I will now pass you over to Antofagasta host for this event, Andrew Lindsay.
Good morning. Good afternoon, everybody. Welcome to our half year call. I'm here today with our Chief Executive, Iván Arriagada, our CFO, Mauricio Ortiz, and our Vice President of Corporate Affairs and Sustainability, René Aguilar. Iván will start with a short introduction, and then we'll move straight into Q&A, and we'll wrap it up in an hour's time. Iván, over to you.
Thank you, Andrew, and welcome to everyone to our half year results. Thank you for joining the call. You have presumably by now looked at the numbers that we've released and the results, and I'll just provide some introductory comments as context. I think during the first half of the year, our results have been impacted by a change in the copper price that we experienced, especially towards the end of the first half, and also by lower production at Pelambres, which is essentially explained by water restrictions, which we had anticipated, and also by the incident at the pipeline, which is now behind us. We also in our program had contemplated lower grades at Centinela.
That explains why our results, when you compare them with the first half of the prior year, are below. As we look now into the second half, however, we are expecting to see an improvement quarter-over-quarter on production as the restriction on water at Pelambres is released, and also as grades improve at Centinela. Despite the challenges that we've observed in the first half, we think that we have a favorable outlook for the second half from a position of strength. We have a very solid balance sheet, and again, almost without net debt. Our net debt to EBITDA ratio was 0.13x , so very low.
We have a robust portfolio with options to grow and we're finishing the project at Pelambres, which involves the construction of a desalination plant, which will be ready in the fourth quarter, and also added milling capacity. We look forward also next year to take into the board the option of growing the other big district, which is Centinela, with a new plant and a new development, for which we have provided an updated capital cost estimate, which we will talk during the session today. Positive outlook from that point of view in terms of the optionality to grow, our ability to develop our copper resource base, which I think is good news going forward.
Also to highlight during this first half is that from April on, we're running 100% on renewable energy. All our mines and plants are sourcing energy from renewable sources. I think this is very much consistent with our view that copper plays a key role in the energy transition and that this is also a key enabler to change our own processes. Having said that, I will now turn it over to Q&A. As I say, we look forward to a different H2 for this year, based on the fact that we will not have the water restrictions and have higher grades at Centinela. With that, I will pass it over then for Q&A.
Mauricio, René, and myself are here to address your questions, and we'll be happy to take them on from now.
For the Q&A section, we will be utilizing the raise hand feature. If you would like to ask a question, simply click on the raise hand button at the bottom of the screen. Once you have been invited to, please unmute yourself, turn your camera on, introduce yourself and the company you are with, and begin with your question. If you have dialed in, please press star nine to raise hand and star six to unmute. Thank you. Our first question will now come from Ephrem Ravi. Ephrem, you can go ahead and unmute and turn your camera on and ask your question.
Yeah. Thank you. Two questions on Centinela. Firstly, can you give a sense as to what is driving the $1 billion increase in CapEx estimate between 2015 and now? How much would you say is general cost inflation versus the new water system versus new regulatory requirements, et cetera? Secondly, on Centinela project again, would it be fair to say that the project will not go to the board till there is clarity on tax and royalty regime post the referendum, given that you've indicated 2023 first half as a timeline for putting it to the board?
Thanks, Ephrem, for the question. I think on the capital estimate increase, there are three basic reasons that drive this change. One is the general update on inflation and escalation of commodity prices. We have brought the estimate to the very latest update on prices and inflation. The second element, I think it's a very important one. We have included some design improvements as we've sort of been evolving the engineering on the project, and therefore, this project includes much more in terms of autonomy, remote operations, and also a different grinding configuration in terms of using high-pressure grinding rolls. There are design improvements included, embedded into the new design.
Essentially, this means that this is a project where we will spend slightly more CapEx at the front end for the benefit of lower operating costs later on as this moves essentially Centinela or has the potential to move Centinela to the first quintile. We think it's a good return for the capital on the basis of the cost improvements that it delivers. The third element is that this has been largely de-risked compared to the prior estimate in the sense that we have a very advanced level of detail engineering finished for this project at this stage, and therefore a very detailed execution plan.
Which also has been updated for the most recent learnings out of you know, for example, COVID, and how to construct projects with some of the challenges posed by higher absenteeism or risks like COVID, were they to come back. We think that we've got from that point of view a much robust you know project in that sense. Inflation and escalation is about half of the increase in CapEx estimate and the design improvements and the de-risking makes the balance. Now, as regarding the second part of the question, we expect to take this project next year.
