the good news is that it is important. Our contract probably will see a reduction when we're fully into renewable, of around 35%-40% in the cost of energy over time. Because we are contracted now, and there is a step, a trip to get to that level, we're seeing some of those benefits this year.
We'll see more next year, we expect that by 2022, we'll have the full benefit of that 35%-40% reduction in energy costs. I think that's good news. It's more reliable because we're taking from the grid, the grid now is fully integrated between the north and the south. It's more competitive from a price point of view, it's much more efficient from a carbon footprint standpoint. This is, we think, a very positive step.
Okay. Thank you. Okay, a question from Daniel Major at UBS. Can we have an update on the timeline on when the Centinela expansion will be presented to the board for approval?
We had originally planned that this would be taken to the board end of 2021, and with the COVID-19 situation, we moved that to the first part of 2022. That's essentially the schedule that we have. We have a project team that's continued to work on this project, and now are doing some further vendor engineering, and also preparing some of the bid for the key packages. That's the updated timeline. It's been affected by COVID-19 for a few months, but work continues basically, on a similar line except for the impact of COVID-19. Early 2022.
Very good. Okay. Now, a financial question from Ioannis at Morgan Stanley about oil prices, and how they feed into the profit and loss account. How much cost benefit is there from the lower prices that you've seen this year compared to last year?
Mauricio, you want to take that?
Okay. Well, first of all, it is worthwhile to mention that our main supplies are fully aligned with the international market. For example, in the case of the diesel, our supply contract is capturing all the movement coming from the international market. We capture the benefit of the lower diesel prices during the year.
Roughly speaking, the benefit that I mentioned is something like for every $10 in the barrel price, we have an impact in our cost structure of something like $0.01. In comparison with the last year, we have a benefit of something like $0.03-$0.04 as a difference and as a saving coming from the diesel price. Thank you.
Okay. Just a question from Ed at BMO. Can you give us an update on what's going on with the Reko Diq arbitration claim?
Yeah. I would say since the award was granted, there are several legal steps that need to take place to be able to proceed. Those are basically taking step right now with the court and with some of the particular jurisdictions where this award is being registered at national level. Those are steps that are taking place at this moment and still have to be completed. We're still basically working through those legal steps, as expected or as planned.
Okay. Another question from Ed about the workforce headcount. Antofagasta is operating at close to normal levels with only 2/3 of the normal workforce on site. How sustainable is this? How many of the other 1/3 are working from home in a contributory fashion? How significantly could the workforce be trimmed in the future without compromising output?
Yeah. Look, I think certainly this has shown that there is a new way that we can work combining teleworking with work that takes place at site. That's something which I think has opened an avenue to accelerate some of the changes, especially around innovation and digital transformation that we were working on. Of the 2/3 which are working outside the site, there is around 20% which is not working on the grounds that they have conditions which don't allow them to go to site and for health reasons.
Therefore, it's safe that they don't do. Their work would normally amend itself to teleworking. For the rest, what we're seeing is that the ability to telework is proving very effective even though we are in contingency mode that's happening.
Therefore, what we've done is that we've recently set up a formal project, to look at new ways of working, thinking of what the permanent implications of this might be and which specific roles we might then move to work from distance with some level of attendance on site. We expect basically to draw some conclusions from this in the month of September to be able to make some changes to our operating model such that we move some of these roles to distant working, thinking more permanently as a condition of work.
I think that would be positive. It's an opportunity that allows us to be more flexible, to be more adaptable as an organization, allows better conciliation between work life balance and also, eventually productivity improvements. We're not looking at this driven by a need to reduce the workforce.
We think it's a benefit from the point of view of productivity. If there are some changes in manpower numbers, those would be consequential, but it's not the main driver in what we are looking at. We think that we have the number of people that are required to run our operations. This will just provide productivity enhancements and more effective operating conditions. Therefore, that's the main driver. Flexibility, adaptability, better conciliation of work life, and then productivity gains, through better results.
