Thank you for joining the Antofagasta Q&A session today. If you would like to ask a question, please use the Raise Hand feature on your Zoom screen, or if you have dialed in, please press star nine to raise your hand. I will now pass you over to our host for this event, Rosario Orchard.
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 Sustainability and Corporate Affairs, René Aguilar. Iván will start with a short introduction, then we'll move straight into Q&A, and we'll wrap it up in an hour time. Iván, over to you.
Thank you, Rosario, and hello to everybody. It's good to be in this call and to share with you on this Q&A session. I've just want to say a few things as highlights. We've released our half one financial results, which show an increase in our earnings and on our financial measures and performance, as well as in our interim dividend. We also would like to note that we remain with a strong balance sheet at 0.27x EBITDA, the net debt figure. Strong set of financials and would be happy to take questions on those. Looking beyond the financials, I would like to say that we're quite excited with respect to the second half of this year.
One of the key things is that we're seeing a good progress on the ramp-up on the desalination plant at Los Pelambres. We have construction now essentially behind us, and even though that period, you know, took us a bit longer, and that being the reason why we adjusted our production guidance earlier, we're now we think in quite strong shape as the plant is sort of ramping up. In June, we were passing 160 L/s , in July, close to 200, and in the last 10 days, we're hitting numbers which are north of 300 L/s .
As you know, this is a key project to be able to release the full capability that Pelambres has to run as a facility. We're very excited about that and how that's going. I think in the case of Centinela, a few words. We've continued to ramp up the 100% automated mining fleet at Esperanza Sur pit. We continue to update our studies on the second concentrator, which is quite a significant project that we plan to take to the board towards the end of this year. That is also something which is key for the second half.
More broadly, in terms of the business environment prevailing in, in Chile, I would like to say that just very recently, the President of Chile approved or signed the new Mining Royalty Bill. This will come in effect in January 2024. For some of our operations, it will have an impact. For others that have invariability agreement, like is the case of Centinela and Toconao, only from 2030 onwards. I think the important feature of this royalty is that it does close the uncertainty around fiscal terms, which I think it's something that's quite important for long-term investments like the ones that we have in mining.
Having said that, I think, you know, that leads us to, then, take, you know, questions from the floor, and we'll move then into the Q&A session. Happy to, to move to that part of the, of the meeting, and then I'll, I'll hand it over to, who's coordinating this to be able to, take up questions.
Excellent. Thank you. For our Q&A session, we will be utilizing the Raise Hand feature. For if you would like to use it, ask a question, simply click on the Raise Hand button at the bottom of your screen. Once you've been invited to, please unmute yourself, turn your camera on, and begin with your question. If you have dialed in, please press star nine to raise your hand and star six to unmute. Our first question comes from Jason Fairclough at BofA Securities. Please unmute yourself and ask your question.
It's Jason Fairclough from Bank of America. Hi, guys. Thanks for the Q&A session. Look, I just had a really specific question about the second phase of desalination. Because on the one hand, you're committed to, to do this, to, to sort of double the production up to sort of 800 L/s of water. Some of the text in the release suggests that you're, you're ultimately limited by what you can do until you get the EIA. I guess the question is, you know, does this stop you from ordering equipment? Does it stop you from preparing foundations? What's the timeline on the EIA for the for the second stage of the desalination?
Okay. Thanks, Jason. Good to see you. Thanks for the question. I, I would say that the project to expand the desal plant is well on, on track. There are two elements to this. One is, is there is some pre-investments that we have made, which are already in place, so the foundations for the new trains have been built. The pipeline, or the, the piping, you know, for connecting that to the plant is also in place. The marine works have been sized for the expanded plant. All of that is now behind us, and I would stress, especially sort of the construction of the marine works, which we know are challenging, have been completed.
What we're now doing is essentially, with the same or with an ad hoc team, which is already assembled and in place, we're commencing, you know, the works for the expansion. That means that some early items have been ordered already, and, therefore, we expect to commence construction quite swiftly following the completion of phase one, which would be towards the end of this year, early 2024. Now, on the permitting side, to be able to complete, you know, the work and operate an expanded plant, we need to have a permit in place. That permit has been in the works now for a few years, and it's ending, coming to a closure, and we expect to get the permit before the end of the year.
This is a permit that involves, in scope, the expansion of the diesel plant, involves, replacement of the concentrator line, the concentrator pipeline as well, and some minor works at El Mauro. This, permit, as I say, was filed, you know, a few years ago, has been on the working and is now reaching its final, final stages, therefore, we expect that we will get it before the end of the year. Therefore, that ties in very well with the schedule that we have to commence construction, that's why we're moving ahead with, as I say, ordering some pipes and equipment, which is already being delivered. We think we're in quite good shape to be able to swiftly commence construction following the ramp-up of the current plant.
