Earnings Call: H2 2018

Mar 19, 2019

Morning, ladies and gentlemen. Thank you for coming in here. We're going to go through our year end results 2018. Presentation will be made by Ivan Arriagada, our Chief Executive and Alfredo Atucha, our CFO. That's why I'll hand over to Ivan. Thank you, Andrew, and good morning. And welcome to everyone for being here today, attending via the webcast as well and the conference call. So let me then start with a brief overview of our performance last year and what will be our priorities for this year. Alfredo will then take you through our financial results. I will then talk about the copper market and our development options with a focus on value creation and return. And finally, I would close summarizing why we believe Antofagasta is an attractive and solid investment before opening it up for questions. So I would like to draw your attention first to some important events and achievements, which we accomplished last year. Safety comes first in all that we do. Regrettably last year we had a fatality at Los Pelares and are therefore working hard to achieving the 0 fatality target at our operations. And I will expand on this a little bit more. We had a solid operating performance in 2018, a record year of production. As a group, we produced 725,000 tonnes of copper at the net cash cost of $1.29 per pound. Our EBITDA was €2,200,000,000 We have been able to increase significantly our ore processing through improved operating efficiency. And I think that's one of the highlights of last year. And during the last quarter, our 2 largest operations Pelambes and Centinela operated consistently at above their design capacity. During the year, we also completed the ramp up of the Encuentro Oxides project. We started production of moly at Centinela and approved the expansion at the Los Pelambres mine. We have recently decided as well to focus on the 2nd concentrator expansion alternative at Centinela and I will also comment about that further in my presentation. We are committed to keeping our financial discipline and are delivering shareholder returns. We will only pursue value accretive growth and we will return any excess cash to shareholders as we're doing with the dividend proposal this year. Our solid operating performance during the year and non core asset sales of some 100,000,000 combined with our strong balance sheet have allowed us to pay a total dividend of CAD 432,000,000 for this year, for the full year and this reflects our positive outlook. Let me say a few further words on safety. I think if we look back, I think we have been successful at reducing significantly all serious accidents and had recently achieved over a 2 year period without a fatality. Regrettably, as I mentioned before, we had a fatal accident involving a contractor worker at Los Pelambres last year. I think safety remains absolutely our first and top priority. And we are convinced that a fatality free environment is possible as we had over 2 years and therefore is the only way to operate successfully. Therefore it's something that we're very keen on continuing to work on and are doing and taking action to accomplish this. Let me say a few words on tailings as this is a very topical theme today. I think as a matter of context first, Chile experiences a Chilean standards prohibit for example the construction of tailings using the upstream method and requires stability analysis of dam walls, a review of safety measures and the development of detailed emergency plans. In our case, in the case of Antofagasta, we have major tailings dam at 2 of our operations. At Centinela in the Atacama Desert in the north of Chile, we operate thickened that is low water content tailings that are stored in tailings deposit. At Los Pelambres, we operate the Mauro dam. This dam has real time monitoring of stability and integrity. And after the incidents which occurred a couple of years ago at Samarco, we undertook a full review of our governance of our dam operations and made changes making tailings management a separate organizational unit, ensuring the availability and development of qualified and competent resources is one of the highest critical controls we have now in place. Lopelambre also leads an initiative which the Mauro dam is piloting in Chile involving monitoring online relevant variables and making them available in real time on a dedicated website for the authorities, the local communities and any other interested party to review. Our dams are also reviewed at least twice a year by a group of international expert who assess their condition and how they are being managed and report their findings directly to me and the Board of the company. Despite this in view of what has happened in Brumadinho in Brazil, we are reviewing all our procedures even more critically than before and if the company supports recent proposals to introduce an international that the company supports recent proposals to introduce an internationally independent developed standard and classification system that monitors the safety risk of tailing storage facilities and we will work actively with ICMM and other bodies to ensure this is successful. A few words on capital allocation. I will take you through our capital allocation model, which I know many of you are already familiar with. Last year, we disposed of our transmission lines at Centinela and our interest in a wind farm. And we have included therefore, as I had mentioned before, the €100,000,000 of after cash tax proceeds of these disposals as part of this year's final dividend payment. This combined with our positive outlook and strong balance sheet has allowed the board therefore to recommend a total dividend of $432,000,000 which is equivalent