Antofagasta plc

Thank you and good morning to everyone and welcome to our conference call on the 2019 year-end results. I am in Santiago and I got here with me, Alfredo Atucha, who is our CFO.

I also have with me Mauricio Ortiz who will be taking up the position of CFO as Alfredo retires April 1. So he is also in the call.

And finally, Rene Aguilar is also with me, our VP of Sustainability. And in London, the London office, we have our Investor Relations team.

So, Andrew and Andres are linking from London. So I would like to say a few words as introduction and then we will do the Q&A.

First of all, I would say, certainly what's taken centerstage now is the COVID-19 condition or situation. We, from that point of view, have introduced several health and safety measures to protect our people and some proactive actions to contain the risk of contagion at our facility.

Those include things like limitations on travel, intensive working from home and quarantine protocols in cases of contamination. Now we have not had as of this date any virus condition declared at any of our facilities and therefore we have had no disruption to our operations.

We continue operating. But there are certainly several measures that we have introduced and are in place to protect the health of our people.

Coronavirus has not only impacted the ability to operate, from that point of view, or has required introducing all theses changes and adjustments, but certainly alongside the health implications, we have seen high levels of volatility and uncertainty in the market. I must say, however, that despite these, our shipments have not been affected and our supply chains which we look at very carefully and are in contact with our key suppliers remain substantially intact.

In fact, I will comment, if need be, later on about this. What we are seeing is some early recovery signs in China.

China has been turning back and progressively moving people back to work. So what we are seeing is that the, example spot market for cathodes come back and again becoming active and therefore, we have got some positive signs of recovery there.

I think the situation is quite different when we look to Europe at this moment in time. So as a result of all that, I mean no question that the copper price has weakened to a level that we have not seen for some time and therefore trading in an environment of the quite low copper price which certainly poses a its challenges for copper producers.

Now, when we look at the results we think that they place us in a strong position for future uncertainty. I think Antofagasta has emerged from 2019 stronger.

We had record year of production. Our copper production was up 6%.

And more importantly, we had a very good and very strong year on safety as well. And I think those pairs, when they come together, we feel we really had a good go at our operations.

So we had a good performance, strong performance. Our safety indicators were the best I have ever seen in the history of the company and our production of copper was also a record.

Our net debt as a result of our high-level of cash generation is down. When you exclude subordinated debt, in fact, we are in a net cash positive position.

And our cash reserves stand north of $2 billion. So strong balance sheet, coupled with strong operating performance which we want to carry into 2020.

And as a result of that, we have declared a dividend of $0.341 which equates to around two-thirds of net earnings. Now in looking at that through out capital allocation policy, that is consistent with the payment level of dividends that we have had in the past couple of years.

And to think that when we look forward, even though we are facing high levels of uncertainty, it acknowledges the fact that we are standing in a very strong balance sheet and also that we are taking very proactive measures in 2020 to look at every line of spend in our operating costs and capital expenditure to be able to protect the cash flow as we move into a year of high uncertainty like the one that we live in today. So what we are doing is, we have started a review, a very thorough review of our capital expenditure still underway.

But that indicates to us last that we will expect to finalize that review with a capital expenditure which will be in the range of $1.3 billion to $1.5 billion, so below the $1.5 billion number that we had guided initially. And therefore, that will help us to protect our cash flows in a lower-priced environment as we are seeing today.

And then we are doing the same on operating expenditure and expect therefore that we will see some improvements and opportunities there as well. So we have moved the organization into a very strict operating and capital expenditure screening mode to ensure that we keep our cash flow in a lower priced environment and protect our margins.

So that's very important. Even though we had a very strong balance sheet, we are approaching the year in that way.

So looking at 2020, we expect copper production to be within the range that we already had guided between 725,000 and 755,000 tons. We had target additional cost savings of $100 million and we are looking to amplify that figure.

And when we finish our review, we would be able to share that more broadly. And then on net cash cost, we haven't changed our guidance of $1.30 per pound.

