HALF YEARLY FINANCIAL REPORT

NEWS RELEASE, 16 AUGUST, 2016

HALF YEARLY FINANCIAL REPORT

 FOR THE SIX MONTHS ENDED 30 JUNE 2016

FURTHER PROGRESS ON COST REDUCTIONS AND IMPROVING MARGINS

Antofagasta plc CEO Iván Arriagada said: "A 24.7% reduction in operating costs offset the decline in the copper price and lower sales volumes resulting in EBITDA of $571.6 million, 2.3% higher than in the same period last year.

"Continued management actions to reduce costs and preserve cash contributed to our EBITDA margin strengthening to 39.5%, from 26.2% in the full year 2015. While reducing costs in absolute terms is important we are focused on achieving improved efficiencies in a sustainable manner to ensure long-term shareholder value.

"Given the current economic uncertainty we are cautious in our outlook and remain conservative in our approach to managing capital. The Board has declared a dividend of 3.1 cents per share equal to 35% of net earnings at the interim, in line with our policy to pay a minimum of 35% of full year net earnings which remains unchanged.

"At Los Pelambres, following the agreement reached with the Caimanes community in April, the two longstanding court cases relating to the Mauro tailings dam have recently been resolved. Although an appeal is possible, it is unlikely to be accepted and Los Pelambres and the Antofagasta group now move into a new era of community engagement."

Financial performance

·      Revenue 18.5% lower at $1,448.0 million, on lower copper prices and sales volumes, and the closure of Michilla at the end of 2015

·      EBITDA ⁽¹⁾ increased 2.3% to $571.6 million despite the fall in revenue, reflecting a 24.7% reduction in operating costs and a first time EBITDA contribution from Zaldívar and other associates

·      EBITDA margin ⁽²⁾ strengthened to 39.5%, up from 31.5% in the same period last year

·      Operating cost reductions of $124 million achieved, contributing to savings of $0.11/lb in cash costs

·      Operating profit and earnings per share fell by 9.2% and 3.3% respectively

·      Operating cash flow generation of $774.1 million in the period, 4.2% less than in the first half of 2015

·      Capital expenditure of $385.4 million, $276.9 million lower than in the first half of 2015. Full year expenditure expected to be lower than original guidance

·      Interim dividend of 3.1 cents per share. Dividend policy to pay a minimum pay-out ratio of 35% of net earnings for the full year remains unchanged

·      Group net debt of $1,039.7 million, almost unchanged since the end of 2015

Operational performance

·      Group copper production in H1 2016 was 323,300 tonnes, 6.6% higher than in the same period last year with the inclusion of production from Antucoya and attributable production from Zaldívar offset by the closure of Michilla and lower production from Centinela

·      Group cash costs before by-product credits were $1.60/lb, 14.9% lower than 2015 primarily due to higher production, improved cost performance and the weaker Chilean Peso

·      Group net cash costs were $1.26/lb, down 17.6% compared to 2015 reflecting lower cash costs before by-product credits

Outlook

·      Group copper production for the year is expected to be at the lower end of the 710-740,000 tonnes guided in January and unit costs $0.05/lb lower with cash costs before by-product credits of $1.60/lb and net cash costs of $1.30/lb

·      Production for the year is weighted to the second half of the year with the completion of the Centinela Concentrates expansion and Antucoya, and an increase in grade at Centinela

Other

·      Outstanding court cases concerning Los Pelambres' Mauro tailings dam resolved. The company will now proceed with the plans presented to the courts and the community to invest in future water supply solutions, additional safety measures, community development projects and to provide access to benefits for families in the community.

Note: The financial results are prepared in accordance with IFRS, unless otherwise noted below.

(1)     EBITDA refers to Earnings Before Interest, Tax, Depreciation and Amortisation and is a non-GAAP measure comprising of 100% of the EBITDA from the Group´s subsidiaries and the Group´s proportional share of the EBITDA of its associates and JVs.

(2)     Calculated as EBITDA/Group revenue. If Associates and JVs revenue is included EBITDA Margin was 35.5% in H1 2016 and 30.8% in H1 2015.

(3)     Includes 37,400 tonnes of sales by Zaldívar, which is equity accounted, and Antucoya pre commercial production.

(4)     Cash cost is a non-GAAP measure used by the mining industry to express the cost of production in US dollars per pound of copper produced and is further explained in the notes to the production and sales statistics in the 2016 half yearly financial report below.

This announcement contains inside information

DIRECTORS' COMMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2016

FINANCIAL

Group revenue was $1,448.0 million, 18.5% lower than in the same period last year due to lower copper prices and sales volumes, and the closure of Michilla at the end of 2015. Revenue from the sale of by-products was similar to the same period last year as lower production offset the increase in realised prices.

Despite the fall in revenue, EBITDA increased by 2.3% to $571.6 million reflecting a 24.7% reduction in operating costs and the inclusion of EBITDA from Zaldívar and other associates for the first time. This has resulted in earnings per share from continuing operations for the period of 8.9 cents per share, down 3.3% compared with the same period last year.

The Board has declared an interim ordinary dividend of 3.1 cents per share, which represents a pay-out ratio of 35%, consistent with the Group's dividend policy.

PRODUCTION AND CASH COSTS

Group copper production in the first half of 2016 was 323,300 tonnes, 6.6% higher than in the same period last year with the inclusion of production from Antucoya and attributable production from Zaldívar, which were not contributing to Group production in the first half of 2015. This more than offset the loss of production following the closure of Michilla at the end of 2015. 

Group gold production was 109,500 ounces in the first six months of the year, 3,000 ounces less than in the first half of 2015 as a result of lower grades at Centinela.

Molybdenum production at Los Pelambres was 3,300 tonnes in the first half of 2016, compared with 4,700 tonnes in the first six months of 2015, principally due to lower throughput and grades

Group cash costs before by-product credits in the first half of 2016 were $1.60/lb, a $0.28/lb decrease compared with the same period last year. This decrease was due to higher production, improved cost performance, the weaker Chilean Peso and a revised estimation of stripping costs, which accounted for $0.10/lb of the decrease.

Net cash costs for the first half of 2016 at $1.26/lb were 17.6% lower than in the same period last year reflecting the lower cash costs before by-product credits.

COST AND COMPETITIVENESS PROGRAMME

The Group introduced the Cost and Competitiveness Programme in 2014 with the aim of reducing the cost base and improving the Group's competitiveness within the industry.

During the first half of 2016, the Group continued to focus on reducing its operating costs through the Programme and achieved cost savings of approximately $67 million in mine site costs and $57 million in corporate, exploration and evaluation expenses. The target for full year is $160 million.

The Programme focuses on four areas:

·     Services productivity: Improving productivity and quality of contracts while reducing costs

·     Operational and maintenance management: Improving performance of critical processes and implementation of standardised maintenance management practices

·     Corporate and organisational effectiveness: Reducing costs and restructuring the Group's organisational functions

·     Energy efficiency: Optimising energy efficiencies, while achieving lower contract prices for energy

The Group is implementing changes to the support areas at each of the operations, including Finance, Human Resources, External Affairs and Legal, with the objective of simplifying their organisation, avoiding duplication, creating improved capability to implement best practices across the Group and focusing operations on the core activities of sustainability (particularly safety), production and costs. At the same time operational and maintenance processes are being strengthened at each site. This standardisation will result in higher efficiency across the functions whilst providing the same level of service and quality across the mining operations.