The basis is that we think it's a great project to move ahead on the grounds that it allows us to continue to develop the district at Centinela with delivering, you know, higher production. Now we want to be able to obviously take that discussion and conversation with the full set of assessments that are required. The royalty and fiscal regime applicable is an important part of that information. Therefore, we would expect to be able to integrate that considering the sort of timings that have been announced by the government in sort of clearing up the royalty discussion before year-end.
It does, you know, come in at a time in which, you know, we therefore should be able to have that information, which is a critical part of the assessment also for this investment.
Thank you. All right. Our next question will come from Ian Rossouw. Ian, please unmute yourself and turn your video on and ask your question. Thank you.
Hi, guys. Can you hear me?
Yes, we get you well.
Yeah, thank you. My first question, just on the follow-up on the Centinela second concentrator expansion. Could you maybe give us an updated CapEx for the pipeline within the $3.7 billion and confirm whether you're still looking to syndicate that to a third party, maybe as part of that also, whether you're looking to sell the existing infrastructure as well or maybe just an updated estimate for that? Then just on this $3.7 billion spending, I guess, net of syndication, how should we think about the annual spend of that project over the next three years? I think your previous target was to get to the full capacity in 2026, which was part of your 900,000 ton copper production target.
Just seems like there's a slight delay. How should we think of that as well in that context? Then just, I guess, second question, just on the financial side. You had a big working capital inflow. Just how we should think about that in the second half. To what extent do you think that should reverse in the second half? Then also maybe on the cash taxes, seemed like there were some catch-up payments. Just what's the expectation for the second half, sort of at current prices? Thank you.
Thanks, Ian. I will ask Mauricio to take the working capital and cash tax question and let me address the Centinela question. On the water, as we've discussed before, we have been looking at this option of being able to divest the water system and then also allow that the expansion of the water system be carried out by potentially a third party. We have continued to progress that alternative to a level in which we've got some indicative offers, and we expect to close that bidding as such before the end of the year. Therefore, come together with when you know it's a time to sort of make this decision.
Now, we think that is something that we will do if we find it attractive, so it's value creative and the sort of risk allocation is adequate. We think it's an opportunity, may provide a good opportunity to also reduce some of the front-end capital spend and recycle capital, you know, into the second concentrator at Centinela. Now, how much of that exactly is embedded in the $3.7 billion? I'll ask Mauricio to comment on that specifically. It's a significant amount that we may be able to deal differently than in a standard investment form. I'll pass it on to Mauricio to address that as well.
I think on the timing, we still if the project gets approved during the course of next year, we still expect that this will be consistent with being able to achieve you know the project first production. Late 2025, early 2026. That's the execution plan. We've continued to work on the engineering and therefore this time has been spent basically developing the detail engineering necessary in any event to do the project. It's time that has been invested in progressing the studies to a level in which the execution should run smoothly. Remember that this is a project that essentially enables us to increase production by 170,000 tons of copper equivalent per year.
Therefore it does provide a significant increase in our copper production. It has an extensive life, and it allows us basically to monetize a significant resource base in the Centinela district at a time in which we think copper will be in shortage. Therefore it's a high return project, you know, a very interesting prospect for us to continue to develop. I will ask Mauricio then if you can address the how much of the CapEx is the water system expansion, and then your questions in working capital then and tax. Mauricio?
Well, thank you, Iv`an. Ian, good to see you. Well, regarding the CapEx on the water system. Let me put it in this way. We are presenting an update of 35% in comparison with from the general point of view. We are updating the figure from $2.7-$3.7, so that is roughly speaking 35% of the total amount, or 35% update. I will say that as Iván described, most of the big chunk of this number has driven by escalation and inflation and also an advanced detailed execution plan. That is the significant amount.
There is also some design improvements, but the design improvements are mainly in the concentrate, not in the pumping system. The pumping system remains equal in terms of design. Basically, if we take out and we as a rough number, we said in the past something like $500 million for the water system. Basically with the update or included in this or the additional CapEx included in this update is around additional 25%-30% increase on the base of the $500 million that we guide initially. That to answer the water piece. Regarding to tax charge, I put it in this way, Ian.