to 65% payout plus the distribution of net proceeds from asset sales. We are pleased to reward the support of our shareholders and we will continue to review what we regard as excess cash when determining the level of dividends in the future. In terms of our performance, 2018 was a record year of production. As a group, we produced 725,000 tonnes of copper at a net cash cost of $1.29 per pound. I think we're very pleased with this result last year, not because or just because of the amount of production, but because of how we did it through operating our assets at our 2 largest operations optimally. Los Pelambres had a great year, outperforming both production and cost guidance, again confirming its position as one of the best copper assets globally and that it's a stable and reliable operation. At Centinela, the concentrator plant operated at above design capacity from September onwards and benefited from the higher ore grade as expected. In addition, our new Encuentro oxide plant reached design throughput capacity we began molybdenum on production at Centinela. At Antucoya and Saldivar, we continue to focus on optimizing mine and plant reliability at both operations to extract all latent capacity and ensure we achieve performance in line with the full potential of these operations, which are the newer ones in our examples to illustrate how we have improved our operating performance. 2 years ago, we implemented a new operating model to reduce process variability. One of its key features is to improve our maintenance standards and practices and strengthen our capabilities for continuous improvement. And this has led to significant improvements in plant throughput at both Pelambres and Centinela. We continue on the other hand with our cost and competitiveness program, which is designed to reduce our cost base through cost discipline across our operations. Our cumulative savings since the program started are now over $700,000,000 Innovation and technology play a key part in this and we are committed to taking full advantage of the innovative opportunities available to achieve our long term goals. Looking at our operating performance, you can see in this chart how we have been able to increase significantly our ore processing and this is for 2 principal reasons. 1, by investing through the cycle, we have new throughput capacity and we're seeing the benefits of this today. And 2, through higher operating efficiency increasing the availability of our plants and by operating consistently. These improvements at Los Pelambres and Centinela have enabled us to focus on the key variables and model them to allow the operating conditions to be optimized. Further improvements are expected this year 2019 and this will contribute to this being another record year of production as we expected and are projecting it to be. Our improvements in throughput at Centinela and Los Pelambres were similar in outcome, but were achieved by different routes. At Centinela, we applied machine learning to model our SAG mill, which we used to test different operating conditions before implementing them at the operation itself, achieving an increase in throughput of 8% compared to 2017. At Los Pelambres, we put together a mine to mill multidisciplinary task force that looked at the overall material flow, identified bottlenecks and implemented solutions. This work led a 5% increase in throughput. Many similar programs are being run throughout the group and knowledge is being shared between the operations. We remain very focused on cost improvements. We have rebased our costs over the past years and consider this a strategic imperative irrespective of where we are in the price cycle. Over the last 5 years, while we have been running our cost and competitiveness program, we have reduced our gross cash costs despite average grade declines and higher input pricing during the same period. Last year, we set a target of €100,000,000 dollars and we exceeded that target achieving $185,000,000 which is equal to $0.10 per pound in savings and productivity improvements split roughly equally between the 2. Today, Antofagasta is positioned in the 2nd quartile of the cash cost curve and we are committed to continuing to work to improve our cost position. This program has a target this year of another €100,000,000 of savings and productivity improvements to achieve. And lastly, let me now say a few words on how we're using innovation and technology to transform our business not only in the short term but also in the long term. Much of the progress we have made in recent years reflects not only our focus on cost but also the culture of innovation that Antofagasta is building. At the heart of this culture, we're using the following sources of innovation seeking new ideas from our employees and contractors, investing in large scale strategic change and accelerating the adoption of digital solutions across our organization. Our workforce has been a steady source of ideas for running our operations more efficiently, maximizing uptime and improving reliability. We have also introduced many larger scale innovations during the year. We're improving copper recoveries through a version of chloride leaching, developing a new approach to leaching primary sulfides and are considering new large scale material movement technologies. But it is the increased use of data and technology, the digitization of operations where we see the future of mining. Our investments in this area is becoming to beginning to bear fruit. As I just mentioned, we have applied advanced data analytics at our processing plants. We're also working on the design and deployment of a remote operation center at Centinela as well as considering an autonomous fleet for