CEO SUCCESSION

As previously announced Iván Arriagada succeeded Diego Hernández as CEO of Antofagasta plc on 8 April 2016 having held the position of CEO of Antofagasta Minerals since February 2015. Since joining the Group, Iván has led a rigorous cost reduction programme, focusing on maintaining the Group´s healthy balance sheet while ensuring all of the Group´s operations are generating operating cash flow at current copper prices.

CHANGE IN BASIS OF ESTIMATION OF DEFERRED STRIPPING COSTS

The Group has revised its estimation of deferred stripping costs in 2016 compared with that used in the original guidance announced in January 2016. This change has affected Los Pelambres and the 2016 full year cash costs before by-products credits are now expected to be $1.50/lb. The corresponding increase in capital expenditure, as mine development, for the year is expected to be $112 million, with total forecast cash expenditure for 2016, operating and capital, remaining unchanged.

LABOUR AGREEMENTS

Negotiations are underway with employees at Antucoya and the supervisors at Los Pelambres and Zaldívar in respect of entering into new labour agreements for two years or longer. The agreements at Antucoya and Zaldívar will be the first term agreements under the Group's operatorship and all of the agreements are expected to be concluded by the end of the year.

SAFETY

Regrettably there was a fatal accident at Antucoya during the period and another in the Transport Division in July. A full investigation has now been completed at Antucoya and actions identified during the review are being implemented with direct oversight by senior management. An investigation of the causes and lessons learned is underway at the Transport Division. The Group remains committed to achieving zero fatalities and is continually working to strengthen and deepen the safety culture at all of the operations under the Group Safety and Health model. The Group continues to report high-potential near misses, which is a fundamental preventative measure in improving understanding of the key risk areas.

Since the start of the year the executive team has visited the Group's mining operations periodically as part of a safety leadership programme, demonstrating to employees and contractors the importance of safety and empowering employees to ensure safety comes first.

Further information on the Group's effort to support and develop a safety culture within the business is set out on pages 62-64 of the 2015 Annual Report and Accounts.

TAX

During the first six months of the year the Effective Tax Rate (ETR) was 42.7%, higher than the 39.6% in the same period last year, but lower than the full year rate of 61.8% in 2015. For the full year this year, the ETR is expected to be in the range of 40-45%, depending on realised metal prices during the rest of the year. Under the Tax Reform Bill signed in to law in Chile, the corporate tax rate for the Group has increased to 24% in 2016. Withholding tax on distributions remains at 35% and allows a rebate of the corporate tax paid when distributing dividends. Mining tax (royalties) rates are also unchanged.

DEPRECIATION AND AMORTISATION

Depreciation and amortisation for the first half of 2016 was $247.3 million compared to the $245.4 million in the first half of 2015 and for the full year it is expected to be broadly similar to 2015.

OUTLOOK

Group copper production for the full year is expected to be at the lower end of the 710-740,000 tonnes guided in January, and cash costs before by-product credits and net cash costs are expected to be $0.05/lb lower at $1.60/lb and $1.30/lb respectively. Production for the year is weighted to the second half with the Centinela Concentrates expansion and Antucoya reaching full capacity, and as the grade at Centinela increases as planned.

The outlook for the short term copper market is expected to continue to be volatile as national stimulus programmes, macroeconomic events and movements in the US dollar continue to dominate the financial markets and affect the price of copper. The market is also affected by the weak scrap supply where refining charges for smelters are lower than concentrate TC/RCs with new supply coming from Peru and elsewhere.

There have been few cuts in mine production so far this year reflecting the industry's continued success in reducing costs and the strengthening of the copper price. If prices weaken towards $2.00/lb or below with conviction then supply cuts can be expected, but in the meantime supply surpluses are forecast until at least 2018 as demand growth is forecast to remain modest. The outlook beyond 2018 looks stronger when the market is expected to go into deficit.

During 2015 the Group consolidated and optimised its asset portfolio through sales, purchases and closures while also reducing costs. This year the Group is focusing on completing the Antucoya ramp-up and the expansion at Centinela Concentrates while continuing to enhance the efficiency of its operations, with particularly focus on achieving sustainable improvements in productivity. On completion of the Group's current capital programmes, together with the restructuring of its operations, it will be well positioned to withstand continued weakness in the copper market and to benefit from its recovery, when it comes.

REVIEW OF OPERATIONS AND PROJECTS

MINING DIVISION

LOS PELAMBRES

Operating profit

Operating profit at Los Pelambres was $338.5 million in the first half of 2016, compared with $309.8 million in the first six months of 2015. This increase can be explained by higher sale volumes and lower operating costs, partially offset by a lower realised copper price. 

Production

Copper production increased 1.6% to 172,100 tonnes in the first half of 2016 reflecting the impact of improved recoveries as throughput is lowered to process a higher proportion of harder ore. In addition, production in the first half of 2015 was disrupted by community protests which have since been addressed through the implementation of an improved long term community engagement plan.

Molybdenum production in the first six months of 2016 at 3,300 tonnes was 29.8% lower than last year, primarily due to lower grades and lower throughput.   

Changes in Estimation Methods of Deferred Stripping

The Group has revised its estimation of deferred stripping costs at Los Pelambres in 2016 compared with that used in the original guidance announced in January 2016. The 2016 full year cash costs before by-products credits are now expected to be $1.50/lb. The corresponding increase in capital expenditure, as mine development, for the year is expected to be $112 million, with total forecast cash expenditure for 2016, operating and capital, remaining unchanged.

Costs

Cash costs before by-product credits in the first half of the last year were $1.33/lb, which is $0.34/lb lower than the same period last year ($0.26/lb before the change in estimation of deferred stripping) with lower materials movement and lower input prices being the main contributors.

Net cash costs for the first half of the year were 25.0% lower than the same period last year at $1.02/lb as a result of lower onsite costs, as explained above, combined with higher by-product prices and favourable movements in the Chilean Peso exchange rate, offset by lower molybdenum production. 

Capital expenditure

Capital expenditure, excluding mine development, in the first six months of 2016 was $43 million and for the 2016 full year is expected to be approximately $185 million. A further $112 million will be spent on mine development, of which $52 million was spent in the first six months. 

Resolution of outstanding claims relating to the Mauro tailings dam 

Following recent decisions of the Supreme Court of Chile and the Court of Appeal of La Serena and an agreement reached with the Caimanes community in April, outstanding and long-running claims relating to the Mauro tailings dam have been recently resolved.

The Mauro tailings dam began operating in 2008. Since then, there have been a series of civil claims filed by some members of the Caimanes community seeking to stop the dam's operations. Two claims have been through various courts and stages of appeal over a number of years: one on the grounds that the Mauro tailings dam affects the flow and quality of the Pupío stream; the other on the grounds that the tailings dam wall would not withstand an extreme seismic event.