Thank you. Okay, we've had several questions about the refinancing at Antucoya. I'll ask Ian Rossouw from Barclays as it's the most detailed of the questions. What is the rationale for the refinancing of Antucoya's shareholder loans with equity? Is the simple answer that it had too much debt, which was unsustainable versus EBITDA? Even after the refinancing, it looks as if the net debt EBITDA is still greater than seven times.
Yeah. I'll ask Mauricio, want to take that?
Okay. Thank you, Iván . Well, as Iván mentioned during the presentation, along with the operational improvement that we have seen during the first half of Antucoya, we also upgrade the Antucoya's capital structure in two ways.
One, we refinance the original project financing with a unsecured corporate loan. That allow us to capture the benefit of a lower interest rate and also some more flexible covenants around the financing on Antucoya. In term of the sub-debt, well, as you may aware, our definitions is each asset must stand on their own feet for financing. I think we believe that the refinancing of the sub-debt was value accretive from the point of view that we are providing Antucoya a much stronger balance sheet, and that allow us to look the future for Antucoya from a different way.
As a summary, in terms of net debt to EBITDA ratio, we are quite comfortable where we are now. Of course, we are fully aligned with all the agreements that we have with the unsecured corporate loan. I think it was a very good decision in terms of providing a stronger balance sheet for Antucoya as a solely entity. Thank you.
Okay. Now a question from Danielle Chigumira at Bernstein. Annualizing H1 production would give production for the full year towards the middle of the guided range. Antofagasta is still guiding at the lower end of the range. At what mines would you see a 1/2 year on 1/2 year sequential decrease in order to get to the bottom end of the range?
Okay. Yeah. Well, I think the profile of production, quarter on quarter, in the course of this year, we are expecting it to be different. If you look at the first half, I think there's been some front-loading of production, especially I would say in Pelambres.
We would expect that to moderate as we continue and advance the year. Considering that quarterly on quarter profile, as I say, we would expect them to be more towards the lower end range of the range. Between 725 at the midpoint. It's got to do with the fact that indeed, the profile of production is a bit front-ended in the numbers that we've just reported and especially in the case of Pelambres. We still believe that the right expectation should be set more towards the lower end of the range for that reason.
Okay. Another question from Danielle. Will the delay of work in the Esperanza Sur pit mean that the expected grade recovery for Centinela concentrate in 2021 is also now delayed?
Esperanza Sur was not expected to deliver feed in 2021. It doesn't have an impact on that year. 2021, we're obviously revising the mine plans. We will provide guidance in quarter three. We were expecting, you would recall, that Centinela, it was going to see an increase in grade compared to 2020. Therefore, an uptick in production. I think with the impact of COVID-19, that still holds. It will be moderated on the grounds of the impact of COVID-19, which we're still fully assessing.
As I had mentioned before, in terms of maintenance, we're catching up on backlog. We will complete any backlog. We expect by the beginning of next year or end of this. In terms of mine development, there are some changes as a result of the impact that COVID-19 has had.
That will obviously translate into some impact in 2021. The production profile for 2021, we still expect directionally to be as we had guided before, but the exact number will be moderated somewhat on the grounds of the impacts of COVID-19. Esperanza Sur was not expected to feed into concentrator in 2021 in any significant way.
Okay. Thank you. Right. We've had several questions about the minority dividends paid in H1, as in there were no minority dividends paid in H1. Can we expect that there will be dividends paid in the second half of the year? Will there be catch-up dividends, or will it be like previous second halves of the year? Is there a change of policy?
No change on policy. It's just phasing, but I'll ask Mauricio to elaborate further on minority dividends.
Thank you, Iván. Well, in term of the dividend coming from the companies and of course, the minority dividends, we maintain our policy of dividend payment coming from the companies. I think that there was a component of volatility during the first half that drive us to retain some cash levels at the companies. With this economic context and having a more stronger copper price, of course, we are going to maintain our dividend policy as was in the past.