Just to push you on this, Iván.
Yeah.
Is it correct to say that you can't do the construction until you receive the permits? Or is it that you can't operate it until you have the permit?
Strictly speaking, we, we have, we need the permit for, for both, for the construction and to operate it. As I say, we, we see no issue with obtaining the permit because this is not something that we've been working on now. It's something that we've been doing, you know, for, you know, a period of time. As we've engaged the authority in closing this permit, which is the final phases in which we're now, we don't see any material issues which would concern us. I, I would say this is according to program and plan, there's nothing unusual in what we are expecting to see with respect to being able to link into the construction that follows from this point onwards.
Okay. Thank you very much.
Yeah.
Our next question comes from Ian Rossouw at Barclays. Please unmute your line and ask your question.
Thank you. I've got a couple of questions. Just firstly, on the CapEx figures for the second concentrator, I can see that you've removed the $3.7 billion from the previous presentation in today's presentation. Can we still expect the overall figure to be that, or is there risks of that going up? Maybe just as a follow-up, if you can give us an updated figure for the diesel expansion, in terms of the CapEx, and also the overall CapEx for the Los Pelambres expansion. Thank you. Second question, just on working capital, there, I guess typically you have quite a big inflow in the first half and then an outflow in the second half. I guess the inflow, there wasn't a big inflow in the first half.
Should we still expect a decent outflow in the second half like you usually see with seasonality? Thank you.
Thanks, Ian, and good seeing you as well. Look, with respect to the CapEx for the second concentrator, the estimate that we shared before, $3.7 billion, you know, essentially, it remains in place. Obviously, we are updating that figure, which was released, you know, I guess, over 1 year ago, close to 1 year ago. We, we are updating that, but there's no change in scope to being contemplated. It's about updating it to, you know, price and contracted values as, you know, they've sort of moved from the time this was released.
We will obviously be updating that figure, but expect some changes, you know, associated essentially to some escalation and inflation, not to any change in scope, and therefore to be, you know, from that point of view, measured. That's the situation with respect to the $3.7 billion. On the on the diesel expansion, that we will, you know, communicate the estimate for the project as part of the CapEx estimate that we do release, typically, you know, with the Q3 production report. I, I would just advance that the the scope of work that we've got involved in this project is less than we had for the original, and I've mentioned why before, because we don't have marine works....
We have the foundations in place, and, and, and therefore it is more limited in scope, and therefore the investment involved is obviously lower for that part of the project. The project also includes replacing the concentrator pipeline and some other works on the Mauro tailings, tailings dam. We will be providing that for more granularity on that as we sort of release the quarter three production report. On working capital, I mean, let me pass on to Mauricio for him to address that question.
Thank you, Ian. Hello to everyone. Hi, Ian. Basically, as you know, Ian, working capital moves on the back of payables and receivables. For the second half, I don't expect, we don't expect big changes on payables. In receivables, if we look the first half, basically, we ran flat on the volumes and also copper price. Basically, that's the reason why our working capital movement over the first half was so a limited number. In the second half, of course, aligned with our increased production that we are forecasting for the second half, we expect an increase on volumes, remains to see what happened with the copper price that also may have an impact.
On in all, flat, the explanation of the running flat of the first half is no movement in volumes on sales, and for the second half, back to back with the increased production, we may expect higher sales, therefore, the impact in, in, in receivables.
Okay. Thank you.
Our next question comes from Daniel Major at UBS. Please unmute your line and ask your question.
Hi, guys, thanks, thanks for the questions. Yeah, my, my first one is on CapEx and the commentary around the mine development sustaining CapEx at Centinela in 2025 to 2027. Slightly confused about where this kind of classifies within the project, because you've estimated the $3.7 is the sort of construction CapEx, but you've got $750 million of CapEx more on essentially mine development. If you weren't doing the expansion, I'm assuming you wouldn't have to do the mine development. Why is this not included in the overall CapEx budget for the project? That's the first question.
Yeah. Okay. No, that's, that's, thanks, Daniel, and, and again, good to, good to see you. Yeah. I think what we've wanted to to highlight there is that the the new concentrator has feed in the plant from essentially two sources. One is the Esperanza Sur Pit, which is now, you know, in, in operation, and the other one is the Encuentro pit. As, as you know, those are part of the district. And, and, and therefore, the, the project does involve getting all the plant feed, you know, from that second, second pit. According to how we optimize the sequence, you know, coming from the several mines, we do expect to start doing some development, some mine development work around 2025.