Although Los Pelambres has always complied with all applicable laws, regulations and controls and has successfully defended its right to continue operating the dam, Los Pelambres has also committed to understanding and addressing the underlying concerns expressed by the Caimanes community.

In 2015 and 2016, Los Pelambres engaged in formal and transparent dialogue process designed to allow Los Pelambres to better understand community concerns and to share views and information about its own activities which concluded in an open consultation process. In May 2016, Los Pelambres reached an agreement with the Caimanes community which will see Los Pelambres invest in future water supply solutions, additional safety measures, community development projects and compensation for the Caimanes community. 

Following on from this agreement, the Supreme Court has recently accepted a settlement agreement filed by Los Pelambres and the members of the Caimanes community pursuing the claim that the dam wall would not withstand extreme seismic events with the consequence that this longstanding claim has now been extinguished.

Additionally, the Court of Appeal of La Serena has recently accepted the plan of works put forward by Los Pelambres to ensure the operation of the tailings dam does not affect the normal flow and quality of the Pupío stream. This decision overturns an earlier ruling from the Civil Court in Los Vilos that was appealed by Los Pelambres, which had rejected this plan of works and ordered the demolition of the tailings dam wall. The works performed by Los Pelambres will also include the additional works set out in the agreement reached with the Caimanes community.

Further details on other material claims affecting Los Pelambres can be found in Note 20 to the 2016 half yearly financial report below. 

CENTINELA

Operating profit

In the first six months of 2016 Centinela made an operating loss of $38.0 million, compared with a $66.3 million profit in the same period last year. This decrease was due to revenue falling as sales volumes fell and the realised copper price dropped, offset by lower operating costs. Sales volumes were, in part, impacted by poor weather conditions at the end of June that delayed shipments over the period end.

Production

During the first six months of the year Centinela produced 98,100 tonnes of copper, down 17.1% compared to the same period in 2015 primarily due to significantly lower production of copper cathodes.  

Copper in concentrate production for the first six months of the year was 6.6% lower compared to 2015 as lower grades and lower recoveries impacted production despite higher throughput. On completion of design improvements to the second thickener, throughput is expected to reach the expanded capacity of 105,000 tonnes of ore per day on a peak basis during the fourth quarter. In addition, copper grades will be over 0.60% during the second half of the year as mining moves, as planned, into a higher grade area of the pit. Throughput will run at the new design capacity on a continuous basis once the third thickener has been completed.

Compared with the first half of last year, cathode production during 2016 was 37.8% lower as grades declined, as expected, as mining moved to the lower grade zones of the Tesoro Central pit and throughput decreased due to restrictions in the reclamation system. The restrictions are caused by the high moisture levels of the ore coming from the current phase of the pit and are expected to continue until the end of the year. 

Gold production for the year to date was 80,500 ounces, 10.7% lower than the first six months of 2015 with significantly lower gold grades and lower recoveries.

Costs

For the year to date cash costs before by-product credits were 3.3% lower than in 2015 at $2.06/lb reflecting costs improvements and lower prices of consumables such as acid and diesel.

Net cash costs for the first half of 2016 were $1.53/lb compared with $1.67/lb in the first half of 2015. This decrease is mainly due to the fall in cash costs before by-product credits.

Capital expenditure

Capital expenditure in the first six months of 2016 was $175.3 million. Capital expenditure for the 2016 full year is expected to be approximately $430 million, which includes approximately $195 million with respect to the Encuentro Oxide project and $53 million related to the new molybdenum plant. The development of both projects is proceeding in line with the revised schedule announced earlier this year with completion expected in 2017. A further $265 million will be spent on mine development for the year, of which $94.6 million was spent in the first six months of the year.

ANTUCOYA

Operating profit

For the first half of the year the operating loss at Antucoya was $0.5 million with commercial production being achieved at the beginning of April 2016 and sales and costs being no longer capitalised from that point.

Production

Copper production at Antucoya was 27,000 tonnes as the project ramps up to full capacity of 85,000 tonnes per annum in the second half of 2016. Improvements to the dust suppression systems are now being implemented and are expected to be completed by the end of the year.

Costs

During the second quarter cash costs were $1.82/lb compared with guidance for the year given in January of $1.80/lb.

Capital expenditure

Capital expenditure in the first six months of 2016 was $7.3 million and for the full year is expected to be approximately $71.4 million, including approximately $5.8 million for the dust suppression systems.

ZALDÍVAR

Following completion of the acquisition of 50% of Zaldívar in December 2015, purchase price and other customary adjustments are now complete and no further sums are payable to Barrick Gold Corporation. The total acquisition price paid was $950 million.

EBITDA

Attributable EBITDA at Zaldívar was $37.1 million in the first half of 2016.

Production

Copper production at Zaldívar was 26,000 tonnes on an attributable basis in the first six months of 2016. During the year there has been a significant increase in copper recovery through the use of improved sulphide leaching, following the application of experience gained at other Group operations.

Costs

Cash costs for the first six months of 2016 were $1.50/lb. Cost synergies have been realised at Zaldívar with the integration of the operation into the Group's procurement practices and contracts.

Capital expenditure

Attributable capital expenditure in the first six months of 2016 was $29.8 million, of which $22.6 million related to mine development (deferred stripping). Capital expenditure for the 2016 full year is expected to be approximately $55 million, which includes approximately $25 million with respect to stripping.

GROWTH PROJECTS AND OPPORTUNITIES

The Group seeks to increase copper production in Chile and abroad through the development of projects and other potential opportunities. Brownfield development within the Group's Los Pelambres and Centinela mining districts in Chile remain the primary focus for maximising value while managing risks associated with execution.

The Group will complete several projects at Centinela over the next 18 months that will increase production while reducing unit costs. At the same time it is advancing its two major expansion projects at Los Pelambres and Centinela to a stage that they will be ready for an investment decision to be made on one or both of them at the end of 2017. However, these projects will only be advanced if they satisfy the Group's evaluation criteria. The Group believes investing through the cycle in the right opportunities.

The Group's exploration and evaluation expenditure in the first six months of 2016 was $18.9 million in comparison to expenditure in the same period last year of $56.1 million. The reduction in expenditure reflects the current prioritisation of cost management over long-term potential growth through exploration success.

Projects under construction

Encuentro Oxides

The Encuentro Oxides deposit is within the Centinela Mining District. It is expected to produce an average of approximately 43,000 tonnes of copper cathode per year over an eight-year period, utilising the existing capacity at Centinela's SX-EW plant. This will enable the plant to return to its full operating capacity of 100,000 tonnes per annum for a number of years once the project is complete.

The construction budget for the project of $636 million was approved by the Board at the end of 2014. As of the end of June 2016, the project had achieved over 68% completion (including design, engineering, procurement and construction) with first production expected in the second half of 2017.

During the first six months of the year project expenditure was $88.8 million, bringing the total construction expenditure to $421 million.

Molybdenum Plant

During the first half of the year, the construction of the Centinela Molybdenum Plant continued with the project achieving 39% completion (including design, engineering, procurement and construction) by the end of June 2016. Total capital costs are expected to be approximately $125 million of which approximately $32.2 million has been incurred by 30 June 2016. Once completed by the end of 2017, the plant will produce some 2,400 tonnes of molybdenum per year, which will contribute to a reduction in Centinela's net cash costs.