Our tax charge for the period, for the first half was roughly speaking $250-$280 million. You find out that we have a higher tax outflow in comparison with the tax charge of the period. That is mainly driven by the settlement of 2021. Basically, we pay $330 million in settlements for the 2021 tax period. Just to remind you how the system works in Chile, we have this partial monthly installments or monthly payments every month, and we adjust them on a quarterly basis.
Basically what drives that difference of $330 million was the difference, the price difference between the third quarter and the fourth quarter in 2021. That settlement, we paid it in 2022. Going forward, trying to directionally answer your question going forward, as far as we don't have a big swing or big increase or decrease in the copper price, our tax charge will be similar to our tax outflow. That is a good way to address the modeling going forward. Yeah. Regarding the working capital, well, maybe there are two reasons for the decrease in receivables. The first one is we need to factor in the lower production.
At the year end, for example, at December, we sold something like 79,000-80,000 tons of copper. In the end of June, we sold 31,000 tons of copper. That represents the main driver behind the change in the working capital. The balance of that is roughly speaking 65%. The balance of that is mainly driven because of the different price. Remember that in December, we have a price of $4.40 per ton, and we closed the first half of the year with $3.75. That's the two main reasons behind the change in working capital.
Once again, just to give you some directional indication how this is gonna look like for the second half. For the second half, we are planning to increase our production, so that is something that you may factor in your forecast. The other one is that we are going to reduce inventories as we sold the concentrate that we stockpiled in Los Pelambres. I will say that those are the main drivers for the working capital going forward, as payables will be in the same space for the rest of the half.
Thanks. Sorry, maybe just one follow-up to Iván. Just on the scope changes, could you just talk about the 95,000 tons per day versus 90,000? Obviously, you've changed the milling grinding to another technology. But within that, I noticed the copper equivalent production has fallen from 180- 170. Maybe just the reason for that and also what is the copper production part of that within the equivalent figure, please? How has that changed from the previous feasibility to now?
Yes, we have increased slightly the throughput capacity, which is an upgrade in design in the sense that it gives us added flexibility, especially to deal with variability in the hardness of the ore.
It's also, I guess, consistent with the fact that using high-pressure grinding rolls come in sizes which fit better the 95,000 ton capacity. We think that's a good improvement. The plant will have more flexibility, which allows us to better manage variability in ore hardness, and that's the positive. Now, in terms of the copper component of the copper equivalent production is up. Mauricio may have those numbers at hand, but it's up compared to what was before. There's a slight decrease in the by-products, but the rest is actually the copper is up, given, you know, that we have a higher throughput contemplated in the 170, yeah? Mauricio may have the exact numbers here, but that's the composition. It's
Copper is up, and the by-products are slightly down in the copper equivalent equation. Okay?
Okay, thank you very much.
Just to supplement what Iván said and just put some numbers around Iván's answer as he requests. We have 170 tons of copper equivalent, and we have something like 140,000 tons of copper. 4,000 tons of moly. We have, that is the base metals. Then we have the precious metals, which is gold of 120,000 ounces per year. That is the split, basically.
Thank you.
All right. Our next question comes from Abhi Agarwal. Abhi, go ahead and unmute yourself, turn your camera on, and ask your question. Thank you.
Can you guys hear me?
I hear you.
Hey, morning. Morning, thanks a lot for the presentation. A couple of questions, follow up on Centinela. The question is, if the effective tax rate goes up to, say, 50%, which the initial proposal does suggest, you know, it actually suggests a bit higher, does the project still meet your internal threshold? The question I'm asking is what sort of tax assumptions have you baked in, baked into your project? And the second part of this question is, what sort of stability agreement would be associated with this, with the Centinela second concentrator?
Okay. Yeah. On the effective tax rate, I mean, that will depend on the outcome of the you know royalty discussion which is taking place right now. We would expect clarity on that by year-end. I think that the view that we have on the proposal or on the tax rates, which you know exceed 50%, is that those certainly make investments in projects you know much more challenging. Therefore, they do have an impact on the competitiveness of the industry locally. That's something that we conveyed you know that message.
I think there is concern in the industry about, you know, the tax rates which are being contemplated in this new proposal, especially, since, you know, it could have an impact on future investments. We will look at it carefully and we think that moving from 38% in excess of 50%, you know, will make these and other projects, you know, challenging. We would have to see what that means in terms of the final proposal which gets approved, you know, by the Congress when this process is finished. I think Chile has the, and the industry has the potential to continue to invest and grow, and our project is a good example.