the new Esperanza Sur pit where we expect to start pre stripping later in the course of this year 2019. So looking ahead to this year, we plan to maintain the strong operating momentum achieved in 2018. Safety is always our priority and we will work hard to achieve a fatality free operation. We regard delivering on guidance as one of our main targets. This year we expect to see a new record year in copper production with 6% increase compared to last year. We're also focused on managing our cost with a target reduction of €100,000,000 on top of what we have already achieved last year. We have started the construction of the Las Pelambres expansion project and we have decided to focus on the 2nd concentrator expansion alternative at Centinela. We will continue progressing its feasibility study during this year. Innovation will continue to play a key role in transforming our company going forward. Finally, we are committed to maintaining our financial discipline with a focus on value creation and shareholder returns. So I would like now to pass over to Alfredo, who will give you some more detail on our financial performance. Alfredo? Thanks, Ivan. Good morning, everybody. Well, let's start with a brief overview before going into more detail. Revenue was unchanged. Our record sales volumes and strong contribution from moly was offset by lower copper prices. Net cash costs were $1.29 per pound as expected, mainly given by lower grades at Centinela Sulfides and increased input prices, especially for fuel, acid and energy. EBITDA was £2228,000,000 14% lower than last year. Underlying earnings per share were €0.5105 of lower EBITDA and higher depreciation and amortization. We maintain our strong financial position and our net debt to EBITDA ratio is 0.15 times. This excludes the impact of a VAT payment of €265,000,000 we have to make in December before it was fully refunded in January. You will have seen that we show in this presentation without the impact of this short term payment to help you get a clearer view of our financial position, given this was a short term cash outflow, which was fully reversed in January. Our total dividend for the year is 0.438 per share, which is equivalent to a payout ratio of 65% of our net earnings from continuing operations, plus €100,000,000 from the sales of Centinela's transmission lines and our interest in a wind farm. This slide shows the increase in unit costs and where it comes from. I have included a breakdown in the production growth, and this helps explain the cost movement. The top graph shows the movement in our production volumes, which are key to understand the effect on the cash cost before by product credits. We are able to process more ore due to higher operating performance, which was key to increasing our production by almost 50,000 tonnes. Cash costs before by product credit increased by 0.12 €0.12 per pound. Macro factors such as general inflation, input cost increases and exchange rate movement have pushed costs up by €0.10 per pound. And this, together with lower grades and therefore, lower recoveries increased costs by a further offset by the improvement in throughput Ivan has been telling you about plus the contribution from the new Encuentro Oxide plant has increased our activity or mine movement and helped lower costs. On top of this, the cost saving part of our CCP program reduced cost by $0.05 per pound, bringing cost for the year to $1.72 per pound. With byproduct credit of $0.43 per pound for the year, our net cash costs were $1.29 per pound, almost exactly in line with guidance. Now returning to our financials. EBITDA was €2,200,000,000 some 3 €16,000,000 lower than 2017. Here again, you can see the impact of macro factors combining with lower realized prices and the increased mining activity more than offsetting the increased sales volume. Corporate costs fell by €7,000,000 and exploration and evaluation expenditure increased by €29,000,000 with higher expenditure on what we consider are very prospective target in Chile and also on Twin Metals, where our mining leases has been reinstated, allowing us now to proceed with the project studies and permits. Our associates and joint ventures have decreased their contribution to EBITDA by €47,000,000 mainly as a result of lower contribution from Saldivar. Net earnings for the year were €544,000,000 due to lower EBITDA from subsidiaries and higher depreciation and amortization as Encuentro's oxide was depreciated for a full year and amortization of capitalized stripping increased. Net finance costs were impacted by higher floating interest rate and by a stronger Chilean peso. On the other hand, tax expenses decreased by €210,000,000 and non controlling interest decreased by £126,000,000 on lower profit before taxes. We also accounted 36 €1,000,000 of profit for the sales of non core assets, mainly our energy transmission line at Centinela. Looking ahead, we expect our effective tax rate to be between 34% 38%. Total capital for the year on a cash basis was €873,000,000 dollars lower than our 1,000,000,000 guidance for the year, mainly as some expenditure is carried over into this year. For 2019, we expect €1,200,000,000 of CapEx, which includes expenditure on the Los Pelambres expansion project and carryover expenditure from sustained capital project, which commenced execution in 2018. We expect expenditure on development to be about €380,000,000 and this includes approximately €300,000,000 on the Los Pelambres expansion. Mine development is expected to be similar to 2018 and sustaining CapEx to increase to €400,000,000 due to the carryover of some project from 2018. Sustaining CapEx also includes and spend over €130,000,000 on the tailing deposit at Centinela, which is