Brownfield growth projects

The Group recognises the importance of capital cost control and optimising production from existing operations, and manages this by constantly monitoring the efficiency of its mines, plants and transport infrastructure. Where possible, it conducts debottlenecking and incremental plant expansions to increase throughput and improve overall efficiencies. However, in current market circumstances the Group has deferred these projects to reduce expenditure while keeping the project teams active and focusing on completion of key time-critical feasibility study work, such as the preparation of Environmental Impact Assessments.

Los Pelambres Incremental Expansion

As previously announced the Group has split the Los Pelambres Incremental Expansion into two phases to simplify the development of the project and to conserve development capital in light of lower commodity prices. 

Phase 1

During Phase 1, Los Pelambres will operate at an average throughput of 190,000 tonnes per day through the addition of a new grinding and flotation circuit, to mitigate the decline in throughput resulting from the higher proportion of hard ore being mined as the pit gets deeper. In addition, the project includes a 400l/s desalination plant and water pipeline as a backup for dry seasons. Desalinated water will be pumped to the Mauro tailing storage facility where it will connect with the water recycling circuit that returns water from the tailings facility to the Los Pelambres processing plant.

In April 2016 the Group submitted the Environmental Impact Assessment ("EIA") for Phase 1 to the authorities to begin the formal permitting application process for the project. This process will involve a formal dialogue between the Group and the authorities regarding the scope and scale of the project and is expected to be completed in 2017. Once the EIA is in place and the feasibility study is completed towards the end of 2017 the Group will decide whether to proceed with the project, with consideration for the then prevailing market conditions.

Capital expenditure for this project is estimated at approximately $1.1 billion, with some $600 million allocated to the additional mine fleet, crushing and flotation circuits and the balance for the desalination plant and water pipeline.

Phase 2

In Phase 2, the Group will increase throughput to 205,000 tonnes per day and to extend the mine's life beyond the currently approved 22 years. During this phase, a new EIA will be submitted to increase the capacity of the mine's Mauro tailings storage facility and the mine waste dumps.

Initial capital expenditure for this phase is estimated to be approximately $500 million, with the majority of the expenditure being on mining equipment, further crushing and grinding capacity, and flotation cells. In addition, the conveyors from the primary crusher to the concentrator plant will have to be repowered to support the increased throughput.

The Group is currently advancing the conceptual studies for the increase in the capacity of the tailing storage facility and the waste rock dumps in parallel with the Phase 1 feasibility study.

Greenfield growth projects

Centinela Second Concentrator

The Group continues to evaluate options for the development of the Centinela Mining District, which is a key region for longer-term growth containing approximately 7 billion tonnes of resources and significant options for expansion growth.

The second concentrator will be built some 7 km from Centinela's current concentrator. It is expected to have an ore throughput capacity of approximately 90,000 tonnes per day, with annual production of approximately 140,000 tonnes of copper, 150,000 ounces of gold and 3,000 tonnes of molybdenum. It is currently planned that ore will first be sourced from the Esperanza Sur deposit and, once mining at Encuentro Oxides is completed, ore will also be sourced from Encuentro Sulphides, which lies below the oxide deposit.

The pre-feasibility study for this $2.7 billion project was completed at the end of 2015 and the preparation of the feasibility study is currently underway and is expected to be completed by the end of 2017. The EIA was submitted in 2015, with the outcome expected during the second half of 2016.

During the year the Group has completed construction of a pilot test plant for a high pressure grinding roller (HPGR) system which is being considered in preference to conventional SAG and ball mills. The preferred crushing technology will be included in the feasibility study, which will be completed by the end of 2017. A decision to proceed with the project will only be made if it is supported by the market outlook at the time. If approval is granted at the end of 2017, production would be expected to begin in 2021.

Los Pelambres 

Los Pelambres is a world-class deposit with a resource base of more than three times the quantity of ore planned to be processed under the current mine plan. These resources could support an expansion considerably greater than that planned under Phases 1 and 2 of the Incremental Expansion, however, the Group's current focus remains on the nearer-term. 

United States - Twin Metals

Twin Metals Minnesota LLC ("Twin Metals") is a copper, nickel and platinum group metals ("PGM") underground-mining project which holds the Maturi, Maturi Southwest and Spruce Road copper-nickel PGM deposits in Minnesota, USA.

The pre-feasibility study on the project was completed in August 2014 and in November 2014 the Group entered into an agreement to acquire all of the issued and outstanding shares of its project partner, Duluth Metals Limited, bringing the Group's ownership in the project to 100%. The acquisition was completed in early 2015 and further optimisations of the pre-feasibility study are now being evaluated. The permitting process is complex and is expected to take at least five years to complete with challenges expected along the way. The project has significant copper and nickel resources and is a world-class deposit in terms of size and potential mine life.

Other exploration and evaluation activities

The Group has an early-stage exploration programme beyond its existing core Centinela and Los Pelambres mining districts. This programme is conducted through its in-house exploration team and partnerships with third parties with the aim of building a portfolio of longer-term opportunities mainly in Chile and the Americas, plus select regions in the rest of the world such as Australia and Zambia. However, in the current depressed market conditions priority is being given to reducing expenditure rather than increasing resources. The programme has therefore been significantly reduced.

The total expenditure on exploration and evaluation during the first half of 2016 was $18.9 million, 66.3% less than in the equivalent period last year.

Chile

The Group continues with exploration activities in Chile to identify prospective targets on the main porphyry copper belts in the northern and central regions. During the year, the Group conducted an asset rationalisation to relinquish low priority tenements and acquire new tenements more closely aligned with the Group's target areas. Drilling continued at the Cachorro deposit south of Antucoya and the El Encierro deposit in the third region of Chile.

International

The Group has an exploration office in Toronto to increase its exposure to exploration opportunities in a cost-effective manner. The Group's approach is to partner with experienced junior exploration companies benefiting from their local expertise and knowledge while complimenting that with the Group's experience in exploration and project management. Working in partnership with selected companies, both public and private, the Group advanced projects in Argentina, Australia, Canada, Mexico and Zambia during the first half of the year, while exiting from projects in Australia, Canada, Finland and Portugal.

Energy Opportunities

Over the last few years, the Group has acquired a series of minority interests in energy generators and projects as part of its power supply strategy for its mining operations. The strategy has a particular focus on renewable energy generation, supporting the Group's broader aim of increasing the sustainability of its operations and stability of its energy costs. Over the last five years the Group has invested some $575 million in power-generating assets that have a combined installed capacity of 880MW (100% basis) of which, at the end of June 2016, 349MW, were in operation. By 2020 some 80% of Los Pelambres energy requirements will be from sustainable sources.

El Arrayán

The Group has a 30% interest in Parque Eolico El Arrayán SpA ("El Arrayán"), approximately 400 km north of Santiago, which in 2014 commissioned a 115MW wind farm in northern Chile, that now supplies approximately 20% (40MW) of Los Pelambres' energy requirements under a 20-year supply contract.