It's very important therefore to keep the effective tax rate at a level in which, you know, these projects remain attractive. We will have to see what the specific outcome of the reform is. We don't know. Certainly, at the rates that are contemplated in the current proposal, these and other projects, you know, would have more challenges which we would have to look at. We expect to be able to have a clear answer on this one. This is clear and as sort of we have this conversation next year as we move into the time in which this project gets considered. With respect to the stability agreement, you know those vary between different sites.
In the case of Centinela, we have a stability agreement that takes us to 2030. Therefore, partially, you know, the life of this project falls within that stability regime. 2030 for Centinela.
The second concentrator will be covered until 2030, if I got that correctly?
It's within that envelope of protection provided under the current stability. Now, this is a project that if we undertook construction in or started construction next year, we expect to be producing late 2025, early 2026. That would sort of be the timeframe in which we would get some revenue out of that project.
Got it. Very clear. One more question, please. So you mentioned that, you know, the higher CapEx does lead to lower OpEx down the line because of the design changes you've introduced. Can you quantify that? Can you quantify how much unit cash costs could come down by because of this, because of these changes versus your previous plan? Thank you.
I would say that this allows us basically to place Centinela in the first quartile. I think with the prior project we were at the bottom end of the second quartile still. It's that sort of percentage change involved, moving from one quartile, the bottom of the second to the top of the first. I think that's a big improvement. One of the key features is the low cost of energy and at the plant, and therefore the processing cost which we you know in our estimates would come down over $1 per ton of ore processed.
without giving you specific numbers because, you know, it's still something that we're working on, but this basically allows to think of Centinela as moving to the first quartile, whereas the project as it was configured before was not achieving that same outcome. It was still in the sort of bottom of the second quartile.
Thank you very much.
Yeah.
Hi. My apologies. Our next question comes from Ioannis. Ioannis, if you could please turn on your video and audio.
Good morning and good afternoon. Most of my questions have been answered, just a couple left actually. Again, on the Centinela expansion, just again on cash costs. Can you perhaps provide a range when we talk about first cost quartile? Because obviously the cost curve has been moving a lot over the past 12 months, so it'd be useful to have some sort of range. When you talk about top of the first cost quartile, what happens if you were to sell down the water infrastructure? Would that tip the asset back up to the second cost quartile?
Yeah. Okay. Thanks for the question. Yeah. When we talk about first quartile, we're talking of costs which are below $1 per pound, net cash cost, yeah. At or below $1 per pound. In the case of the water system, that would add obviously operating cost to the plant, but not in a way that would move, you know, the plant to a different position in the cost curve. That's our assessment. Now, those terms need yet to be fixed. That's something which we have not fully, you know, rolled out in terms of the numbers as we're sort of in the process of discussion with potential interested parties.
The way that we're looking at the numbers today, and this is, I would say on uncommitted terms, but on provisional terms, is that this would not move the company to a different quartile. We would still be in the first quartile.
Okay. That, that's clear. One more point to clarify here.
Let me just add that one obviously of the key components there is energy cost, and I think one of the key features is that we've been able to secure very efficient energy cost as we sort of move the company from fossil fuel into renewable, which in Chile is mostly associated to solar. That is a big advantage that we're getting, and which we'll have the full benefit of in the DMC.
Understood. One more point to clarify. When you talk about first cost quartile for Centinela, is it just for the second concentrator or are you talking for the entire asset?
We're talking for the DMC for the project, huh.
Just the project. Great. Just the last question from me on the bond issuance. You announced earlier in the year half a billion dollars at 5.6%-5% interest, which looks fairly expensive for a company that is closing cash. Can you elaborate on the reasons that you had to issue the bond, and is it about optimizing your taxes by paying through the plc or is there any other reason for that?
Yeah. Mauricio might wanna take that question on the bond issues.
Well, thank you for that. Yeah. Well, basically, as you know, we opened the company to the DCM back in 2020 in very good conditions, and I think that was a great benchmark that we settled back in 2020. Now, regarding the issuance that we did back in May 2022, yeah, we realized that was not in the same situation, not the same condition as 2020, which were fair market conditions by then. Thinking in the, let's say, drivers to do that, basically we are now committed and diversify the source of funding, building the curve on a regular basis. Potentially in the future, you will see more papers of Antofagasta coming online. That is one thing.