But as I said, we see some opportunities there and we are working on them. And therefore, we will provide further information once we finish that review.

So in summary, I think we have a differentiated balance sheet which becomes a very distinctive feature in the current environment and combined with a high quality asset base. We think it is at times like this one that the resilience of our operating and financial strategy is most distinctive and it allows us to look forward from a position of relative strength at a time when you know we all recognize it is difficult to forecast with certainty how the situation may evolve in the short term.

But we believe, copper remains among the cyclical commodities a very strong commodity, preferred commodity for the reasons that we have talked several times in the past around urbanization, renewable and electromobility. So as the world moves into a carbon green economy and therefore in the longer term, those trends will prevail.

In the current juncture however, the strong balance sheet allows us to look at our business in 2020 with the expectation that we can weather the storm in a good fashion. So that's where we end that.

And now I will take questions after having summarized where we think our most distinctive points of 2019. So we will open it now for Q&A.

Hi there. Again, thanks for the presentation.

Two questions. Firstly, on the CapEx reduction.

Can you give us a bit more detail on exactly where it's coming from? And whether it will firstly have any impact on your 2021, 2022 production?

And if it will be reflected in higher CapEx in 2021 relative to your current plan? And then the second question, we are seeing some pretty large moves in the currency and the oil price.

Can you give us a reminder on the sensitivities and then where you would fit versus your 2020 net cash flow guidance of $1.30 per pound if we were to adjust for those currency? Thanks.

Okay. Yes, with respect to capital expenditure, we are looking at that now.

So I will tell you which are the components where we think there is scope for reduction. One, we think that simply in the price of some of these equipment components and parts which form some of our capital expenditure, there are opportunities to lock in improved conditions to the ones that have been conceived initially and I think in the initial estimate.

And therefore, that is a favorable development. And that includes the exchange rate there.

So it's the price of the components and also the impact of the exchange rate. Then the second element when we look at sustaining CapEx, we think we can prioritize reviewing the projects that are sitting within that plan of around $330 million or $350 million as it stands today.

And therefore focus on those that have the most impact and be able to reschedule or in some cases, blend or replace some of the capital expenditure projects that we have had there. And then there are some discrete expenditures in the capital program.

We have the start of Esperanza Sur. We have the purchase of autonomous trucks.

And now we are looking at ways to try to move ahead with them but in a way that they will represent less of a financial impact in the short term or potentially follow a different schedule. So that's what we are looking at now.

The review is under way and therefore we are in the middle of that exercise. But what we have seen from what we have done so far is that certainly the number will be lower than $1.5 billion.

And that's why we have provided the range that we gave. Now we are doing this with a view of not having an impact on production in 2020, 2021.

We think we can manage these changes without having to compromise our production, certainly not this year. Next year, just as a reminder, this year production given the range that we have given comes down compared to 2019.

But then in 2021, it goes up again. So we are not seeing in the exercise and are approaching this to try to minimize any impact on production and we are not seeing that in the numbers that we are looking at.

And how much this impacts 2021, there maybe some carryover. But I don't think that will change the figures materially.

We expect in 2021 to be reducing the expenditure at the Pelambres expansion and therefore we do have some reduction there. And therefore, any carryover will be managed within the limits of the ceilings that we already have.

So limited or no impact there I think and that's the way that we are trying to approach this. And if there is some because of carryover into 2021, we will be able to accommodate that.

On the sensitivities, the exchange rate which you have mentioned, it does have an impact on local exchange rate, certainly on our operating expenditure and CapEx. And when it comes down to operating expenditure, the sort of round figure is that around 10 pesos per dollar represents $0.01 per pound.

So the guidance we gave was with an exchange rate of around 725 and that were to change by 10 pesos to 735 on average for the year, that's $0.01 per pound of lower unit cost at C1 level. In the case of the oil price, the logic is that around $10 per barrel is around $0.01 per pound as well.