Inversiones Hornitos

The Antofagasta Railway Company ("FCAB") owns a 40% interest in Inversiones Hornitos SA ("Inversiones Hornitos"), which operates the 165MW Hornitos thermoelectric power plant in Mejillones, in Chile's Antofagasta Region. Inversiones Hornitos continues to supply Centinela under long-term power purchase agreements ("PPAs"). 

Alto Maipo

Los Pelambres holds a 40% interest in the 531MW Alto Maipo run-of-river hydroelectric project which is operated by AES Gener and is in the upper section of the Maipo river, 50 km south-east of Santiago. Construction is underway and is expected to be completed in 2019. The Group is contributing its share of the capital cost, which is currently under review. Once completed, the Alto Maipo project will supply Los Pelambres with up to 110MW under 20-year PPA.

Los Pelambres has also signed a 20-year PPA with AES Gener for the provision of up to 50MW of power which started in 2015 with power coming from a coal fired power station.

Solar Energy

Los Pelambres has long-term PPAs with two solar power providers for a total of 50MW of power, approximately 25% of its total energy requirement. The first of these PPAs came on stream in June 2015 and the second will start in the second half of 2016. These PPAs provide Los Pelambres with secure supply of renewable energy for a 20-year period at competitive prices.

TRANSPORT DIVISION

Total transport volumes in the first half of 2016 were 3.3 million tonnes, compared to 2.9 million tonnes in the first half of 2015, including 2.7 million tonnes of rail volumes. The 14.9% increase in volumes was driven by the railway operation with an additional 0.3 million tonnes of concentrate production from a new mine and the improved utilisation of the rolling stock fleet to haul an additional 0.2 million tonnes of acid and copper cathodes. The truck operation remains focused on supporting the railway logistics chain.

Operating Costs

Transport unit costs for the first half of 2016 were $10.8/tonne compared with $14.1/tonne in the first half of 2015. This 23.4% decrease was primarily due to increased volumes and lower diesel prices.

Operating profit

The Transport Division generated $31.7 million of operating profits in the first half of 2016, 29.4% higher than in the first six months of 2015. The increased profitability is explained by the improved transport volumes and significantly lower operating costs.

New Operating Model

During first half of 2016 the Division implemented a new operating model based on three focus areas; sustainability (including safety and community relations), productivity improvements and cost savings.

The model targets a balanced approach between cost savings and productivity improvements to ensure the sustainable development and expansion of operations, particularly considering the rail division operates in the populated areas of the fast growing Antofagasta Region.

Safety

Sadly, on 23 July one of the Division's trains was involved in a road traffic accident near to the town of Sierra Gorda. A thorough investigation is currently underway and actions have already been taken to safeguard the Division's employees and contractors. The Division remains committed to achieving zero fatalities and the new operating model is a further step to achieve this goal.

FINANCIAL REVIEW FOR THE SIX MONTHS ENDED 30 JUNE 2016

Results (unaudited)

A detailed segmental analysis of the components of the income statement is contained in Note 3 to the 2016 half yearly financial report.

The following table reconciles between EBITDA in the first half of 2015 and the first half of 2016:

(*) attributable

Revenue

Group revenue in the first half of 2016 was $1,448.0 million, 18.5% below the $1,775.9 million achieved in the first half of 2015. The decrease of $327.9 million mainly reflected a decrease in the realised copper price and lower copper sales volumes, as well as lower by-product revenues.

Revenue from the mining division

Revenue from copper concentrate and copper cathodes

Revenue from copper concentrate and copper cathode sales decreased by $317.8 million, or 21.3%, to $1,172.0 million, compared with $1,489.8 million in first six months of 2015. The decrease reflected the impact of lower sales volumes and lower realised prices.

(i)  Copper volumes

Copper sales volumes decrease from 290,100 tonnes in the first half of 2015 to 272,000 tonnes in this period. The decrease in sales volumes accounted for a decrease of $101.1 million in revenue from copper concentrate and cathode sales.

(ii) Realised copper prices

The Group's average realised copper price decreased to $2.17/lb in first six months of 2016 (first six months of 2015 - $2.54/lb). The level of decrease was lower than the reduction in the average LME copper price, which decreased to $2.13/lb from $2.69/lb in the first half of 2015, due to a lower level of negative provisional pricing adjustments in the current period compared with the prior year. The decrease in average realised prices led to a $218.0 million reduction in revenue from copper concentrate and cathode sales.

Realised copper prices are determined by comparing revenue (gross of tolling charges for concentrate sales) with sales volumes in the period. Realised copper prices differ from market prices mainly because, in line with industry practice, concentrate and cathode sales agreements generally provide for provisional pricing at the time of shipment with final pricing based on the average market price for future periods (normally about 30 days after delivery to the customer in the case of cathode sales and up to 150 days after delivery to the customer in the case of concentrate sales). Realised copper prices also reflect the impact of realised gain or losses of commodity derivative instruments hedge accounted for in accordance with IAS 39 "Financial Instruments: Recognition and Measurements".

Provisional pricing adjustments increased initially invoiced sales (before adjusting for tolling charges) by $21.1 million in first six months of 2016, compared with a decrease of $109.2 million in the first six months of 2015. Further details of provisional pricing adjustments are given in Note 4 to the 2016 half yearly financial report.

In first six months of 2016 revenue also includes a gain of $0.1 million (first six months of 2015 - loss of $0.1 million), mainly relating to commodity derivatives which matured during the year. Further details of hedging activity in the period are given in Note 4(b) to the half yearly financial report.

(iii) Tolling charges

Tolling charges for copper concentrate decreased by $1.3 million to US$131.7 million in the first six months of 2016 from $133.0 million in the first six months of 2015.

Tolling charges are deducted from concentrate sales in reporting revenue and hence the decrease in these charges has had a positive impact on revenue.

Revenue from molybdenum, gold and other by-products

Revenue from by-products at Los Pelambres and Centinela relate mainly to molybdenum and gold, and a lesser extent silver. Revenue from by-products decreased by $16.1 million or 7.6% to $195.9 million in the first half of 2016, compared with $212.0 million in the first half of 2015.

Revenue from gold in concentrate (net of tolling charges) was $124.6 million (first half of 2015 - $129.1 million), a decrease of $4.5 million, which mainly reflected a decrease in volumes and partly offset by a higher realised price. The realised gold price was $1,288.1/oz in the first half of 2016 compared with $1,222.1/oz in the first half of 2015, with the increase reflecting higher market prices. Gold sales volumes decreased from 106,000 ounces in the first half of 2015 to 97,200 ounces in this period, mainly due to lower gold ore grades at Centinela.

Revenue from molybdenum (net of roasting charges) was $43.8 million (first half of 2015 - $59.7 million), a decrease of $15.9 million. The decrease was mainly due to lower sales volumes of 3,100 tonnes (first half 2015 - 4,400 tonnes) and partly offset by increased realised price of $7.4/lb (first half of 2015 - $7.0/lb).