That now sort of, you know, is in, in the period during which we will be building the concentrator. We've wanted to flag that that will span, you know, for three to four years, between 2025 and 2027, and that is typically a combination of sustaining CapEx and mine development. Why isn't it part of the front-end estimate? Because, one, it expands a longer period of time. I mean, this goes to 2027, and therefore, it's outside, you know, the sort of timeline in which we will be building the plant. Second, because we would incur in the development of the Encuentro pit over time, irrespective if we did the plant. Remember that we've got in the district, essentially three pits which feed the concentrator.
One is the Esperanza Pit, the other one is the Esperanza Sur, and the other one is the potential Encuentro. Therefore, whatever plant capacity we have over time, our optimal mining sequence does involve developing the three pits. Irrespective of how much installed capacity we have in the plant, you know, we will develop the Encuentro Pit over time to be able to feed the plant that, that, that we have or the plant capacity that we have. In fact, the Encuentro Pit, later or earlier, is there to be developed. So that's why we've sort of are treating it this way. Certainly we wanted to flag this for the purposes of you guys being able to, to model, you know, the numbers better.
Now, this has always been part of, obviously, the economics of the district, and therefore, you know, from the point of view of the, return and, and, you know, the expected costs to be able to, make the project attractive, this has always been part and parcel of the project. We just wanted to flag that for the purposes of, getting a better understanding of, you know, the figures. That, that's the reason why we're treating it that way.
Very clear. That's good. Thanks. Maybe just to follow on from that, in terms of the CapEx outlook, over the next few years, I know you'll obviously provide the numbers, but is it fair to assume at this point, if we look over the next few years, a run rate of, you know, somewhere like one and a half-
Sorry, can you still hear me, or have I frozen?
Yeah, you seem to cut off at times, but I think we're getting, we're getting you, most of what you're saying.
Yeah. Sorry, my.
Now we've lost you. Yeah.
While we reform that connection, we can move on to our next question.
To Ioannis Masvoulas at Morgan Stanley. Please unmute your line by pressing star six. Thank you.
Can you hear me okay now?
Yes, we can hear you.
Okay, perfect. Perfect. Thank you. Thanks for the presentation. Couple of questions from my side. The first one, I guess relevant to what Daniel was trying to ask, a bit on sustaining CapEx more specifically. You previously guided the sustaining CapEx, averaging about a billion dollar in the next three years, but clearly 2023 is running at $1.5 billion. Does that imply that 2024, 2025 sustaining CapEx will be below a billion to make the average work? Related to that, beyond 2025, what's, what shall we expect to be the steady state sustaining CapEx with and without the Centinela second concentrator project? Just to put things into context, please. Thank you.
Yeah. I'll pass it on to Mauricio, but just a few sort of introductory remarks. I mean one is that, yeah, we had guided to an average of a billion in sustaining CapEx for three years, which, as you point out, means that the base CapEx figure, you know, is slightly lower if we've started with 1.5 . I think obviously, this is a figure that we continue to sort of review on the basis of how input costs perform. That assumes, obviously, the level of activity and that we have today.
When we undertake, if, if we do, there's a positive decision around the second concentrator, then obviously our base capital asset changes, and therefore, the sustaining CapEx requirements modify. That has to be taken into account. Therefore, this figure does not take into account, you know, obviously, projects which have not been yet approved by the board. If it is the second concentrator, then obviously that figure will change because our asset base will be changed significantly, requiring also sustaining CapEx in line probably with, you know, depreciation. Just to warn you about that.
Again, I think we will provide more granularity on our CapEx estimates in quarter three with our production report, and therefore, you know, can, can be more specific. That's the sort of general trend that we expect to, to see. I don't know, Mauricio, if you want to add anything to, to that?
Just, just some flavor to, to, to your comments, Iván. Where, basically, to reconcile, Ioannis, we were saying $3 billion average over the next three years, 2023, 2024, 2025. That basically includes mine development and sustaining in our four companies. Within sustaining companies, important projects that we are including there are basically the Desulf Phase II in Los Pelambres and the raising the wall of the tailing dams in Centinela. Those are the main elements in the sustaining CapEx over this three years window.
On top of that, as Ivan said, of course, we need to detail how the expenditure profile of the second concentrator will looks like, but I will say that a shape, belt shape, is a, is a good, proxy for your models at this stage, with something like $25, the first 12 months, $15 the second 12 months, and then $25 in the last 12 months, in a, or as a proxy of a 36, 30 months construction period. On top of that, what is the information that we are, clearly, informing today to the market, is the fact that Ivan was discussing with Dan previously, of is Encuentro pit.