So we use oil primarily in haulage, so moving our trucks. And therefore $10 per barrel represent around $0.01 per barrel.

So we are getting some help there, no question. And that will help also to compress some of our cost, though from an oil price point of view and exchange rate point of view.

Very good. Thank you.

Thank you. Good morning.

A couple of questions please. Ivan, you had mentioned a strong balance sheet and it's been alluded throughout your presentation but looks like you are more focused on protecting that balance sheet and preserving or minimizing CapEx spend.

Are you able to act contra-cyclically as well if your find any opportunities during this volatile time period? Or would you remain focused on organic opportunities and not look at externalities which might provide you better optionality on timing and also pricing at this point?

That's my first question. Second question is just on Zaldivar water permit.

Escondida actually I think dropped their plans to draw water from ground and use seawater desalinated water. Are you still continuing with your application?

And do you think you might find an alternative solution if your permit doesn't get through? Thank you.

Yes. Okay.

With respect to opportunities, I think we refer to our capital allocation framework. Obviously, at a time in which valuations are where they are today, one could argue there may be opportunities.

But we would look at them in the context of, as we always would in the context of our capital framework. So we have got a high return project in what we are doing at Pelambres, which is an execution.

We have got a project which we are saying provides an opportunity for investment from an organic point of view in Centinela. But we don't make that decision until 2021.

And if there are other opportunities, I mean obviously, we would look at them. I mean the fact that we have got a strong balance sheet does provide us the opportunity to do that, but only if it makes sense from a return point of view and it competes well with the alternatives that I have just alluded to.

So we would certainly look at things as we normally do. We know in the space of copper there is little that gets traded.

But we will do that only in the context of our capital allocation and therefore competing on a return basis for the best way to utilize our capital. So we will not depart from the discipline that provides acknowledging that the valuations have changed quite significantly in the last year, month or so.

So that's the way that we would approach that. In the case of the water supply at Zaldivar, you are right.

There were two permits being processed in parallel, Escondida and Zaldivar. And we have managed to actually development a joint model for the water basin from where these two entities draw their water.

Now, Escondida withdrew its permit. And actually, the permits on Escondida was terminated on December 31, 2019 and subsequent to that they withdrew the extension that they had requested.

In our case, our permit is due in 2025. So it's still got time to go.

We are asking for an extension to 2031. So it's a more limited extension and we think that all-in–all, the fact that Escondida has withdrawn its permit does create an improved case for us in the sense that less water being drawn from the same basin.

So we basically believe that we will pursue that permit to its completion and we are scheduled to essentially complete that in the course of this year, 2020. We think from an environmental point of view, according to the testing that we have done and the amount of water that we withdraw that is significantly smaller than what other companies were doing before, it is sustainable to do so and we are only asking for an extension between 2025 and 2031.

Any subsequent use of water after that, if we develop for example, the primary ore body, the hydrogen seeping below Zaldivar, we will have a different water solution. But for this extension, this is what's economically viable and we are thinking environmentally from the testing that we have done the models that we have put together, it is viable.

So we will continue to pursue getting this permit in the way that we are doing and I think this is very consistent with what we have said all around that we need this permit meet to be able to continue to operate the current life of mine and we think we can do that in a way that protects the environment adequately.

Okay. Thank you.

If I could just a follow-up on your portfolio and capital allocations. Does the Chilean protest or unrest change anything the way you think about allocating capital within Chile or Latin America versus the need to diversify into other regions?

Obviously, not risky jurisdiction, but something away from Chile, which had been a safer jurisdiction, but I think some of the market confidence was shaken with those protests?

Yes. I don't think at this stage outside the essentially is that we would like to have a footprint which is essentially in the Americas.

And therefore, that would include from Canada, the U.S., Mexico, Peru and Chile. We do acknowledge that we are now in Chile only, but we have got a greenfield project in very early stages in the U.S.

and we have got exploration activity and a team actually in Peru and other allocations in the Americas. So we remain committed to try to expand in the region.