in addition to some €13,000,000 we spent last year. This investment is something we do only between extended periods and therefore is not a recurring expenditure. If this one off spend is excluded, the 2019 sustaining CapEx will be similar to 2018. Here, we look at the movement in our debt net debt, which has fallen by €575,000,000 of shareholder loans, €575,000,000 of shareholder loans, which are shown here as debt. And if this was stripped out, we would be in a net cash position. The negative working capital movement is entirely explained by the VAT payment as otherwise the figure would show a working capital reduction and a net positive cash contribution from working capital movement. Overall, our net debt to EBITDA ratio has fallen to 0.15x, which reflect our very solid financial position. I will finish by just reminding you of our guidance for 2019. Corporate production will increase to a range of 750,000, 790,000 tonnes with higher production at all of our operations, particularly at Centinela concentrates, which will benefit from higher ore grades during the year. Despite input cost pressure, group cash costs in 2019 before and after byproduct credits are both expected to be very similar to last year at $1.70 and $1.30 per pound, respectively. CapEx is expected to come in at €1,200,000,000 for a full year, reflecting the inclusion of the 1st year of the Los Pelambres expansion project. Thank you for your attention, and I would now pass to back Ivan. Thank you. Thank you. So I would like to say a few words about the copper market. I think despite the concerns on the trade dispute between the U. S. And China, we have not yet seen any discernible impact on physical copper demand for copper. Around 80% of the copper that goes into emerging economies, especially China stays there. It is for domestic consumption. So the direct impact of trade tariffs on the copper market we think is expected to be limited. A more significant impact would have to come from a material downgrade in growth in emerging markets. Although to counter this risk, we're seeing China stimulating its economy through policy response including increased spending, easing credit and reducing taxation. In the 1st part of the year, we have seen growth in housing starts again and expect that this will result in higher rates for housing completions as well later in the year. Exchange stocks have recently come off 10 year lows and in terms of number of days of consumption down probably to around 5 days, which again is near to the lows of the last 10 years. In the shorter term, we expect volatility in the copper price to persist. However, the outlook for copper in the medium to longer term continues to remain very positive. The moly market also continues to perform well. Demand from the steel industry remains strong and with prices around $12 per pound, it is making an important contribution to the group and that was the case certainly in 2018. Now I'll take you through our growth opportunities. We have been investing through the cycle in our business. Now we are starting the expansion of Los Pelambres with production increasing towards the end of 2021. At Centinela, we decided to continue the studies of a separate concentrator plant, which could see production increase by up to 180,000 tonnes of copper equivalent. We do not expect to make a decision until we achieve further optimization of the project and final decision will strictly focus on returns and the timing will also consider the sequencing of the projects relative to the Los Pelambres expansion. We're working on a project at Zaldivar to increase recoveries. And looking further ahead, we have a second phase of expansion at Los Pelambres another longer dated growth options which are shown in the graph. We successfully made some asset sale last year and we're considering selling our water infrastructure asset at Centinela, but we've decided to consider this together with the 2nd concentrator project as it requires a new pipeline, which would interact with the existing one. In summary, we have attractive growth optionality and can sequence when we develop our 2 main mine districts where we hold a large undeveloped base of mineral resources. We will invest over time to bring these to market, but only in accordance with the discipline provided by our capital allocation framework. Let me say a few more words on Pelambres as we grow this asset. At the beginning of the year, we started the construction of the Pelambres expansion project. This expansion would add an average of 60,000 tonnes of copper a year when ready and first production is expected in the second half of twenty twenty one. Construction of this $1,300,000,000 project will increase throughput at the plant. The plant expansion includes an additional SAG mill, ball mill and flotation cells. We have now by now successfully agreed also 100% debt financing of the project with our term corporate facility, Guido of Pelambres using the strength of its own balance sheet. The capital cost of the project includes CAD 500,000,000 for our 400 liter per second desalination plant and water pipeline to supply the expansion as well as acting as a backup for the existing operation in case of extreme dry subsequent Phase 2 expansion may allow the timing of which will depend on the receipt of the necessary environmental approvals further grow in this asset. This will significantly extend if undertaking the mine life of Los Pelambres. At Centinela, following a detailed evaluation of the 2 expansion alternatives, the company will focus now on the 2nd concentrator as this alternative offers the best potential combination of financial returns and risk profile. The feasibility study of the 2nd concentrator is expected