As we said, we are forecasting that that expenditure will increase sustaining CapEx plus mine development in Centinela from the average that, that we have seen over the last couple of years, about $650 million to a number close to $900 million. With these three elements, I believe you can build an accurate projection of our CapEx profile for the next three five years, including the second concentrator, which is one of the main building blocks in our projection.
Okay. Perfect.
Thank you.
Thanks for that. Just a second question on Zaldívar. You're looking to develop the primary sulphide ore deposit, and to extend the mine life to 2051. Is this a bet on the Cuprochlor technology that is going to prove viable on your expectations? Or are you considering other competing leaching technologies to make this expansion viable? Thank you.
Yeah. We are looking at technologies that allow, basically, the leaching of primary ore. The base technology is Cuprochlor. That Cuprochlor is based essentially on chloride leaching with temperature. You know, from that point of view, we think, you know, that technology, you know, will allow us essentially to achieve the level of, you know, recoveries that we expect, will make this project attractive. Where we are on that, we are actually finishing a pre-feasibility, and all the testing and results on the metallurgical side are quite supportive of that conclusion.
As I say, you know, we, we, we, we believe this is the, the route to develop, you know, in the long term, low or lower grade, you know, primary sulfides, especially those which are adjacent to a hydro facility like we have in Zaldívar. Yes, you know, it's, it's essentially built on, on chloride leaching with, with temperature, and everything confirms that, you know, this yields the sort of expected results that we're looking at.
Great. Thanks very much.
Our next question comes from Edward Goldsmith at Deutsche Bank. Please unmute your line and ask your question.
Thanks for the questions. Two from, two from my side. Firstly, on the, the Reko Diq proceeds, how should we think about the allocation of the proceeds given the potential upcoming CapEx spend at Centinela? Secondly, can you provide an update on the water tender process at Centinela, and how this could impact the economics of the second concentrated project? Thank you.
Yeah. Thanks, Edward. Yeah, there's two things. I think, one, on the Reko Diq . I mean, I think the good news is that this has been now completely settled. We did recognize in our earnings in 2022, the recovery, and then we've received, you know, the cash in full in the first half. We've also cleared any tax, you know, liability with the Australian Taxation Office, and therefore, that's been settled, and it's behind us, and there was no tax applicable. Now, in respect of distributions, this goes into our cash allocation as part of, you know, the cash received, you know, by the company. We typically pay our dividend, our interim dividend on the basis of our 35 minimum dividend policy, and that's what we've done.
The board will take or make an active decision on the final dividend after a year end. We will know then, essentially, you know, at that time, what that decision is, and until then, we've just, you know, have applied the minimum dividend policy that we normally do for the interim dividend. That decision will be made when the final dividend is announced. As I say, that active dividend decision is typically made at that time and not before. It'll come with that, with that, with that decision. On the, on the water process at Centinela, I think we've, we've been working on this quite extensively, and we're now in the sort of finalizing this, this process.
As we've mentioned before, we've sort of tendered for a party which might be interested in actually buying the water system and then undertaking the expansion of the water system required for the second concentrator as a separate entity on the back of a water supply agreement. We are looking at this, as I say, with the sort of final numbers being put together as we speak. I think it does, you know, look as an attractive option to consider. We've put some boundaries around it from the point of view of the risk allocation. You know, we need to feel comfortable about the risk allocation. Water supply is pretty critical.
I think with, we, we are seeing terms and conditions which are consistent with the type of risk allocation that we would expect, so that's positive. From the point of view of pricing, you know, we would expect this to be, at least, you know, NPD neutral or, you know, to accrue some value. I think the initial numbers that we're looking at would indicate that to be the case as well. We're now in the process of finalizing this, and this will come to, to closure in the next couple of months as we sort of approach the board with, with a decision on the second concentrator, because the idea is to make this choice, you know, simultaneously or at the same time. That-that's where things are with respect to the water tender process.
You know, good, good progress.
Thank you.
Our next question comes from Bob Brackett at Bernstein Research. Please press star six to unmute the line. Thank you.
Yes, good morning. A bit of a follow-up on the Zaldívar primary sulfide. I noticed in your slide around pipeline for growth, in previous versions, you had Cuprochlor-T sort of on both sides of the, the growth wedge, and now you've replaced one of those with other innovation. Am I overreading that, or are there other innovations you're contemplating, and are they competing with Cuprochlor-T?