And there is no, at this stage, change in that mandate and that preference. And therefore, it does depend on the opportunities that we see.

Now, certainly Chile is facing some unique time. The schedule of what will happen is that essentially there is a vote in April to see if a new constitution is to be written.

If the vote is favorable, then a new constitution will be written which has to be voted like a year-and-a-half from now. Now, we think that in that process the main architecture, if you want, of mining as we know it today in Chile in terms of rights and the way we operate will not change significantly.

And therefore, from that point, we have not changed our specific preference for investing here or in the Americas. In fact, we think it's the whole Americas that is where we want to be and there is no country that we put in front of another.

It depends on the opportunity. And that remains the case.

So that has not changed. And as I said, we have got a very active exploration programs outside Chile and we are working on them, pursuing some interesting targets and we will continue to do so.

Okay. Thank you so much.

Very clear.

Good morning everyone. Two questions from me, firstly on the demand side.

You mentioned customers or things are normalizing in Asia. Could you just you maybe give us a bit more color?

Have you seen any sort of performance issues? Are customers asking for any deferrals?

Are you doing any more spot sales? That kind of thing.

And then secondly on the supply chain, if we assume that things do freeze up for a more extended period and travel restrictions globally remain in place, when could that start to impact your operations in terms of critical items and spares? Thank you.

Yes. Okay.

So on the demand side, yes, I think what we are seeing is, as I mentioned, on the volumes side, especially on concentrate and cathodes, which were being provided on term contracts that we had no rescheduling of those. And I think the conversations that we had on eventual changes to schedules which did not happen, were very, very limited and therefore not significant.

So that's something important to mention. And I think what we have seen now, as I had mentioned, is the spot market for cathodes come back and with good indicators, that is we have been able to place cathodes at interesting premiums which is also an indication of how significant might the appetite be for taking up copper again in the spot market.

So that's starting and I think that's a positive sign. Then were also two other things we have seen as we get more data on what's occurring in China, is that the primary mine production in China for the first quarter is down.

And we are seeing probably in the range of between 8% and 10%. Now China is the third producer of copper globally.

So after Chile and Peru, China produces around two million tons. And therefore, this is an important also piece of information which creates a void, if you want, that needs to be filled because that production is not going to be available local.

Now it's very difficult to measure because we know there's a lot of very small producers but the information we are getting from sort of on the ground observers is that that's what their estimate is. I think that's also a positive sign.

And then, what we are starting to see is more around the stimulus from the government. And I think we haven't seen too much yet on the ground.

But one of the things that is positive is that it seems that one of the focus is the grid. And the grid, we know is intensive in the use of copper.

And therefore that we think is also a positive development.. I think the authorities know that the multiplier effect of the grid on commodity or activity levels is important and they seem to be targeting that as one of the teachers to put some extra public expenditure on.

So those development, I think, are positive on balance. I am not saying that it is a consolidated recovery that we are seeing on China or in these places.

But it's a combination of positive, I think, development on the spot market. When we look at the supply, we, certainly working closely with key suppliers, have also increased the autonomy at our sites by means of increasing some critical spares and stocks.

And therefore, I think we will prepare from that point of view for any sort of temporary disruption, which we are not foreseeing at this stage. Now, it depends on which supply obviously is missing but generally the autonomy that we have at sites will vary between 90 and 120 days.

So that's the basis on which we can keep operating. Now I must say, however, that looking at other circumstances and cases, people can get very creative as to how to replace supplies that might be missing.

So I am positive that we seem to be working through any supply restriction in a way that we are not seeing that as a key significant risk at this stage. But are preparing and certainly we are looking at ways of addressing alterative supplies locally as opposed to internationally.

I think the ones that, when it come down to equipment or parts which come from abroad, those may be the ones most at risk and we have got a build up of inventory of those components because if there is travel restriction or the borders are closed, they are now starting today, that may be an issue. But we have got some replacement suppliers in those cases and we are working those very actively to ensure that we are prepared to get those supplies from them.