to be completed during 2020 and to include the evaluation of the potential disposal of Centinela Water's infrastructure. In addition, we expect to increase our recoveries at Zaldivar through a proprietary process based on chloride leaching. And therefore, we have a project which if successful we expect to sanction before the end of the year. So let me finish by walking you through our investment case and summarizing why Antofagasta remains a solid investment. We have 3 pillars which underpin our investment case. These are our high quality assets, our focus on operating efficiency and cost control and our capital discipline. These pillars allow us to operate from a robust mining districts in Chile, Pelambres and Centinela, which hold 70% of our mineral resources and other source of over 80% of our production. These districts lie at the heart of our business and offer us a significant range of organic growth options and alternatives. Secondly, we remain focused on our cost improving our operating efficiency and protecting our margins. But to do this, we need to innovate and be innovative in how we develop solutions to the challenges that exist today and the challenges that we expect to come. Thirdly, we are committed to maintaining our financial discipline. We have a flexible and robust balance sheet and think of this as a strength for the company. We have invested in a disciplined manner during the downturn and we will invest in a disciplined manner in the upturn and we will balance our growth against our capital distributions. So this is what we wanted to share with you today as we released our results. And I'm now happy to take questions either from the floor or from the webcast. Thank you for being with us today. Hi. Thanks for the presentation. It's Dan Major from UBS. Two questions. The first is on the dividend and on the balance sheet. Could you give us more of a sense of what you view as your net debt level? Do you include that Marubeni sort of intercompany loan? And on a going forward basis, should we expect the dividend payout ratio to be similar to something you paid this year, assuming net debt levels remain at a similar level? That's the first question. Let me take the let me say a few comments on the payout and then Alfredo take the question on the balance sheet. I think we think of our dividend policy as being a strength and we think of it with respect to the price cycle. And I think if we look back, this has served us well. During the downturn, we're probably one of the few companies which did not have to change the dividend policy. And therefore, having a minimum dividend payment of 35% is something that we will retain because we see it as a relevant and appropriate policy through the cycle. Now having said that, when we have excess cash, we think we want to certainly return that to shareholders. And if you look back last year and this year, we are therefore paying in excess of that 35%. And that we will continue to do to the extent that we have excess cash. In this year, we've also topped that up with the sale of these non core assets. And I think that's also a feature that we would consider going forward. So no change to our dividend policy, but we are very conscious about returning cash to shareholders when we have excess cash, and that's what we've done this year and the years before. On the debt side, do you want to take that, Alfredo? On the debt side, well, no significant change in our cash in our balance sheet, strong position. The company continued to be very strong in its capacity to generate cash and to finance the projects. Debt level is under control. This is very prudent in terms of the ratio and the balance between the debt structure and the capital contribution for the investment on projects. So as we said some times ago, we our idea is to maintain a solid limit in the region of 1.5 times between 1.5 times and 2 times our net debt to EBITDA ratio. So we have lot of room for managing the cash position and the debt position of the company over the next years. Okay. Just perhaps to push you on that slightly. So if you were in a situation over the next couple of years where you were free cash flow neutral or free cash flow negative because of the CapEx, would you consider continuing to pay a higher payout ratio to take to the level of 1 to 1.5 times net debt to EBITDA? As Ivan said, we have a very clear dividend policy. In our capital allocation process, we are committed to distribute as a minimum 35% payout ratio. Above this figure will be finally a decision of the Board. But the company has enough cash to face any dividend commitment in the future. So I don't see any particular risk to have a significant in our dividend distribution over the next year. Jason Fairclough, Bank of America Merrill Lynch. Two quick ones. Just on grades first and then on the Centinela expansion project. On grades, it looks like Q4 was extraordinarily strong. I'm just wondering, is this new normal or how should we think about some reversion more towards the typical grades that we've seen in the past few years? And then lastly on Centinela, do you feel like you're maybe being unambitious given the size of the group? I mean, it's a nice project, but if we look at big copper projects being built these days, typically these are 250,000 or 300,000 tonne copper mines and there's a lot of resource here. So couldn't you be going a little bit bigger? So on the grade, I think generally as you know in the copper space grade comes down. And therefore, we expect that trend manifest itself in our ore bodies. In the case of Pelambres, the grade decline tends to be quite progressive and therefore smooth. In the case of Centinela, we've historically had more grade variation. Now