No, I think you're probably, overreading it. You know, it's our design team that I guess, you know, will... It's, it's exercising some extra creativity in, in how they sort of display this. No, we're very, I think, committed to and, and, and, you know, favorable with respect to Cuprochlor-T. I think we see, this as something that is, is a kind of, you know, breakthrough in, in the sense of, you know, being able to provide an extended life for some assets. That's the case of, of Zaldívar. We're also seeing it applied in, in, some other mine plants.
We, we, we see it in Antucoya, and we see it in Centinela, as we've sort of developed and update our mine plans for the life of mine, that there are some minerals, you know, that will benefit from Cuprochlor-T . We're actually seeing it applied across, you know, our assets, you know, that have hydro inclusivity. No, I, I think it's- it remains in the same spot and space that we've seen it in the past. As I say, we continue to progress deployment of this, of this, technology so that we can extract commercial value and very much focused on, on our own minerals. And therefore, there's, there's no change in, in respect of that.
Very clear. Thank you.
Next up, we have a question from Tony Robson at Global Research. Please unmute your line by pressing star six. Thank you.
Thank you. Tony Robson, Global Mining Research. Thank you for taking my question. Looking, it sounds like a lot of figures will be coming out in the quarter three results, but ahead of that, I'm looking out to phase two. Where would we roughly think of phase two costs relative to phase one? Similar, higher or lower, please? As an adjunct to that, permitting for tails has historically been a bit problematic at Los Pelambres. Can any of stage two go ahead if you don't get the tailings permit, or would lack of a tails permit means phase two does not go ahead? Thank you.
Yeah. I'm gonna refer to the projects by their scope more than by the phase, to make sure that I'm answering your question. What we call the next phase at Pelambres is this project that involves expanding the diesel plant and replacing essentially the concentrator line. Those projects we see as necessary to be able to, you know, achieve the sufficient water supply independence and then replace some critical infrastructure. Those are going ahead regardless of any decision on the tailings expansion. As you know, these projects are an integral part of our sustaining capital expenditure leading to a life of mine that we have today, which finishes in 2036 or 2037.
Those projects go ahead, that, that project goes ahead, you know, irres- irrespective. We will provide more granularity on the CapEx estimate, in quarter three. As I've mentioned before, the scope of the project as it relates to water, is simpler, because we don't have to do the marine works. Those have been completed for both. The foundations for the trains in the plants are in place. We don't have to actually build a pipeline for water, up to El Mauro, because this project involves repowering the pump stations, but not creating or building a new line. There's only a new line between El Mauro and the plant in, in Chacay. A more limited scope, but we will provide more granularity on that.
The permit for tailings, I mean, the next phase of growth that comes in Pelambres, subsequent, you know, to this expansion, is really the extension of the mine life. That is something which is centered on being able to get an extension of the tailings permit. We're working on that. The current tailing permit expires, you know, our estimate is around 2036 or 2037, on the basis of, you know, the capacity in the tailings dam today, and we're working to be able to achieve an extension of that tailing permit. We think that will, or has the potential to unlock significant value, you know, for Pelambres, obviously, because the mineral base, our resource, is there. That is not a very capital-intensive expansion or project.
It's, it's of a smaller size than, you know, what we've seen for Rincon. We're working on essentially preparing the groundwork to be able to submit a permit for that in the near term. That's the following phase.
Thank you. If I might have a follow-up question, please. Shifting minds to Zaldívar. Barrick this week said on the internet that their stake in Zaldívar is non-core. How does Antofagasta see its stake there? Would you be looking to buy, for example, if Barrick is a seller?
Look, you've, you've got to, I mean, this is something for, for Barrick to, to answer in, in respect of, you know, how they classify the, the assets. You know, we, we, I mean, from our point of view, we, we remain committed to Zaldívar, both from the point of view of, achieving an extension on the water permit, which is, you know, very, very critical as it expires in 2025. Also at looking at development opportunities. I mean, this is an asset which has around 1 billion tons of, of ore, that's why we've recently, in the new permit that we've submitted, talk about a project which could potentially extend its life to, to 2051.
Now, we, we own 50%, we operate the asset, and therefore, you know, any decision to change, you know, ownership in the direction that you suggest, is basically an, an economic decision, which would have to run through our capital allocation and stand against our other investment opportunities. Therefore, that's the way that we would look at it.
Thank you. Thank you for taking my questions.
Our next question comes from Alan Spence at BNP Paribas Exane. Please unmute your line and ask your question.
Thanks, and good afternoon. Last December's mine life extension has a CapEx budget of $500 million for it. I think that's from a PFS nearly 10 years old now. Where do you think that cost estimate would stand today?
Yeah. I, I, I, I agree. This, this, again, just to be clear, the scope of that work essentially involves rising the height of the tailings dam and potentially adding another ball mill into the plant. The scope is rather limited. The value is enormous because it involves, you know, extending the mine life, but the scope of construction work is actually rather limited. The main issue with the face of the project is actually the permit to extend the mine life.