That was very helpful. Can I just, a brief follow-up, in terms of those supplies, have you seen any disruption yet?

Or is it more an anticipation that that could happen soon?

It's precautionary. We have not seen any disruption.

Okay. Thank you.

Hi. Good morning.

Firstly, what was the most the realized level of underlying cost inflation in 2019? And what are you factoring into your 2020 guidance?

And secondly, can you remind us of your labor negotiation schedule over the coming year? Thank you.

Yes. So inflation in 2019, between 2% and 3%.

And in 2020, we are expecting that number to probably increase to between 3% and 4%. And some of that is related to what's happened with the exchange rate.

I mean, obviously as the exchange rate depreciates, which is the case in Chile, some of that will feed back into inflation. So 2% to 3% in the 2019, 3% to 4$ in 2020.

With respect to labor negotiations, we have got schedule labor negotiations at Centinela and one at Zaldivar. And those negotiations are, for the most part, in the second half of the calendar year.

We are however looking, as we have done in the past, at ways to spread them out and see in some cases it is convenient and there is agreement to try to reach closure by means of anticipating those negotiations. We are looking at those opportunities.

If we could anticipate some of those negotiations and actually close some of them in the first half of the year that we think would be a positive development. And so that's something that we are looking at.

Otherwise, if we go by the regulated schedule, those would start in the second half.

Okay. Thank you.

Good morning. Just a couple of questions.

Just firstly on Liam's question around supply chain. You said this equipment and parts is much bigger risk.

I just wanted to ask in context with the Los Pelambres expansion, whether have all the equipment on site to progress with the construction of the expansion project for the next, let's say, six months? Maybe just talk around the risks around that for the critical part items?

And then just the second question from Luke's question on cost savings. You have obviously beaten the target of around $100 million in 2019 and you look at another $100 million of cost savings in 2020.

If I just take revenue minus EBITDA and look at the absolute cost, it still seems like that figure has still increased quite meaningfully in the last couple of years. I mean is the thinking that this cost savings just tries to offset in inflation, but that you are actually still not able to do that?

And maybe just lastly on D&A. Obviously now you are guiding to $1 billion for 2020.

That's obviously gone up quite meaningfully. I mean IFRS 16 obviously has contributed to that.

But just comparing that to your long term sustaining and development guidance for CapEx, there seems to be a massive mismatch. So maybe if you could just comment on that?

And do you need to write down asset value or is the sustaining CapEx figure just too low?

Yes. Okay.

Let me to kind one at a time. I guess on the supply chain and [indiscernible] of the expansion project at Pelambres, I think that for the most part the equipment there is being manufactured.

Most of it is probably at site, but some of it still has to get to Chile. So we are looking at that to ensure that comes.

There is no immediate need now. So there is a schedule for these to arrive and most of the more critical is probably scheduled towards the end of this year and it is being manufactured.

So from that point of view, it's I think not a risk that we are seeing significant in the short term. I think in that Pelambres expansion what we are looking at is that, we do have a significant amount of people working on site.

And therefore, we need to manage how do we keep those the bi manpower numbers at a time which we want to privilege people working from home and not being at site. So I think the challenge in the case of the Pelambres expansion is more around keeping the manpower numbers required to meet the schedule at a time in which we are trying to organize shifts in a way that we keep the minimum people up at site.

So on of the equipment, I see less of an issue in that particular project at this moment. In the case of cost savings, I think when you look at the cost line in absolute terms in our P&L, one needs to take into account that we are actually doing more in terms of activity level.

So the level of activity, the mine movement that we have compared to what we had previously is bigger, is higher. And therefore, that's important to contemplate.

So there is an activity level component there. We are running more pits and two plants at Centinela, which we were not doing a couple of years ago.