Revenue from silver increased by $4.3 million to $27.5 million in the first six month of 2016 (first six months of 2015 - $23.2 million). The increase was due to higher sales volumes of 1.7 million ounces (first half of 2015 - 1.4 million ounces) and partly offset by decreased realised silver price of $16.1/oz (first half of 2015 - $16.5/oz).

Revenue from the transport division

Revenue from the transport division (FCAB) increased by $6.0 million or 8.1% to $80.1 million, mainly due to higher tonnages transported.

Operating costs (excluding depreciation, amortisation and disposals)

Operating costs (excluding depreciation and amortisation) amounted to $916.4 million (first half of 2015 - $1,217.2million), a decrease of $300.8 million. This was mainly due to lower mining operational costs and reduced exploration, evaluation and corporate costs.

Operating costs (excluding depreciation and amortisation) at the mining division

Operating costs at the mining division decreased by $298.8 million to $875.3 million in the first six months of 2016, a decrease of 25.4%. Of this decrease, $234.5 million is attributable to lower mining operational costs. As explained above, copper sales volumes decrease from 290,100 tonnes in the first half of 2015 to 272,000 tonnes in this period.

In addition, weighted average unit cash costs for the Group excluding by-product credits (which are reported as part of revenue) and tolling charges for concentrates (which are deducted from revenue) decreased from $1.66/lb in first half of 2015 to $1.38/lb in this period.

Exploration and evaluation costs decreased by $37.2 million to $18.9 million (first half of 2015 - $56.1 million). This reflected a general decrease in exploration activity, and in particular at the Centinela District in Chile and the Twin Metals project in the United States.

The income statement includes a charge for mine closure rehabilitation of $3.5 million (first half of 2015 - charge of $9.0 million). This mainly reflects lower costs at Michilla and to a lesser extent Los Pelambres.

Operating costs (excluding depreciation, amortisation and disposals) at the transport division

Operating costs at the transport division decreased by $2.0 million to $41.1 million, mainly reflecting lower diesel prices.

EBITDA and operating profit from subsidiaries and joint ventures

EBITDA

EBITDA (earnings before interest, tax, depreciation, and amortisation) from subsidiaries and joint ventures increased by $12.9 million or 2.3% to $571.6 million in the first six months of 2016 (first six months of 2014 - $558.7 million).

EBITDA includes the Group's proportional share of EBITDA from associates and joint ventures. Zaldívar contributed $37.1 million in the first six months of 2016 (first half of 2015 - nil). Other associates and joint ventures contributed $2.9 million.

EBITDA from the Group's mining subsidiaries decreased by 6.7% from $527.7 million in the first half of 2015 to $492.6 million in this period. As explained above, this was mainly due to the decrease in the revenues resulting from the lower realised copper price and copper volumes, partly offset by the lower unit cash cost and lower exploration and evaluation expenses, and corporate costs.

EBITDA at the transport division increased by $8.0 million to $39.0 million in the first half of 2016, mainly reflecting the increased revenue as explained above and lower operating costs.

Depreciation, amortisation and disposals

The depreciation, amortisation and disposals charge was marginally higher at $247.3 million (first half of 2015 - $245.4 million), with increased depreciation at Los Pelambres and Antucoya largely offset by reduced depreciation at Centinela.

Operating profit from subsidiaries

As a result of the above factors, operating profit from subsidiaries decreased by 3.4% to $293.8 million.

Share of results from associates and joint ventures

The Group's share of results from its associates and joint ventures was a gain of $9.7 million (first half of 2015 - loss of $0.2 million). This mainly reflects the Group's share of results from Zaldívar.

Net finance expense

Net finance expense in the first half of 2016 was $17.7 million, compared with a net finance expense of $11.2 million in the first half of 2015.                     

Interest income increased from $8.8 million in first six months of 2014 to $13.5 million in first six months of 2015.

Interest expense increased from $15.7 million in the first half of 2015 to $32.0 million in the first half of 2016, mainly due to the interest expense of Antucoya, which has been expensed since the start of commercial production on 1 April 2016. Additionally, there was higher corporate interest expense reflecting a new long-term loan of $500 million taken out during the period.

Other finance items comprised a gain of $0.8 million (first half of 2015 - loss of $4.2 million). A loss of $0.3 million (first half of 2015 - gain of $0.1 million) has been recognised in respect of the time value element of changes in the fair value of commodity derivative options, which is excluded from the designated hedging relationship, and is therefore recognised directly in profit or loss. Foreign exchange gains included in finance items were $6.0 million in first half of 2016, compared with a gain of $0.2 million in first half of 2015. An expense of $4.9 million (first half of 2015 - $4.7 million) has been recognised in relation to the unwinding of the discount on provisions.

Profit before tax

As a result of the factors set out above, profit before tax decreased by $25.3 million or 8.4% to $276.1 million in the first half of 2016 compared with $301.4 million in the first half of 2015.

Income tax expense

The tax charge in the first half of 2016 was $118.0 million (first half of 2015 - $117.8 million) and the effective tax rate was 42.7% (first half of 2015 - 39.6%).

The effective rate of corporate tax was 29.8% compared to the statutory tax rate of 24.0%. The difference was principally due to tax losses which under Chilean tax carry-back rules generated a credit at historic tax rates below the current year statutory rate (impact of $11.8 million / 4.3%) and the effect of expenses not deductible for Chilean corporate tax purposes (principally the funding of expenses outside of Chile) (impact of $8.7 million / 3.1). In addition, the overall effective tax rate reflects the Chilean mining royalty charge of $32.8 million and a withholding tax charge of $8.3 million. Further details are given in Note 7 of the 2016 half yearly financial report.

Profit from discontinued operations

On 2 June 2015 the Group completed the disposal of the water division and the resulting profit of $615.0 million has been reflected as a profit from discontinued operations in the prior year comparative figures.

Non-controlling interests

Profit for the first half of the year attributable to non-controlling interests was $70.0 million, compared with $93.2 million in the first half of 2015, reflecting the lower profit attributable to the non-controlling interests as a consequence of the decrease in the earnings of the mining operations analysed above.

Earnings per share

Earnings per share calculations are based on 985,856,695 ordinary shares.  As a result of the factors set out above, profit from continuing operations in the first half of 2016 attributable to equity shareholders of the Company was $88.1 million compared with $90.8 million in the first half of 2015. Accordingly, earnings per share from continuing operations were 8.9 cents in the first half of 2016 compared with 9.2 cents in first half of 2015, a decrease of 3.3%. Including the earnings from discontinued operations, total earnings per share from continuing and discontinued operations in the first half of 2015 were 71.6 cents.

Dividends

Dividends per share declared in relation to the period are as follows:

The Board determines the appropriate dividend each year based on consideration of the Group's cash balance, the level of free cash flow and earnings generated during the year and significant known or expected funding commitments. It is expected that the total annual dividend for each year would represent a payout ratio based on net earnings for that year of at least 35%.

The Board has declared an interim dividend for the first half of 2016 of 3.1 cents per ordinary share, which amounts to $30.6 million and will be paid on 30 September 2016 to shareholders on the Register at the close of business on 9 September 2016.