Now, I don't have, or we don't have, an updated figure here, but obviously, if you take simple inflation adjustments, you know, applied to this base, you probably get to a number which is, probably close to, 2 x that figure.
Thanks for that. Then, just another 1 from me. I think you secured two agreements with unions in the last quarter or so. What's the average labor cost inflation you agreed?
Yeah, we have. Typically, the, I would say, the percentage increase in salaries is between 2%-3% in those agreements. That's the sort of level of structural salary increase involved in those agreements. On top of that, as you know, there are payments. There's a one-off bonus payment that's paid, you know, to the workers. Let me give you that. That figure varies, but, you know, it's anything between, you know, $15,000-$20,000 per worker. That's basically what typically is involved in those agreements.
Okay, thank you very much.
As a reminder, if you would like to ask a question, please use the Raise Hand button at the bottom of your Zoom screen, or equally, if you have dialed in, please press star nine to raise your hand. Our next question comes from Daniel Major at UBS. Please unmute your line to ask your question.
Hi. Sorry, I had technical issues earlier. I'll keep my camera off, might make my Zoom a bit more stable. And apologies if this is repeating what you've already said, but just wanted to circle back on that sort of question around the trajectory of sustaining and mine development CapEx in the next couple of years. I think I've managed to rejoin just as Mauricio was finishing the explanation. If you could just quickly repeat that, that would be much appreciated.
Yeah, sure. Luis, you may want to provide a brief summary of that.
Well, as, as, as, as we were saying, Dan, basically, we were guiding, or we guide, previously, that we are going to have an average of $1 billion per year, per year, next three years. That means 2023, 2024 and 2025. Yeah. That includes basically mine development and sustaining CapEx. Those are the, the, the two building blocks in our sustaining CapEx, mine development and, and, and sustaining CapEx. In the good examples of the sustaining CapEx that we are undertaking over this three years window are, for example, the, the, the desulfation Phase II at Los Pelambres and raising the wall at Centinela second Centinela existing concentrator.
That is the explanation, and I'm just quoting what we said, what we said before regarding the explanation of this average of slightly higher $1 billion. The second building blocks that in our CapEx profile, Dan, is of course, the second concentrator. Once we announce, if the board approves this investment, we're going to disclose the precise timeline and precise execution program. I will say that this stage a bell-shaped curve is a good way to model that investment.
That means, 25% the first 12 months, something like 50% in the, during the, the 2nd year of ex-execution, and the, and the balance, the, the, the balance in the, the last period, which should be something between 12 and slightly lower than 12 months, because we are expecting that this is going to take something between 30 and 36 months. The building blocks that we are enlightening, this, this announcement, is the one that you were pointed out previously, which is Encuentro.
Encuentro is this existing open pit that we are bringing forward, and basically, we are opening the sulfide phase halfway of the construction of the 2nd concentrator and ending that mine development work and some sustaining investment just after we complete the construction of the second concentrator. That number compares. The following way: over the last three years, we have invested $650 million in Centinela, including mine development and sustaining, and during the window that we are going to develop in Encuentro, we expect that that sustaining CapEx at Centinela goes to $900 million, and then moves downward once we complete in Encuentro.
All in all, we believe that this is a, this is a, a, a, a good rationale, as we have, as with the second concentrator, we will be doubling copper production, we will be doubling gold production, and basically just over a limited period of time, increasing, sustaining CapEx and mine development, and then basically move backwards or move downwards to the same level of sustaining CapEx that we have now for just one concentrator.
Thanks, thank you, Mauricio.
Thank you.
Let's move on. Yeah. And, and just, just to. So this, this is something that's always been part, as I say, of the project and of the development of the district. So, just to, to bear that in mind. So it's not new from that point of view. Yeah. Okay.
Thank you.
Follow on question?
Our next question comes from Ioannis Masvoulas at Morgan Stanley. Please press star six to unmute your line.
Hi, can you hear me okay?
Yes, we can get you. We can hear you.
Perfect.
Well, yeah.
Perfect. Thanks, thanks for taking the follow-up. Just a few left from my side. The first one on Zaldívar again. How confident are you in securing the extensions of both the mining permit to 2025 and the water extraction permit to 2028? Given the permitting track record of the asset, the timelines appear rather tight here. Interested to hear your views on how achievable those are.