The other one is in some way to refinance and avoid.
Debt walls going forward. Basically we are reshaping also. Not only opening to the DCM, but also reshaping our maturity profile. From the strategic point of view, for us it makes a lot of sense to do that, diversifying sources of funding and having a much more stable and affordable maturity profile. Those were the main drivers.
Understood. Thank you very much. Thank you.
Thank you, Ioannis.
Thank you so much. The next question is from Jatinder Goel. Please don't forget to unmute yourself and turn your camera on.
Good morning and good afternoon. Just starting with Centinela second concentrator, is there a case of delaying the project from its current indicated timeline rather than running the risk of locking in peak inflation on the CapEx side? What's your view, and have you contemplated that scenario as well? What does that do?
We think that certainly the updated estimate includes the latest update on inflation and costs. However, the way that most of these is contracted is in such a way that we've got what we call unit price contracts, and therefore, if the underlying commodities were to move.
in our favor, that we would be able to capture, you know, most of that benefit going forward. That's the way that we're sort of thinking contractually about the project. On the other hand, when we look at the labor market locally, you know, the big projects in Chile are now, you know, finishing. You know, Q2, our own construction work at Pelambres. At a time in which the economy will be contracting, we think there may be more flexibility in the labor market to be able to, you know, pick up that opportunity. From those two angles, we think that rather than trying to time specifically, you know, when we would
When has inflation peaked, that we've built into the contractual arrangements, flexibility to take advantage of some of these commodity prices if they come down over the construction period of the project, and therefore that we're protected from that point of view. I think, that's the way that we looked at the project rather than try to time exactly, you know, when might inflation come down. I think for us, it's important time-wise, to get clarity on, I mean, on the studies on engineering that we have to finish and complete, you know, in the project. Also the fiscal terms applicable, you know, will be quite important with respect to the specific timing in which we would make this decision.
Thanks, Iván. That's very clear. On capital allocation framework, company doesn't list buyback as one of the possible options. Is that a disbelief in that tool, or are there any other reasons why Antofagasta wouldn't like to do a buyback in the event of cash availability? Obviously, it's not something near term because there is a CapEx profile, but there seems to be a very clear preference for just dividends depending on your payout, but not to go for buybacks.
Yeah, I think one of the things that I think are very a robust attribute of this company is that we have of Antofagasta you know a very consistent dividend policy embedded in our capital allocation. I think, you know, we have followed that through the cycle and will continue to follow it in a very consistent way. Therefore, you know, that's a very core element of, you know, Antofagasta. Now, in terms of buyback, there are some, I would say, disadvantages when we look at it compared to the plain dividend, given the sort of ownership structure that Antofagasta has. I think that's the main reason.
I think, from a dividend point of view, you know, we have a sound dividend policy. It's been the sort of key way of returning cash to shareholders, and I think it will continue to be that way.
Excellent. Just last question on Chilean constitution. If the new constitution gets approved, is there any implementation timeline and resources that will get channelized into that direction, potentially impacting the permits that the mining industry needs? Do you think a for vote will be adverse versus a retain the current constitution vote? Which way do you think will it work out better for the mining industry?
Yeah. Look, I'm not gonna give a specific opinion on which vote, you know, should prevail. I think, you know, with the referendum is due to take place on the fourth of September. I think, you know, we will have to wait until that stage. I think from the point of view of what we've seen in terms of the, you know, the draft constitution, it certainly. There is less certainty provided in terms of the applicable regulatory framework for business generally and for mining particularly compared to the existing constitution.
That means basically that the legislative work that follows, in terms of the specific laws that are applicable and that need yet to be developed are gonna be extremely important in the case, you know, that the new constitution is approved. Therefore, that uncertainty is important that is addressed, you know, promptly, I think, in that scenario for the purposes of, you know, ensuring that investment, you know, can and continues. I think that's the key element, you know, for us. There is less in the Constitution about the applicable framework for mining than there is in the current one, and that creates uncertainty, which needs to be resolved subsequently through legislation.
That will have to run its own period and that will depend on the outcome of the referendum. So that's the situation with respect to the referendum and where it stands. We'll have to see what happens in the fourth of September.
Okay. Thanks a lot, and team, all the best.
Yeah. Thank you, Jatinder.