There is no reason to a change, and we feel like our assets are very robust to keep providing dividends in the near term and in the future. That is the underlying of the H1 decision and an update for what we're seeing for the second half.
Yeah. It was mostly, as Mauricio saying, precautionary. We had the onset of COVID-19, which broke out in Chile very heavily in March. There was a lot of volatility in copper price. You would recall that copper price did drop to levels around $2 per pound. I think, from a precautionary point of view, some of those timings were changed without impacting our policy. Those conditions seem to have eased now. We should expect basically to be back into normal territory.
Okay, thank you. Another question. Can you elaborate on the impact on the deferment on mine development and maintenance in the first half of the year, and what that means for the rest of the year and indeed 2021 and possibly even 2022?
As I've mentioned, on maintenance we have a backlog as a result of COVID-19, which we are expecting to basically be able to catch up on by the beginning of next year. By then, we think this will be behind us. The good news is that we've performed since several major maintenances, which we've done completely within the scope of what was planned and moving a significant amount of people to be able to perform those tasks.
We've got, so to say, the means and the practice to do this, post-COVID, in a way that has already been done in an effective and successful way. In the case of mine development, we also had an impact during the second quarter. We are factoring in the full effect of those delays. Some of that is reflected this year, and that's why we've said we're going to be closer to the lower end of the range of production. If you take the low end compared to the midpoint, it's around a 3% impact. If we were to be at the low end, the impact of that would be essentially a 3% impact.
In 2021, I would say we would expect some moderation to the numbers that we had before, but probably in similar range, not more significant than about a number close to the figure that we are sort of expecting in 2020. Beyond then, that we expect this will sort of essentially be removed. There'll be no impact. This year, around a 3% considering the low end of the range. Next year, a magnitude which would be similar, but we are, as I say, updating our numbers and we will provide specific guidance in quarter three.
Okay, thank you. Can you say a bit more about the Zaldívar chloride leach project? How that's progressing and how it's been affected by the COVID-19?
Yeah. In the case of the chloride leach project, CuproChlor, when the COVID-19 outbreak happened, we were starting to mobilize contractors to site, and therefore, it was easier than at Pelambres because we basically stopped that mobilization from occurring, and therefore, it had a much lower impact in term of cost because we could avoid suspension costs there. We're now back. Basically, during August, we've been moving back people into the site for construction purposes.
We've finished the camp, where people have moved, and therefore, we are essentially resuming the project as per the original schedule. Because of the suspension, this essentially means that our schedule is delayed compared to the original plan by six months. We expect to complete basically the project with that change, so with a six months delay compared to the original schedule.
In terms of cost, there is a small cost impact, as I say, because we managed to early on stop the project without creating a lot of suspension cost with existing contractors. Therefore, we believe that, consider that the amount of this extra cost can be accommodated within the existing budget. This is a simpler project compared obviously to the other ones that I've mentioned. Also of a much more limited budget from the point of view of size. In essence, we think impact of six months and costs within the original budget figure. We're now back into construction.
Another project question from Dan Major, UBS. Can you provide an update on the phase II of the Los Pelambres expansion project, timing, CapEx, licensing, et cetera?
The main element in the phase two expansion project is the expansion of the mine life. You will recall that currently, Los Pelambres is a mine life that spans to 2037, and the intent of phase two is essentially to be able to extend that mine life and add mineral resources into reserves. For that, the key is to be able to extend the ability of the tailings dam at Mauro to be able to deposit more tailings. That's really the center of that project.
There's also some optimization at the mill in terms of throughput capacity, but the essence of this has to do with the extension of the mine life. We expect that this would come sequentially to the construction of the current phase one at Los Pelambres. The key thing is the permitting.
The sequence of permits that now we're envisaging is that we will have a permit for the extension or expansion of the water supply to 800 L per second, and then subsequent to that, we would have the permit for the extension of the mine life. I think time-wise, we would expect this project probably to be considered for approval and to initiate construction around 2025. You're on mute, Andrew.