Capital expenditure

Capital expenditure decreased by $87.0 million from $595.9 million in the first half of 2015 to $508.9 million in the period. This was mainly due to decreased construction costs at Antucoya which is now in operation and the Encuentro Oxides project, partly offset by increased expenditure in respect of Los Pelambres, relating mainly to capitalised stripping costs. NB: capital expenditure figures quoted in other sections of this report are on a cash flow basis, unless stated otherwise.

Derivative financial instruments

The Group periodically uses derivative financial instruments to reduce exposure to commodity price movements. At 30 June 2016 the Group had entered into min/max contracts at Centinela for a notional amount of 12,000 tonnes of copper production covering a period up to 31 December 2016, with an average minimum price of $2.11/lb and an average maximum price of $2.69/lb. The Group also periodically uses interest rate swaps to swap the floating rate interest for fixed rate interest. At 30 June 2016 the Group had entered into contracts at Centinela for a maximum notional amount of $105 million at a weighted average fixed rate of 3.372 % fully maturing in August 2018. The Group had also entered into contracts in relation to a financing loan at the FCAB for a maximum notional amount of $120 million at weighted average fixed rate of 1.634% fully maturing in August 2019.

Cash flows

The key features of the Group cash flow statement are summarised in the following table.

Cash flows from continuing and discontinued operations were $774.1 million in the first half of 2016 compared with $807.7 million in the first half of 2015. This reflected EBITDA from subsidiaries for the period of $531.6 million[1] (first half of 2015 - $558.7 million) adjusted for a net working capital decrease of $242.5 million (first half of 2015 - decrease of $226.4 million).

Cash tax payments in the first half of 2016 year were $257.5 million (first half of 2015 - $191.2 million), comprising corporate tax of $255.3 million (first half of 2015 - $165.6 million), mining tax of $2.2 million (first half of 2015 - $11.7 million) and withholding tax of $12.9 million (first half of 2015 - $12.9 million). These amounts differ from the current tax charge in the consolidated income statement of $118.0 million (first half of 2015 - $117.8 million) mainly because cash tax payments for corporate tax and the mining tax partly comprise the settlement of outstanding balances in respect of the previous year's tax charge and payments on account for the current year based on the prior year profit levels. 

At 30 June 2015 the disposal of subsidiary amount of $947.3 million related to the disposal of Aguas de Antofagasta S.A., which carried out of the Group's water operations.

Contributions and loans to associates and joint ventures of $1.0 million relates to the Group's share of the funding of the costs of Energia Andina.

Cash disbursements relating to capital expenditure in the first half of 2016 were $385.4 million compared with $662.3 million in the first half of 2015. This included expenditure of $7.3 million at Antucoya (first half of 2015 - $175.4 million), $262.1 million relating to Centinela (first half of 2015 - $233.6 million) and $94.4 million relating to Los Pelambres (first half of 2015 - $101.8 million).

At 30 June 2015 dividends paid to ordinary shareholders of the Company were $96.6 million, which related to the payment of the final dividend declared in respect of the previous year.

Dividends paid by subsidiaries to non-controlling shareholders were $40 million (first half of 2015 - nil).

Financial position           

[1] EBITDA excluding the Group’s share of EBITDA from associates and joint ventures.

At 30 June 2016 the Group had combined cash, cash equivalents and liquid investments of $2,180.1 million (30 June 2015 - $3,220.0 million). Excluding the non-controlling interest share in each partly-owned operation, the Group's attributable share of cash, cash equivalents and liquid investments was $1,801.8 million (30 June 2014 - $2,785.0 million).

New borrowings in the first half of 2016 were $656.8 million (first half of 2015 - $357.3 million), including new short-term borrowings at Los Pelambres of $160.0 million and new long-term borrowings at Corporate of $496.8 million. Repayments of borrowings and finance leasing obligations in the first half of 2016 were $307.2 million, relating mainly to repayments at Los Pelambres of $229.9 million and Centinela $75.0 million.

Total Group borrowings at 30 June 2016 were $3,219.7 million (at 30 June 2015 - $2,479.4 million). Of this, $2,410.1 million (at 30 June 2015 - $1,754.8 million) is proportionally attributable to the Group after excluding the non-controlling interest shareholdings in partly-owned operations.

Going concern

The Group's business activities, together with those factors likely to affect its future performance, are set out in the Review of Operations. Details of the cash flows of the Group during the period, along with its financial position at the period-end are set out in this Financial Review. The half yearly financial report includes details of the Group's cash, cash equivalent and liquid investment balances in Note 19, and details of borrowings are set out in Note 15. When assessing the going concern status of the Group the Directors have considered in particular its financial position, including its significant balance of cash, cash equivalents and liquid investments and the borrowing facilities in place, including their terms and remaining durations. When assessing the prospects of the Group, the Directors have considered the Group's copper price forecasts, the Group's expected production levels, operating cost profile, capital expenditure and financing plans. The Directors have taken into consideration the Group's key risks which could impact the prospects of the Group, with the most relevant to this assessment considered to be risks to the copper price outlook. Robust down-side sensitivity analyses have been performed, assessing the impact of a significant deterioration in the copper price outlook. These stress-tests all indicated results which could be managed in the normal course of business. Based on their assessment of the Group's prospects and viability, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least twelve months from the date of approval of the financial statements. Having reassessed the principal risks, the Directors considered it appropriate to adopt the going concern basis of accounting in preparing its condensed interim financial statements.

Principal risks and uncertainties

There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the remaining six months of the financial year and could cause actual results to differ materially from expected and historical results. The Directors do not consider that the principal risks and uncertainties have changed since the publication of the annual report for the year ended 31 December 2015. A detailed explanation of the risks summarised below can be found in the Risk Management section of that annual report which is available at www.antofagasta.co.uk. Key headline risks relate to the following:

·     Community relations

·     Strategic resources

·     Operational risks

·     Projects management

·     Political, legal and regulatory risks

·     Health and safety

·     Environmental management

·     Growth opportunities

·     Commodity prices

·     Foreign currency exchange

·     Identification of new mineral resources

·     Ore reserves and mineral resources estimates

·     Talent management and labour relations

Cautionary statement about forward-looking statements

This half yearly financial report contains certain forward-looking statements. All statements other than historical facts are forward-looking statements. Examples of forward-looking statements include those regarding the Group's strategy, plans, objectives or future operating or financial performance, reserve and resource estimates, commodity demand and trends in commodity prices, growth opportunities, and any assumptions underlying or relating to any of the foregoing. Words such as "intend", "aim", "project", "anticipate", "estimate", "plan", "believe", "expect", "may", "should", "will", "continue" and similar expressions identify forward-looking statements.

Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that are beyond the Group's control. Given these risks, uncertainties and assumptions, actual results could differ materially from any future results expressed or implied by these forward-looking statements, which speak only as at the date of this report. Important factors that could cause actual results to differ from those in the forward-looking statements include: global economic conditions, demand, supply and prices for copper and other long-term commodity price assumptions (as they materially affect the timing and feasibility of future projects and developments), trends in the copper mining industry and conditions of the international copper markets, the effect of currency exchange rates on commodity prices and operating costs, the availability and costs associated with mining inputs and labour, operating or technical difficulties in connection with mining or development activities, employee relations, litigation, and actions and activities of governmental authorities, including changes in laws, regulations or taxation. Except as required by applicable law, rule or regulation, the Group does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Past performance cannot be relied on as a guide to future performance.