Next question will be from Daniel Major. Please don't forget to unmute yourself and turn your camera on.
Hi. Sorry, my Zoom was a little bit slow switching on. Hope you guys are well. Yeah, most of my questions have been asked, but I had two follow-ups. Can you give any update on the Pakistan settlement? Any sort of indication on timing or tax rate is the first one.
Yeah. Not nothing especially new, Daniel, on that. I think you know we have an agreement and that certain conditions need to be fulfilled by next year when if fulfilled you know payment would happen. We're basically seeing that is evolving according to plan, and our teams are working for that, those conditions you know to be in place. That's where we are. No specific news, but I think that's good news in the context. Work continues as planned.
Just to follow up that, in terms of the use of proceeds, is it right to assume these should just go into the broader funding of the normal run rate of dividend and financing, assuming you go forward with the Centinela project rather than viewing this as a sort of special dividend item?
Yeah. I mean, look, a decision would have to be made at the time, but I think the way that we look at this is through our capital allocation framework in the sense that this is a cash inflow, which will go into the general, you know, cash generation in the period. Obviously, it's an extraordinary amount, which is unrelated to the sort of ordinary course of sales, and therefore would be looked in the balance of that capital allocation decision-making. If you recall, you know, we use that cash to fund our CapEx, sustaining CapEx. We use it to pay our minimum dividend of 35%, and then what's left out of that would normally return to shareholders, unless, you know, we have a project.
In the case of the projects, what we've done mostly is fund them at the company level with debt. It would follow within that logic. That's the way that we would look at it.
Great. Thanks. Just final one, sir. Maybe slightly higher level question, but we've seen some interesting M&A in the space, and one of your peers probably gonna have to make a decision about what long-term copper price they feel is appropriate to potentially get a transaction over the line. How have you been looking at that progression of the long-term copper price needed to get your projects to the level of return that you need in the current inflationary environment? Have you changed those assumptions at all?
Yeah. You know, well, we want our assumptions are for internal use. If you look at consensus, I mean, what's been happening, certainly that we've seen an increase in the long-term consensus copper price. If it used to be, you know, 12 or 18 months ago, closer to $3, it's probably, consensus is talking now of number which is probably at $3.50 or slightly above that. There is a movement in how the market is looking at the long-term price, and I think that's consistent with the fact that we see that this is a market which is, you know, moving into a situation of shortage.
I mean, if you look at the demand growth from electromobility and from sort of, you know, the energy transition, more copper will be required, especially, you know, up to 2030, and there just isn't sufficient projects which can be identified to supply that copper requirement. Certainly the direction in which we think the long-term price is moving is consistent with what the fundamentals of the market show. I think from that point of view, copper, you know, is a very important and critical commodity going forward. The current price performance, I think, very much driven, you know, by short-term factors and therefore, you know, to some extent, decoupled, you know, from the sort of long-term fundamentals.
I think, if you look at the long term, we think, you know, that there will be increasing shortage, and that would have to be reflected in the copper price, just to reflect the reality of the energy transition and the commitments that are being made with respect to copper consumption.
Great. Thanks for questions and see you guys soon.
Thanks. Thanks then.
Thank you. Next question will be from Jason Fairclough.
Okay. I think it's working. Can you hear me guys?
We can't hear you very well.
Hello?
Jason. No, that's better.
Okay. Well.
That probably will get you better.
It's better now. Okay, good.
Yeah.
Sorry, I have to do this on my phone because our firewall is blocking your system. Look, two sort of big picture questions for me. First on Chile. I mean, historically, the group has tried to move outside Chile with limited success. I mean, obviously Pakistan, maybe it works out okay in the end because you get paid, but it, you know, really didn't work out. And then Twin Metals similarly, I think there's a lot of resistance to that project. Does what's going on in Chile make you think again about spreading your wings and going beyond your homeland, as it were, right? Secondly, just on water, and again, a bit of a think in terms of business planning about having zero access to terrestrial water.
Yeah. Okay. I got you a bit cut, but I'll try to pull the pieces together to get your question and answer what you. On our intent of strategic interest in growing for copper, I think, you know, we very much remain committed to the strategy of looking broadly at copper beyond Chile and therefore if we find interesting opportunities, we want and are looking at it in that way. Now, that's why. I mean, we all know that it's difficult to find assets which are attractive and properly valued, and that's been a story which has been consistent for the industry.
