March 16 (Bloomberg) -- Antofagasta Plc, the owner of three Chilean copper mines, will explore the Andes for untapped metal deposits as production dwindles at its existing mines, Chairman Jean-Paul Luksic said.

Antofagasta may commit more than $700 million to boost falling reserves at its flagship Pelambres mine and new projects in Chile's Atacama Desert and Peru this year. Copper prices reached a record last week as demand, fueled by Chinese growth, exceeds mine supply.

``You don't have three or four mega projects that will turn the market upside down,'' Luksic said in an interview in London yesterday. ``There's a lot of copper and gold in Chile.''

Antofagasta said production will fall at its three mines by 5 percent this year as it extracts ore with less copper. The expansion of its Los Pelambres project has been delayed by two years by a late environmental impact study, Chief Executive Marcelo Awad told investors yesterday.

Antofagasta eliminated debt incurred from building Los Pelambres last year after record net income of $558 million, triple the year before.

Los Pelambres is Chile's lowest-cost copper producer because it's rich in molybdenum, a minor metal used to toughen stainless steel, Awad said. Molybdenum prices tripled last year to an average of $16.2 a pound, becoming Chile's fifth-largest export.

The company will use $25 million to advance exploration at its Esperanza project in northern Chile and spend another $10 million to find new deposits at Michilla, its highest-cost mine.

Record Price

Copper futures on the London Metal Exchange rose to a record $3,284 a metric ton last week as official inventories narrowed in the past 12 months. This is as China, the world's largest metals consumer, more than tripled its consumption of copper containing power cables and electrical wire since 2000.

Antofagasta's shares fell 13 pence, or 1 percent, to 1,306 pence in London and have dropped 3 percent this week as Antofagasta told investors that an expansion to Pelambres would be delayed.

BHP Pty Ltd., now BHP Billiton Plc, the world's largest mining company, was the last to find a ``mega'' mine, the Escondida copper mine in Chile's Atacama desert. It produces more than 1 million tons of copper a year, more than 5 percent of global supply, and made almost $4 million in profit a day last year.

Chile produces about 40 percent of the world's copper. Antofagasta is the largest Chilean-owned private copper miner. Codelco, owned by Chile's government, is the world's largest producer of copper.

Copper Outlook

Luksic, 40, became chairman on Nov. 5 when his billionaire father, Andronico Luksic, 78 stepped down. The family is No. 132 on the Forbes' richest people list with a fortune of $4.2 billion. Antofagasta, Chile-born Jean-Paul Luksic attended London's School of Economics and worked for BNP Paribas bank in London for six years.

He predicts copper may average $1.27 a pound this year, less than the $1.51 a pound 3-month futures price on New York's Comex exchange. Antofagasta uses an long-term average of between 90 cents a $1 a pound to evaluate new projects.

New projects must render a return of capital of at least 20 percent, he told investors and analysts in a presentation yesterday.

Antofagasta's ``prudent approach'' of low price estimates when building new mines has been its strategy ever since Andronico Luksic bought the Antofagasta & Bolivia Railway Co. in 1979, Jean-Paul Luksic said. Antofagasta has turned a profit at the U.K.-listed company every year since. It still owns railroads and water utilities in Chile's desert north.

Antofagasta became a member of the U.K.'s FTSE 100 stock index last year, replacing a supermarket chain. The company has the lowest free float of any of the FTSE 10 companies as the Luksic family holds more than 65 percent.

Boosting Supplies

The company faces slowing production at its mines in Chile as ore grades fall. Output will slow 6 percent this year from 2004 to 470,000 tons while smelting and acid costs rise.

It will spend $15 million on a pre-feasibility study on its Esperanza project in northern Chile and may accelerate development of its Brujulinas and Conchi projects in northern Chile, Luksic said.

Esperanza may be able to produce 150,000 tons a year of copper after a capital investment of $700 million.

``We believe we can turn that project into a mine and a very sizeable mine,'' Luksic said.

Antofagasta also seeks new deposits in Peru with Rio de Janeiro-based Cia Vale do Rio Doce, the world's largest iron ore producer.

Luksic says a lack of new investment will help keep copper prices high. BHP Billiton Plc's Spence project in northern Chile is one of few projects to start this decade, he said.

Gold

Antofagasta is seeking other metals such as gold. The company obtains more than 80 percent of its revenue from selling copper, more than its larger competitors listed in London such as BHP Billiton, Anglo American Plc and Rio Tinto Plc.

Gold is a metal we ``would like to be exposed to'' Luksic said, as Chile's Andes mountain range holds profitable deposits.

Gold surged to a sixteen-year high in December. Barrick Gold Corp., the world's third-largest gold producer, closed its El Indio mine, Chile's only dedicated gold mine, last year. It may open another mine in 2009.

To contact the reporter on this story: Matthew Craze in London mcraze@bloomberg.net.

Last Updated: March 16, 2005 12:24 EST