Condensed Consolidated Income Statement

Condensed Consolidated Statement of Comprehensive Income

Condensed Consolidated Statement of Changes in Equity

For the six months ended 30 June 2016 (Unaudited)

For the six months ended 30 June 2015 (Unaudited)

For the year ended 31 December 2015 (Audited)

Dividends

Condensed Consolidated Balance Sheet

The interim condensed consolidated financial statements were approved by the Board of Directors on 15 August 2016.

Condensed Consolidated Cash Flow Statement

Notes

1.   General information and accounting policies

a)             General information

These June 2016 interim condensed consolidated financial statements ("the condensed financial statements") are for the six months ended 30 June 2016.  The condensed financial statements are unaudited.

The information for the year ended 31 December 2015 does not constitute the Group's statutory accounts as defined in section 434 of the Companies Act 2006 (the "Act") but is derived from those accounts. The statutory accounts for the year ended 31 December 2015 have been approved by the Board and have been delivered to the Registrar of Companies. The auditor has reported on those accounts and their report was unqualified, with no matters by way of emphasis, and did not contain statements under section 498(2) of the Act (regarding adequacy of accounting records and returns) or under section 498(3) (regarding provision of necessary information and explanations).

b)             Significant events during 2016

The Antucoya operation achieved commercial production in 1 April 2016, and its revenue and costs have accordingly been recognised in the income statement from that date onwards.

c)             Basis of preparation

The annual financial statements of Antofagasta plc for the year ended 31 December 2015 were prepared in accordance with International Financial Reporting Standards ("IFRS") and with those parts of the companies Act 2006 applicable to companies reporting under IFRS. For these purposes, IFRS comprise the standards issued by the International Accounting Standards Board ("IASB") and IFRS Interpretations Committee ("IFRIC IC") that have been endorsed by the European Union ("EU").

The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with the accounting policies for the year ended 31 December 2015 and the International Accounting Standard ("IAS") 34 Interim Financial Reporting and the requirements of the UK Disclosure and Transparency Rules ("DTR") of the Financial Conduct Authority ("FCA") in the United Kingdom as applicable to interim financial reporting.

The condensed financial statements represent a "condensed set of financial statements" as referred to in the DTR issued by the FCA. Accordingly, they do not include all of the information required for a full annual financial report and are to be read in conjunction with the Group's financial statements for the year ended 31 December 2015.

d)             Change in estimation

 The Group has revised its estimation of deferred stripping costs which has impacted the amounts capitalised at the Los Pelambres mine during the first six months of 2016, where $61 million of deferred stripping costs have been capitalised during the period.

e)             Going concern

When assessing the going concern status of the Group the Directors have considered in particular its financial position, including its significant balance of cash, cash equivalents and liquid investments and the borrowing facilities in place, including their terms and remaining durations. When assessing the prospects of the Group, the Directors have considered the Group's copper price forecasts, the Group's expected production levels, operating cost profile, capital expenditure and financing plans. The Directors have taken into consideration the Group's key risks which could impact the prospects of the Group, with the most relevant to this assessment considered to be risks to the copper price outlook. Robust down-side sensitivity analyses have been performed, assessing the impact of a significant deterioration in the copper price outlook. These stress-tests all indicated results which could be managed in the normal course of business. Based on their assessment of the Group's prospects and viability, the Directors have a reasonable expectation that the group has adequate resources to continue in operational existence for at least twelve months from the date of approval of the financial statements. Having reassessed the principal risks, the Directors considered it appropriate to adopt the going concern basis of accounting in preparing its condensed interim financial statements.

f)             Adoption of new accounting standards

The following accounting standards, amendments and interpretations became effective in the current reporting period:

·      IFRS 14 Regulatory Deferral Accounts

·      IAS 19 Defined Benefit Plans, Employee Contributions (Amendments to IAS 19)

·      Annual improvements 2010 - 2012 Cycle - improvements to six IFRSs

·      Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11)

·      Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38)

·      Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41)

·      Equity Method in Separate Financial Statements (Amendments to IAS 27)      

·      Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28)

·      Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28)

·      Disclosure Initiative (Amendments to IAS 1) 

The application of these standards and interpretations effective for the first time in the current period has had no significant impact on the amounts reported in these condensed consolidated financial statements.

Accounting standards issued but not yet effective applied

The following accounting standards, interpretations and amendments have been issued by the IASB, but are not yet effective:

The Group is continuing to evaluate the impact of adopting these new standards and interpretations.

The Group is continuing to evaluate in detail the potential impact of IFRS 9 Financial Instruments and IFRS 15 Revenue from contracts with customers but does not currently expect these to have a material impact. In respect of IFRS 16 Leases the Group is not yet able to estimate the impact of the new rules on the Group´s financial statements. The Group will make more detailed assessments of the impact.

2.   Total profit from operations, associates and joint ventures

3.   Segmental analysis

The Group's reportable segments are as follows:

·        Los Pelambres

·        Centinela

·        Michilla

·        Antucoya

·        Zaldivar

·        Exploration and evaluation

·        Railway and other transport services

·        Water concession

·        Corporate and other items

For management purposes, the Group is organised into three business divisions based on their products - Mining, Railway and Other Transport Services and the Water concession. The mining division is split further for management reporting purposes to show results by mine and exploration activity. Los Pelambres, Centinela and Antucoya are operating mines, Michilla was placed on care and maintenance at the end of 2015, Zaldivar, in which the Group has acquired a 50% stake, was acquired in December 2015. Los Pelambres produces primarily copper concentrate and molybdenum as a by-product. Centinela produces primarily copper concentrate containing gold as a by-product and copper cathodes. Michilla, Antucoya and Zaldivar produce copper cathodes. The transport division provides rail cargo (based in Chile and formerly Bolivia) and road cargo (based in Chile) together with a number of ancillary services (based in Chile). The water division produced and distributed potable water to domestic customers and untreated water to industrial customers in Chile's Antofagasta Region, this segment had been disposed of during H1 2015. The Exploration and evaluation segment incurs exploration and evaluation expenses. "Corporate and other items" comprises costs incurred by the Company, Antofagasta Minerals S.A., the Group's mining corporate centre and other entities, that are not allocated to any individual business segment. Consistent with its internal management reporting, the Group's corporate and other items are included within the mining division.

Management monitors the operating results of business segments separately for the purpose of making decisions about resources to be allocated and of assessing performance. Segment performance is evaluated based on the operating profit and EBITDA of each of the segments.

Zaldivar, in which the Group has acquired 50% stake in December 2015, has been included as new segment in 2016.

a)            Segment revenues and results

For the six months ended 30 June 2016

¹EBITDA refers to Earnings Before Interest, Tax, Depreciation and Amortisation. This comprises 100% of the EBITDA from the Group´s subsidiaries, and the Group´s proportional share of the EBITDA of its associates and joint ventures.

²During the period, operating cash outflow from exploration and evaluation was $17.6 million

For the six months ended 30 June 2015