That's why a lot of our effort outside Chile is focused really on exploration, which we have now an exploration team in Peru, we have an exploration team in Canada, which is covering North America, both the States and Canada. That effort will continue, and it's very much geared towards finding opportunities in a broader footprint than Chile, which we think you know would be a great way of continuing to grow. We're absolutely committed to that, but at the right I mean for the right targets which we know are challenging. In the case of Twin Metals, you know I think that's an interesting one because obviously it's a project that's challenged, as most projects you know have been and are in the U.S.
We think that we have a very good prospect there of developing a mine, an underground mine, with a very limited environmental footprint, and with very high standards. We will continue to pursue that. I mean, we think that that's something that we should continue to look at and to fight for. We're seeing a swing in the opinion slightly emerging in the U.S. with respect to the importance of self-sufficiency for the purposes of national security around critical metals. To the extent that that takes hold, we think, you know, this project and others may be looked at in a different light, and that's a positive development.
Now, we've got to be persistent, we've got to be consistent and committed, and that's what we're thinking of as we look at these projects and others outside. That's a very important, I would say, feature of how we look at growth opportunities. Now, in terms of water, we will be by 2025, you know, if we complete the expansion at Centinela, almost 90% running on water from the sea. I think we see that as a trend that will continue to move in that direction when it relates to big mining companies. We're committed to move in that direction in that sense. Now, we think that may not be the solution for every single mine.
Some mines have shorter life, are smaller in nature, and it may be technically and from an environmental point of view sound to be able to continue to use, continental water. In those cases, you know, we think, therefore, that shouldn't be an issue. Certainly we see ourselves moving in that direction, and we have a clear line of sight that by 2025, 90% or more of the water that we use will be from the sea.
Thanks. Could I just follow up on that, Ivan? How do we think about water at Zaldívar specifically?
In the case of Zaldívar, there are two things. One, we look at the ore body there with the potential to extend the mine life through the development of a primary project, which will take mining beyond the current mine plan probably for another, you know, 15 or 20 years. And what we're asking there is for a permit to be able to continue to extract continental waters until 2029. A limited period of time, which will allow us basically to bridge into a potential primary ore body. The way that we look at Zaldívar is that we think we have a robust case technically and environmentally to be able to continue to extract water from continental sources for the limited period of time that we are requesting between 2025 and 2029.
That would provide a bridge in the case that we do the subsequent primary ore body development later on. That's the way that we look at water at Zaldívar. As I say, we think that our permit is solid in the sense that we're asking a permit which is well below the natural recharge of that aquifer for a limited period of time, and that would allow us basically to continue to operate and then potentially bridge into an expansion or further development down the road, which would have its own water solution later on.
Okay. Thank you very much, guys. Appreciate the time.
Thanks, Jason.
Next question will be from Danielle Chigumira. Please don't forget to turn your camera on. I see that Danielle has some technical issues with the audio. Oh, now. Yeah. The next question will be from Ian Rossouw.
Yeah.
Hi. Just a follow-up question on overall CapEx. Obviously, your guidance for this year is $1.9 billion. I think previously, Mauricio, you've said that the sustaining and mine development CapEx for next year is also still gonna be above the sort of normal long-term range with the spending on the DMC project probably around $1 billion. I mean, should we expect the CapEx for the next couple of years to actually be above this year's number?
Yeah. I think the way that we look at CapEx is that, I mean, our project at Pelambres is sort of tailing off as we sort of finish it this year. That will be replaced in the case that we do the expansion at Centinela for capital expenditure at Centinela. We would expect therefore levels which are not too dissimilar to what we've guided for in 2022, yeah. Considering that there is that replacement factor in the development CapEx component. Yeah.
I think the Pelambres CapEx is around $600 million a year or $600-$700, right? This is a bit of a step up to that. Just curious on that.
Yeah. In the case of Pelambres, I mean, we have a few what we call infrastructure projects which are enablers for you know the remaining life of Pelambres, which are important. One is the replacement of the concentrate line. The other one is the expansion of the desalination plant to 800 m per second. The other one is a few ancillary investments in the Mauro tailings dam. There is those three projects which probably make up to close to $1 billion will be spent you know during this time frame, and that's why we've seen an increase in the CapEx at Pelambres consistent with the development of those projects and other sustaining CapEx.