Sorry, trying to stop coughing while you're speaking. A bit more about water. You partly answered this, I think already, and it's partly probably just a clarification you could give. If this water issue is structural, do you need desalination plants down the line at Centinela and Zaldívar as well? It's more of a general question about the impact of climate change on Chile and... [crosstalk]
As I was saying, the climate change impact, and we've done a lot of modeling for some time now on this, is different depending on the region of Chile in which you are situated. The expectation is that in the central part of Chile, there's going to be drought. In the northern part of Chile, there's going to be actually more rain. Now, because there's desert there, this is all relative. We don't have a lot of rain in the desert, so there's going to be more rain, but rain is limited.
In the southern part of Chile, there's going to be more rain rather than less. It's not a foregone conclusion that everywhere you have the same climate impact. That's why in Los Pelambres we're very keen to progress our desal facility.
In the case of the north of Chile, we won't have the same impact, but it is a dry zone because it's desert, so we draw water from continental sources, which are limited. That's why Antucoya and Centinela run on seawater. Those facilities run on seawater completely, and the expansion at Centinela is predicated on using seawater as well.
The only facility where we're extracting water from continental sources is Zaldívar, and for the reasons that I've explained. Because it's got a short mine life, we're extending it, the permit, only for five years, and it's a moderate amount of water that we believe can be extracted in a sustainable way for the period that we've got the permit and the consideration.
If we want to grow Zaldívar and develop a primary ore body, which is a project which would require 20 years more of water supply, we would have to think that project with a different water solution indeed. That's the way that we see the sort of water supply for our different facilities and operations.
Okay. One final question because we're just coming up for the full hour, and what better way to finish than to talk about tax? Can you please provide an update on any discussions regarding taxation changes in Chile? Do you expect this to be a feature or part of the agenda associated with the referendum on the change to the constitution?
Yeah. Okay. I would say that there's been no specific discussion so far in the context of taxation that I would think involves the sector. Obviously, the focus of government has been responding to the sanitary crisis, and as has happened in other places as well, there's been a significant effort being made by the government, both in terms of fiscal and monetary policy, to be able to ensure the recovery of the economy. In that context, obviously, the public finances projection shows a deterioration in terms of budget deficit.
That's one piece of information which I think is common to Chile and probably to most economies as they respond to the current situation. We are in course, as was mentioned, to have a referendum about changes to the constitution. I think that's essentially driven by pushing an agenda around education, health, and pensions.
It's very much a social agenda. Tax has not been figuring in that conversation at this stage because it's about ensuring that these rights are enshrined in the Constitution in a different way as they've been in the past. That referendum has to take place yet, and that's scheduled to take place in October, so soon now. As part of that, I think I would not be surprised. I think I would expect that some discussion will happen subsequently in that process around taxation and how to reform the tax system in Chile.
I think the comments that we've seen and heard so far is that most of that has to do with how the tax system will affect all corporates and citizens, and therefore have an impact across all industries to be able to provide for the added requirements on social needs out of education, health, and pensions. There's not been a discussion about taxation that would be specific to mining, which we already have. There's already a tax which is specific to mining in Chile, and also the tax burden for the sector in Chile is equivalent to that of advanced economies like Australia and Canada in terms of total tax for mining.
I think in that context, there would be an impact, but that impact would be common to all corporates, and mining would not suddenly be excluded then from eventually paying more taxes out of higher corporate income tax. I've not seen any specific discussion that would involve mining as a sector being targeted at this stage. Although, as I say, I do expect that if the tax system gets reformed and companies have to pay more and citizens have to pay more, mining would also have to provide its share. Just as a general increase in corporate tax rather than a specific tax condition.
I think that we've gone just over the full hour. I think that's it. I apologize to anyone who doesn't feel their question was asked, but there were lots of very similar questions, but I think we covered all the major topics. Goodbye from me.
Okay. Thank you to everybody, and goodbye, and keep safe. Thank you very much.