Yeah. So, so, yeah, and just for, you know, for everybody's information, I mean, the, the, we've got two permits running. One is an extension to the mine permit, which is a simpler form of permit request, and, and, you know, which we expect to get, you know, before, you know, the or during or before the expiry of the current permit in 2024. Then the water permit, which, you know, runs out in 2025. I think we've been working, you know, in, in a permitting sequence, which we think it's, it's optimized in the sense that I think it's got all the sort of right elements there, you know, to, to meet, you know, the expectations and requirements to be able to, to continue to, to operate.
The, the, the mining permit as such, extension to match the water permit, as I say, it's a simpler permit, and therefore, you know, we, we don't expect there to be significant significant issues. In the case of the water permit, what we basically said is that, you know, we want or are requesting an extension for a temporary period to be able to continue to run the asset before we, you know, link it to a potential extension, which would see this asset operate into 2051. We're talking of a limited transition with continental water, and, and, and we think that from that point of view, this meets or should meet, you know, we expect the requirements for the permit to be, to be granted.
Obviously, this is something that we're working, you know, with the authorities, as we speak, and therefore, you know, we, we, we think this is responsive to, you know, their view and requirements. And we, you know, we, we will see, you know, but we expect that to be the case.
Perfect. Thanks very much. Just one last question, if I may, on the minority dividends.
Mm-hmm.
If we look at the P&L, it shows $450 million in minority interests over the past 12 months, and that second half of 2022 and first half of 2023, but the cash flow shows 0 dividends to minorities in that time frame. Shall we expect a catch-up effect in the second half of this year? Because that could be quite materially on top of the H2 2023 dividend to minorities. Interested to hear your thoughts on how or how long you can avoid paying the dividends here. Thank you.
No, we're not. Yeah, we're not, we're not avoiding or otherwise. I mean, I, I think this just follows internal cash management practices, you know, depending on which, on where each asset is, is at different stages in terms of what payments have been made, you know, what's the outlook of, for the market, and also what are, you know, the requirements in terms of both investment and any other balance sheet requirement, like, you know, repayment of debt. There's no fixed pattern. It generally, what we do is we draw cash, you know, from the companies, and pay those dividends internally as we sort of manage cash centrally.
It does take into account the specific, you know, situation or cycle in which each company is, as I say, with respect to any loan repayment, investment, or expectation with respect to, you know, to future requirements. There's no fixed pattern to, you know, to, to expect, and it's just, you know, normal course of business with respect to what we expect to see in the second half.
Okay, any indications on what happens in the second half?
With respect to?
Whether there's going to be a payment or not. With respect to the, the dividend minorities, whether you expect any outflows to come through in the second half of this year?
... Yeah, we don't typically share that because, as I say, that's part of the cash management of each of the companies in respect of their own, internal situation. I would stress again that we don't expect to see anything extraordinary, you know, from the point of view of how we manage cash according to the criteria that I've outlined.
Perfect. Thanks a lot, Ivan. Thank you.
Yeah.
Our next question comes from Ian Rossouw at Barclays. Please unmute your line and ask your question.
Thank you. Just two follow-up questions. Just on this royalty, Iván or Mauricio, if you have any idea how you will account for that. Will the ad valorem component come into EBITDA? The, I guess, the remaining part as, as you currently do in, in your, in your tax payments. Secondly, just coming back to the overall CapEx sort of profile, Mauricio, you mentioned the sort of bell shape, and let's sort of, for round numbers, assume $4 billion at the second concentrator. If 50% of that will be in the second year, plus $900 sustaining and mine development at Centinela, and then I guess CapEx elsewhere, could that mean CapEx in 2025 could be $3 billion?
Then maybe just, if you do the syndication on the water pipeline, what could that potentially change in terms of that component? Thank you.
Yeah. Okay, on, so on the accounting of the royalty, I will leave that to, to Mauricio. I think on, on CapEx, these building blocks are in their estimates at this stage. Again, we, we should be able to provide more granularity on, on guidance on capital expenditure in quarter three. Therefore, you know, just, just, you know, beware of that. I can't comment on whether, you know, CapEx will be, you know, $2.5 billion or $3 billion in 2025.
I think we will build those blocks more precisely as decisions are made with respect to the project, and also as we sort of review, you know, the exact figures, which we will be able to disclose, you know, in quarter three, partly, and then going forward when the project is, is approved. With respect to the water system, I mean, what that essentially does is that we, we reduce the front-end capital requirement for the project in two ways. One is, is we get proceeds if we go ahead, you know, with the choice of, of doing the water by third parties. We get proceeds from selling the existing water system, out of basically disposing that asset, and then are able to recycle those proceeds, you know, into the CapEx.