Those are, you know, key enablers for what we think is the continuation of Pelambres in a way that it addresses any concern with respect to environment, community, and adaptation to climate change, and also a key stepping stone for what might come next, which is, you know, a further extension of the mine life at Pelambres, which is really what we're working on in terms of permitting right now. We think that Pelambres mine life ends in 2035 or 2037, and there is the ore body potential to extend that beyond that timeline. That's really what we're thinking of, given the quality of the ore body at Pelambres, which is among, you know, the best in the world.
Okay. All right. We shouldn't expect a decent pickup in CapEx next year. Is that how I should understand it?
No, I would say yeah, at levels that are similar to what we've sort of seen this year, you know, give or take, but at that sort of level.
Okay. All right. Thank you very much.
Thank you. Next question will be from Danielle again. Please don't forget to unmute yourself and turn your camera on.
Hi there. Hopefully this works this time around, so apologies for that. A couple of questions, one very general. You mentioned decelerating local economy environment. Do you think that inflation has now peaked at your operations currently?
We think that certainly the signs are that things seem to be turning. We've seen some of the key commodities, if you look at what's happened to oil and some of the sort of steel-based commodities starting to move down. That is a sign that we think might be an indicative indication that inflation may have peaked. It's too early to say at this stage, but there are signs that that may be happening, which I think is good. I think certainly what we've seen is governments have consistently taking measures, you know, to bring inflation down in a decisive way, as we've seen, given, you know, the hikes in interest rates.
Therefore, if you look at what happened with inflation, you know, information that was released yesterday in the U.S., it seems to be that way. That will be, you know, great news and expected, you know, in terms of what we've seen happening at the macro level. Yeah.
Great. Thank you. That's very useful. Just one follow-up from Zaldívar. In the event that you don't receive the extension to the water license, there's a potential timing mismatch before you firm up the primary sulfide resource. Would you consider investing in a desalination solution for Zaldívar before you have the detail in terms of how large that underground sulfide resource could be to kind of bridge that gap before you get to 2029?
I think we would certainly not make an investment on a water solution that's not associated to the development of the primary ore body. Therefore, our plan is, you know, that we continue to pursue the permit that we have currently for the existing plan. Any other different solution would only have to be linked to a primary ore project which we have not yet full you know definition of. You know, that's the way we would look at any investment associated to that expansion, only.
That's very clear. Thank you.
Thank you. The next question is from Ioannis Masvoulas. Please do not forget to unmute yourself and turn your camera on. Looks like this person has some technical issues. Let's wait a couple of seconds.
Hi. Can you hear me?
Yeah.
Hello?
Yeah, we can hear you now.
Okay, great. Thanks very much, guys. Just a couple of follow-up questions from me. The first, could you please talk about the H2 production increase and what are the main moving parts? The second question, can you talk about the interest rate movements and how those could impact the value of the water infrastructure, as you think about the potential monetization, towards the end of the year? Thank you very much.
On H2 production, the increase that we expect to see and which is sort of embedded in the guidance for the year is essentially located in Pelambres, where we expect to see an increase in production driven by higher throughput grades because of the release of the water availability restriction. That's a pretty straightforward increase in production coming out of not being limited by water supply in the second half. We also expect to see in the case of Centinela a recovery in the grades. As you know, in the case of Centinela, we've gone through the initial phases of opening a new front, which carries lower grade, and then that starts to increase.
We'll see some increase of that in the second half and then, you know, most of it when we get to 2023. That's basically what's driving the increase in production in the second half and why we expect to see very differently because the capacity at Pelambres plant exists. It's been limited in the first half because of water availability, which we have available now for the second part. In respect of interest rate, I mean, that's something with that. I mean, we're looking at the potential for divestment and those considerations in considering that this is a long-term transaction. We would not...
We would consider that in the context of long-term parameters and long-term returns rather than spot, you know, interest rates or short-term interest rates. That's the way that you know, we would look at it. If we move in this direction, we would lock a water supply contract, which is based on interest rates, which would affect the long-term nature of the investment. Therefore, that's the sort of term of interest rates that we would look at rather than the specific rates in the short term.
That's very clear. Thank you very much. Good luck with everything.
Thank you.
Thank you so much for joining us today and this Q&A session with Antofagasta. Unfortunately, we ran out of time and need to end the session.
Okay. Thank you very much. Cheers to all. Bye-bye.
Bye.