So when you look at the absolute numbers, that's reflected there. We generally try to aim to improve productivity to achieve two things, one to compensate for inflation and also to compensate for grade decline.

So we think that if we keep working at productivity, we should be able to, for a large part, be able to compensate for those two things. Now that's the aim.

That's the way that we substantively position the cost improvement that we aim to accomplish. And that's the way we look at cost.

On D&A, maybe I will let Alfredo answer that. I think D&A has been increased by the fact that our asset base increased as some of our projects came onstream and also IFRS 16 plays a big part.

So you want to take that, Alfredo?

Just comparing that to the main impact coming from the depreciation and amortization during this year is because of new standard applied for the first time in 2019, the IFRS 16 in which all the leasing transaction must be registered as successive and subsequently subject to depreciation. So during 2019, we are reflecting in the D&A charge a significant impact coming from the depreciation of the leasing.

So this is practically the 50% of the D&A charge during this year.

Yes. So some of that explains, I guess going back to you question, the mismatch between our sustaining capital spend being lower level than depreciation.

Now we are still increasing this year and that's something that we certainly watch. The level of sustaining expenditure that we will be doing is consistent with our physical plans to be able to keep integrity of our facility.

Now know they make go up in certain years and therefore would be higher. But that's the basis on which it was used.

I think there is a big impact from IFRS 16 and IFRIC 22 which sort of get bundled into that. But that's the situation.

Okay. But I mean if you take out IFRS 16, which I guess is about $160 million, do you expect that D&A number to come down at the time?

No.

Or should we just assume it to be stable either way?

Surely, we will be in region of $130 million, $150 million because on the one side we will reduce in the future the leasing transaction, but on the other on the other hand, we are having the impact coming from the IFRIC 20 amortization and also the increase in the success because of the consequence of the new project. So I think that the depreciation --

So if I do D&A as a total, it was be nice?

Depreciation and amortization should be in the region of $900 million or $1 billion per year as a whole including depreciation and also the IFRIC 20 amortization.

Okay. All right.

Thank you. I will leave it at that.

Yes.

Yes. Good morning gentlemen.

Just a few questions left on my side. So firstly on capital allocation.

I am a bit surprised that in today's environment, you are willing to pay a special dividend while at the same time you are indicating possible deferrals to your CapEx plans. Why wouldn't you just pay the base dividend and continue with your CapEx pipeline, assuming this is highly accretive in today's environment?

And the second question, you talked about the water situation of Zaldivar. I know that at Los Pelambres you have been flagging the water situation in the past few months.

How has that developed since, let's say, December, January? And in the summer where water scarcity in Central Chile becomes more acute, what will the actions could you take to maintain production guidance at Los Pelambres?

Right. Okay.

On the on the dividend, then let me go back to what I said at the beginning. I think we believe one of the distinctive features of Antofagasta is that we are able to sustain our dividend and not cut back at times in which there is more market volatility or uncertainty.

And I think that the view, then that we formed in paying this dividend according to our capital allocation framework is that we had a very good 2019. Good cash generation, solid year on operating and financial performance but carrying that into 2020 and also a very strong balance sheet.

I mean we are essentially holding $2 billion of cash reserves. We have got no net debt.

And therefore, we are well positioned to weather the uncertainties of 2020. And I think another distinct feature is that we have been able in the past when we have seen the market turn against us on price that we have been able to respond quickly looking at what we spend and making those adjustments fast.

So we think those are all distinctive features which are positive for Antofagasta and which allow us to confront a situation like this one in this way. In the case, as I mentioned, capital expenditure that we are reviewing, we think a component of this will come out of simply review of price conditions in which we are purchasing some of the items of capital expenditure, including impact of exchange rate, prioritizing according to our tollgate some of our projects and then specifically in the case of some of the biggest spend, looking at ways to calendarize or even fund some of those requirements.

So we think we can reformulate this without having an impact on our production profile or the risk of the company and that's part of what we believe we are charged to do by our shareholders, in any case. So that's the logic behind sort of where we are today.