we're going into a phase, especially when we come into this year in which we have higher grade compared to the year before as we've opened up a new phase. We expect that to benefit this year, but then going into 2020, grade will we expect to come down. Now I think one of the now that we're running the plant at its what we think is its optimal operational condition, we are looking into the mine plan to see how we can smooth that grade decline. One of the features that we're contemplating for example in that space is opening up the Esperanza Sur pit, which would provide an extra feed of ore to the plant, which would allow us to blend and therefore achieve more of a less volatile grade condition at Centinela. So that's exactly what we're working towards into the future. So 20 20, we expect a drop in grade compared to this year, which will be a high for Centinela. But we're looking at ways of smoothing that by means of providing another source of mineral like Esperanza Surpit as I say which we expect to open up this year. With respect to Centinela, I think the expansion, just a brief word on the process we went through. I think we're very focused on ensuring that we do get the return from our investments. When we look at sizable investments like the one involved in the Centinela expansion, we therefore looked at this alternative of expanding the existing plant. But in the process, we found out, 1, that synergies were limited with existing infrastructure. So there was less benefit from Synagis than we probably had thought could exist. And then the size of the expansion that we could perform in terms of the extension of the throughput capacity was limited by some of the existing footprint and therefore was less than optimal. So it was very simple in the end in the sense that it's an economic decision. We found that the expansion of the existing plant had inferior economics. And now then we've turned our focus completely in building a new plant. However, we want to do this in a way that ensures that we do get the return, which is expected. And from that point of view, I think we are ambitious in the sense that we want to develop this district. We have a large resource base, but it's different to others. It's different to Pelambres because the grade is lower and the strip ratio is higher. So we want to make sure that when we make this investment, we make it at a time and in a way in which we can ensure that we get the returns that we expect. And therefore, the work that we're doing in finalizing the optimization, looking at the best way of configuring the plant and looking at derisking the execution plan, we think is the right way of doing it. And it does focus our people, our teams on returns and ensuring that we can deliver on the promises that we make. So we think it's the right speed. And that's what we're going to be looking now. We expect that the feasibility would be ready sometime during next year, 2020. And on the back of that, decide when to undertake the project. Just to push you a little bit. So as part of the feasibility, will you be considering other bigger options or is it just as planned, so 180,000 tonnes a year, that's it? That's in the well, in the studies that we have today, that is the optimal size. So this is more around optimizing the execution to get to that size of a plant. Remember that in the case of Centinela, we've envisaged 2 phases. So one would involve 180,000 tonnes of fine copper, adding 90,000 tonne a day of capacity and then we would do Phase 2. I think that sequence we have not changed. Where we think there is scope for improvement and optimization is on the configuration of a plant, the type of equipment that we use, how do we ensure that those are the most energy efficient for the current environment. And then things like what do we do with the water system? The water system needs expanding. That could be taken up by a third party and this would be the right moment to do that. So we think there are several ways of looking at this project to really make it better from a point of view of sharpening up its economics and optimizing its returns. And that's the focus. Thank you. Good morning. Jatinder from Exane BNP Paribas. A couple of questions. On the water system divestment, when it's core or non core, whichever way you define it, but fair to assume this won't come back to shareholders when you manage to divest it? That will just be used for funding of Centinela expansion? And secondly, just following up on Jason's question about the sizing, Twin Metals is only 65,000 tonnes copper equivalent, 42,000 tonnes of copper. Is that sizable enough for the company of your size to actually go and build in region where you're not even present and you've already faced a couple of challenges in terms of permitting? Thank you. Yes. So on the water system, I think we're going to look at it in the context of the project investment requirements. We would like to if you look at Pelambres, we've managed to do 100% debt funding for that for the Pelambres project. And I think that's the direction in which we would probably consider moving in the case of Centinela. But obviously, it's a different ore body and therefore the ability to undertake a project of the size of a second concentrator expansion requires considering whether we recycle the capital from the potential disposal of the water system into the project to bring down the build, the investment build. And therefore, those options are all open and we would consider them as part of the study that we're undertaking. Ontune metals, I think it is a project which allows us to grow beyond our current footprint geographically into the U. S. We think it's a polymetallic. So it's attractive beyond just its pure