Secondly, we avoid undertaking ourselves, the investment in the expansion. That's a quite a significant, you know, combination of cash. That's essentially how this would play, and we would expect it, if that goes ahead and we do make that choice, then that we would recycle that CapEx or capital cash into, you know, the project requirements, which, you know, we think it's an important upside from the point of view of meeting the cash needs, huh? Mauricio, you want to talk about the royalty maybe, on the accounting side.
Okay. Okay. Well, thank you. Hi, Ian. Well, basically, the, regarding the Royalty, the, the, the piece of analysis that we just completed is the one regarding the deferred tax, and, and that is something that we are actually highlighting in these results. You, you can deep dive on the, on the notes, and you can you will find that we have something in the space of $40 million, suspected impact. We didn't include that in the accounting on the first half because was the, bill was not signed yet, but, we have completed the, the assessment, and we expect that that will, be reflected in, in our results for the, in the full year results. Regarding the, the ad valorem, Ian, we are completing the analysis of that.
In general terms, the bulk of the royalty changes were in the, in the variable part, and the variable part, it doesn't change at all. It, it will remains as it is now. In terms, in general terms, we don't see a different change of what we were forecasting over the, the, the last part of the discussion. Basically, in the 2024 onwards, increase the royalty or increase the royalty payment in Pelambres and Zaldívar, mainly driven by the variable component, and in 2030 onwards in Centinela and Antucoya, as Tax Stability Agreement are in place for these two companies.
Okay. Thank you. Maybe just a follow-up for Iván. I think Mauricio previously indicated sort of the capital cost for that pipeline expansion was around $500 million to $600 million, and then your sort of valuation of the pipeline, I think you had a similar figures. Are those two still realistic?
I think, that's the... You mean that's the expansion, the, the?
both the expansion and then also the sale of the existing. I think those numbers are similar numbers, around $500 million to $600 million.
I think I would say, yeah, it could be, you know, slightly north of that number.
For CapEx or for the existing pipeline, or both?
For both. Yeah.
Okay. All right. Thank you. I'll leave it at that.
Our next question comes from Danielle Chigumira at Credit Suisse. Please unmute your line and ask your question.
Hi there. Thanks, thanks for the question. Two more questions on Zaldívar. Firstly, in the potential event that the extension to the water permit doesn't come through, are you guys already looking at potential third-party sources for desalinated water for Zaldívar? Then secondly, assuming, like assuming that doesn't-- you can't find an alternative water source, would there be a material impact on the economics of the extracting the primary sulfides if you had to, like, put Zaldívar on care and maintenance for two years while you firm up the project, and then restart it with exploit, exploiting the primary sulfides? Does that make a big difference or not really?
Yeah. Thanks, Danielle. I would say, first of all, I mean, obviously, we're working on the basis that, you know, the, the permit is extended. I think we've done a lot of rethinking and reformulating of this permit over the years to be able to, you know, address the requirements of the regulator and the expectations of those surrounding, you know, the, the, the, you know, the place where water is extracted. I think we're quite, from that point of view, committed to trying to, you know, see it through. I think, again, that we've got permit, which does take into account the requirements, as, as they have been relayed to, to us.
Now, in respect of the alternatives, I mean, our permit is built on the basis that we have a, an ore body, which we will mine until 2050, and that there is a transition period, which extends the use of continental water. Beyond that point, which is limited, that extension would have its own water solution, and that water solution involves a, either a desalinated, or not a desalinated, but a water system, you know, from the sea or some alternative source. We, we obviously have and are, you know, developing those alternative in the context of the continuation of mining at Zaldívar beyond this transition period.
From that point of view, we, you know, there are options or alternatives that we've identified, and we will continue to work on that basis, but always thinking of them as being relevant for, you know, the extension beyond the transition period, which ends in 2028, where we're asking the water extraction to be extended. We think that in, in, in any scenario that you can think of, you know, Zaldívar, because of the significant ore which sits, you know, with, in this asset, will operate, you know, for a long period of time with a project that will be able to monetize this, this resource and reserves. We, we are sort of planning long term on that basis for, for Zaldívar.
Great. Thank you.
Our last question comes from Tyler Broda at RBC. Please unmute your line and ask your question.
Sorry, Tyler, you need to unmute.
We seem to be having a technical difficulty with Tyler's audio. At this moment in time, we have no more questions.
Okay. Thank you then, I think with that, then we'll draw the call to an end. Thank you very much for your interest and participation, and, I, you know, we expect to see you around soon. Thank you very much. Bye-bye.
Thank you.
Bye-bye. Bye-bye. Take care.
Okay, great. We can close the room now, Luca. Thank you.
Thank you. Thank you, guys.
Thanks, everybody.
Bye.