We think others may have to cut the dividend. We sit in a strong balance sheet, had a good operating performance which we are carrying on into next year.

We are operating our assets well and therefore can manage in this way the uncertainty going forward. With respect to the water at Pelambres, I would say that we had no impact from water shortage on production in 2019 and expect the same situation in 2020, even though we have continuing drought.

I mean it's amazing how little rain there has been in periods where we normally would have expected more. And I think what we are doing is first working very closely with the community ensuring that certainly water for human consumption is available.

And there is no issue around that, just to say that, I think there is no risk of there not being water for the community for human consumption. And then the rest that we are doing is looking at keeping very tight management on the efficiency of water circulation in our facility.

We are achieving levels of recirculation north of 85% which is quite positive. And therefore in the scenarios that we run a range of scenarios in terms of where things might go in terms of water balance, we still come out basically as unaffected in 2020.

So that's where we expect to be. And then in 2021, we have got towards the end, the desal plant which will provide the sort of backup facility that may be required.

So our mitigating measures in excess of what we are doing today, I think most of them are around ensuring efficiency in the recirculation and reduction of any water loss in the system. So everything which involves increasing our ability to peak and tailing is beyond what we would normally do is something that we are looking at.

Everything that has to do with ensuring the scene of the whole piping for water transport system is something that we are monitoring much more closer today than would have normally been the case. We brought in new capabilities.

We have got new people who are working with us on this challenge, technical people and therefore, we think we are well-equipped to weather this condition. And as I say, we don't expect there under several scenarios that we have run that we would have an issue.

The relationship with the community is also very important. I mean, in the end, it's something that we do alongside helping the community to provide for their needs and therefore keeping that balance right and with proper engagement is also very critical to being able to progress this challenge.

But we think we are in good shape. And as I say, we saw this in practical terms last year and we expect that that will play out similarly this year.

And so far things are working well.

Very clear. Thanks very much.

Great. Thanks very much for the call in this challenging time.

Just in terms of, if would have some sort of impact outbreaks at one of the mines or there was to be lock down in Chile that caused operations to halt, could you characterize what portion of the costs are really fixed in that environment? Obviously, there is some cost in mining that are generally viewed as fixed but actually they are variable if you were shut everything down.

Could you give us some color perhaps on what kind of cost you would be sustaining there? Thank you.

Yes. Just as a sort of context, one of the things that we have got protocols for how we are managing access to sites so that we are restricting and screening for potential symptoms before people get to site.

And then, when at site, there is a very strict protocol around identifying a potential case and then isolating that case so that we can move it out from side into medical treatment. And that's, obviously, in the first place for protecting the health of that individual but then also for allowing this not to spread and not to have an impact on the rest of the operation.

So we are looking at this very carefully from that point of view, which is really preventing this outbreak from spreading or creating a situation at one of our sites which would force us to stop. But where we have to stop for some reason, which is I guess the question, I think it depends on each of the sites, but generally between 40% to 45% of our costs will probably be fixed and therefore unavoidable.

And that's something that we would have to then, they become variable at some stage, I guess. But that's the sort of percentage that we would have to consider as standing charges in the short term which we could not remove.

Now in a situation like that, contractually one would have to look at each of the contracts, because you have got force majeure. And therefore, a lot of the things that we contract out gets spared from having to be taken up or paid.

And therefore, that's something that we have looked at in the past and are refreshing. But as a sort of first indication, that will sort of percentage which is mostly actually labor.

Great. Thanks.

Obviously, a very tasking situation. So thanks very much for your color there.

I appreciate it.

Thanks guys. Most of the questions have been asked.

Just a couple of quick ones from me, just on primary leaching. Where are you in terms of this testing?

And what are your thoughts on the likelihood of this being commercialized on a large scale? And then second just on Peru.

I am wondering if through your network you have any color on what the impacts to production [indiscernible]?