size. We think there are some expansion sequencing that we can do in Twin Metals, which will take the contribution potentially of a project there beyond the 65,000 tons of copper that's contemplated in its first phase. But we think it a relevant step forward for us in terms of growth. The ore body is extremely attractive. And the jurisdiction, if we get and when we get the permitting, would be quite good as well. So I think size is an element, but I think it's we see it as a good step forward in terms of being able to develop a project outside Chile and therefore providing that extra competency and capability to develop a different jurisdiction, which is prospective. So we're happy with where that's going. We had the leases reinstated and I think that was a very positive move. We're now in the process of renewing them. And if that goes as expected then we will be finalizing the mine plan of operation in the course of this year. And what follows next is kicking off really the environmental approval process, which takes some time in the States. But we're confident that we will get there at the end of that road. Just to be absolutely clear on the first one. So if you do 100% debt financing of Centennial expansion, then the money can come back to shareholders from water system monetization? Yes. I think as I said before, we would look at the options there. I think that the investment bill is bigger for that project. If we take the number that's been quoted on the basis of the pre feasibility, it's €2,700,000,000 So I think it's unlikely we would be able to gear up Centinela at the tone of €2,700,000,000 So this would actually help to fund some of the project rather than be returned in that particular case. Sure. Thank you. Yes. Thanks. Good morning. It's Danielle Chugungura from Macquarie. A couple of questions from me. You mentioned on the 2nd concentrator at Centinela that the timing, the phasing of that is important. Obviously, you also have the Phase 2 of Los Pelambres. Would you be happy potentially pursuing both of those at the same time, assuming that net debt stays under 2x? And secondly, just on costs, you mentioned being a 2nd quarter producer. Also you can see there's growth in the portfolio. You have further cost measures on the table. Do you think that's enough to move you down to the 1st quartile? Okay. I think on the second concentrator, the I mean, certainly one of the things that we look is sequencing. And not only from a financial point of view, but certainly from an internal capability point of view. And therefore, the way that we're looking at these projects today, they seem to come into certain sequence, which is beneficial from our point of view. Now we could, I think, undertake Phase 2 alongside the 2nd concentrator. That we're going to have to assess at the time, but there could be some overlap. The Phase 2 project at Los Pelambres is a smaller investment. The big challenge there is more around permitting. So the investment as such in fact involves adding some milling equipment to the new line that we're constructing now and is in the range of €500,000,000 to €600,000,000 So being a smaller scale project from an engineering point of view, we think there could be some overlap. But we do look at sequences as beneficial. So we would consider that. In terms of cost, I think if you look at our portfolio, I mean, Pelambres is certainly well consolidated as a 1st quarter producer. And then the grade involved in Adarco operations Centinela and Antucoia and Saldivar are not as good as in Pelambres or slightly lower. And therefore, those assets tend to be located in other quartiles rather than the first quartile. So the combined portfolio is on the second quartile and I think we see ourselves very much managing a company cost wise in that space with Pelambres having a very strong cost performance and that driving us to lower cost. Pelambres had a very good run last year. The unit cost was below $1 per pound. And Centinela had a good run as well. And I think we are there is some upside there in the sense that as we run the plant at full capacity as we use all latent capacity, which is something that we achieved from September onwards last year, we're seeing those costs come down as well. So I think we're confident that we're able to manage Centinela in a better cost position. And therefore, we will work hard to be at the lower end of the 2nd quarter going forward. Very clear. Thank you. Morning. It's Ian Rousseau from Barclays. Just two questions. Just on I understand you're still busy with the feasibility study, but in the context of the Los Pelambres expansion that you approved, which was EUR 1,300,000,000 versus €1,050,000,000 estimates from 2014 feasibility study. Obviously, 2015 was sort of the trough in the financial markets or in the mining industry. And just in the context of that, do you expect the CapEx to be higher than the 2.7% or lower? Or I mean, how maybe just your thinking around optimization and where do you think that could come through? Yes. I think certainly capital cost has moved from that estimate, I think, up. That's what we've certainly even because of simple inflation, general inflation. I think our optimization focus is on therefore looking at ways to optimize the capital estimate in ways that we remain within a figure close to the 2.7. And if there are opportunities to go beyond that, I think they would be around not us having to undertake some of the investments directly. So from that point of view, that's something that we would look at with a lot of interest. But round figures, I think we would expect to be around the figure that we've quoted except for some structural changes around ownership of some of the infrastructure supporting