Yes. So on primary leaching, we have been talking about this for a while.

We have basically reached a stage in which we finalized all the testing on columns and then on a pilot plant and we have moved to industrial scale testing now. So that's where we are which is very positive because now we are basically moving into the real impact.

And I must say two things with respect to that in addition. One is that in how we develop our long term mine planning, therefore we are starting to include some copper tonnage out of primary ore leaching.

Now it's still preliminary we know. We want to see, but it's starting to make its way into our actual life of mine planning.

So that shows and I want to mention this as an indication that this is something that we are pursuing and following up on as a processing route which will be implemented at industrial scale. And the second thing is that we have added, you would have noticed or maybe not yet in our declaration of resources this year, the hypogene at Zaldivar.

And that's predicated on primary leaching. So we have been -- and the competent person that has signed off on these resources has done it on the basis that we would be able to process this ore body and this is resource not researched yet, but this resource on the primary leaching and using essentially the SX-EW facilities that we have already have at Zaldivar.

So that competent person would not have been able to do that to make that bet if some reasonable reliance wouldn't have been placed on this progress that haves been made. So I think there is good news there.

On Peru, we don't have a lot of direct visibility. We know certainly that Peru has been shut down and we understand that mines there continue to operate.

There are some challenges which have been sustained with some of the communities and some of those may have been aggravated by the condition of the Coronavirus. But I don't have full visibility yet on what that might mean bottomline for tonnage coming out of Peru.

Too early, early days yet.

Ivan, can I just follow-up on the primary leaching. Are you able to share any details with us on how many tons you have processed and what sorts of recoveries you are seeing in terms of that leaching of primary ore?

Yes. I mean in terms of recoveries, what we see is that we are able to get to recoveries which are north of 70% which is very good for leaching of primary ore.

Now the key thing here is, in what timeframe. I mean the benefit of this process, because you could achieve that in full year.

So the benefit here is that our primary CuproChlor leaching is able to achieve this in a short span time in which is less than 200 days. So that's the positive.

Now it does require a combination of some regions and the solutions that is part of what is the group and temperature which is the other element. So we need to be able to scale up temperature in the heat piles to be able to achieve that level of recovery.

And I think that's one of the challenges that we have today. How do we allow for temperature to go up when you move into industrial scale?

Now the good thing is that most of that is energy and energy in the north is now cheaper because we have got renewable and therefore we have got the enabler there which can make this competitive.

Okay. All right.

Very interesting. Thanks so much.

Hi there. A very quick follow-up question.

We noticed in Q1, smelter outages in China, the usual possibility maybe to [indiscernible]. Do you have any sense of the magnitude of those concentrate inventories being [indiscernible]?

And whether you have seen early signs of smelting disruptions outside of China in the last week or so?

Yes. So we saw some buildup of inventory but we think not of significance.

I think the bigger smelters kept operating in China. And we think that there is probably more inventory buildup further down the chain of production.

So more around fabricators in the smelting stage. So they were moving concentrates through smelters even at the worst times.

And we think there is probably more inventory buildup further down the chain of wires and cable and the fabricators chain. So nothing of materiality, I guess, at this state on concentrate that we are aware of.

In terms of smelters outside China, I mean our portfolio is very focused on Asia, Japan, Korea and China. So we sell little to Europe.

But we are aware that the operations there have been impacted. So smelting in Europe is down.

The magnitude of that is something that I am not fully aware or familiar with, as I said, because we mostly don't sell into that market but there has been disruptions there.

Okay. Thanks.

It's Andrew here. Ivan, thank you very much.

I think we have come to the end of the time we have for questions.

Okay. Well, thank you very much for attending the call and I hope that we provided a sort overview of where our challenges are.

These are very unprecedented times but we think that we have got the strength to be able to respond in the best way in the interest of shareholders and our communities and everybody. So thank you very much for joining the call and expect to see you soon.

Keep well, bye.

Bye.