the asset. And then just a second question maybe for Alfredo, just on the working capital. Stripping out the VAT payments, obviously, that caused quite a big swing around the year end. Do you expect any other sort of working capital movements this year? Obviously, you had the pipeline issue in the first half. Is that now completely unwound in the second half? And maybe any other movements you expect? Well, as you know, we have been working hard in controlling and improving our working capital position. This year, we are showing some positive variation compared to the last year. And during the 2019, we are going to work basically in stock reduction, especially in spares, warehouses because we are implementing some new control systems and centralized purchasing and logistic systems. And as a consequence of that, we will be able to reduce our stock level at the mine sites. Receivables depend the copper price and then the sales volume. And payables, we are not changing our payment terms. The company is basically paying at 30 days. So basically, our focus is to improve stocks work in progress and basically spares. Maybe just last one on modeling. Do you expect the D and A number depreciation for last year to be similar for this year? Sorry, sorry. The depreciation number for 2019, would you expect that to be similar? Yes. Depreciation well, just depreciation, remember that we have a depreciation and amortization. Amortization is coming from the capitalized mine development. Depreciation, I think that will have some little increase as a consequence of the new CapEx included in the balance sheet, but not very significant. Probably the depreciation and amortization this year, '18, was in the region of $770,000,000 Probably next year will be in the range of $800,000,000 $820,000,000 Hi, good morning. Patrick Jernis from JPMorgan. Just a question on Zaldivar. You're considering the chloride leach option there to improve recoveries. Could you just talk about how you think you could leverage that technology longer term potentially in context of the mine life there? Thank you. Yes. I think we see with very positively chlorate leach at Zaldivar. We're actually we've trialed and tested on an industrial scale that process already. We're using some of that currently at Saldivar and that's one of the reasons why our recoveries have gone up. The project involves taking this to the next step and essentially doing some work at the plant, which will allow us to increase the level of chloride, which results in higher recoveries. That is a project which depending on the conditions we would expect to sanction in the course of this year. And therefore, we're doing the detailed engineering now. Now longer term, I think we do see the prospect and we've got a specific work stream, which has been undertaken to be able to leach primary ore. And I think as you know in Saldivar, we've got beyond the current life of mine. We have an ore body, which sits underneath. We're doing extensive drilling in that ore body and metallurgical testing to see the extent to which we could monetize that after the current life of mine using chloride leaching. And we have had quite encouraging results. So we are positive that if those results get confirmed and we're doing some industrial size testing at the moment that we would be able to get some upside benefit from being able to develop that ore body under leaching conditions and not having to invest more capital intensive concentrate plant. So positive about that development and where this is going. And we have resources both funding and people working on that. Hi, it's Dan from UBS. A follow-up on your CapEx profile and appreciate you can't give explicit that development and sustaining CapEx would be about €650,000,000 then you see an uplift in spend at Los Porlambras to somewhere in the region of €600,000,000 to €700,000,000 Then you have some additional CapEx from opening up Esperanza Sur. So it would be fair to assume CapEx would lift in 2020 to somewhere in the region of €1,500,000,000 Would that be a fair assumption for our modeling perspective in terms of what you have in the pipeline? Look, I think we will give specific guidance on that further down when we release our mid year results. I think on the Pelambres, we're spending expecting to spend to spend around €300,000,000 this year, probably moving to around €600,000,000 next year and then another €400,000,000 in 2021 as the sort of project gets completed. I think if you look at sustaining, this year we have probably a higher number given as Alfredo had explained that we've got some one off investments in sustaining around tailings at Centinela. So I would expect that number to looking into next year to probably stay where it is or come down most likely. And that's the work that we're doing today. So I don't think that we would see a significant capital expenditure increase despite the fact that we've got to accommodate the Los Pelambres higher expansion next year. But we will give specific guidance when we finalize it sort of mid year. Okay, thanks. Hi, it's Hunter Hillcoat from Investec here. I'm sorry if I might have missed this, but in terms of your water asset that you might look to offset the cost of the 2nd concentrator, is there a carrying value that you have for that asset or some sort of nominal value you could see that being disposal for? Early days still for that to respond. I think the size of the water facility today is it pumps in excess of 1,000 liters per second. But this is not desalinated water. It's seawater, but not desalinated. And what the market value of that might be, as I say, still early days for us to be too specific about that. So we'll wait to see until the studies are further