March 12 (Bloomberg) -- Antofagasta Plc, the copper producer controlled by Chile’s Luksic family, is renegotiating contracts at its stalled Antucoya project to keep the budget at the agreed $1.86 billion, the chief executive officer said.
“We plan to complete the review in a maximum of two months and reach a decision on whether to continue or stop for a longer period,” Diego Hernandez said today in an interview in London. “We are renegotiating all contracts to make sure that if we restart we can commit to complete it within the budget.”
The mining industry has been beset by surging costs for energy, labor and construction materials. The Antucoya copper project in Chile was put on hold by Antofagasta and its partner Marubeni Corp. in December as they reviewed its escalating costs. An impairment charge of $500 million has already been booked on the project that’s slated to start output in 2015.
“In countries like Australia, escalation of costs is under control, but in Chile there’s a lot of demand for services in mining and it’s more difficult to control the increase,” Hernandez said. “That’s why we are putting a special effort on that.”
Both Antofagasta and Marubeni are committed to Antucoya and neither plan to sell a stake or exit the project, he said.
Antofagasta advanced in London trading after the company doubled its dividend, climbing 3.1 percent to 1,129 pence by the close, the highest level in a month.
The payout was increased to 98.5 cents a share after net cash swelled to $2.41 billion at the end of 2012 from from $1.14 billion the year before. Sales jumped 11 percent to $6.74 billion.
“The company has a robust cash position and good cash generation and the dividend indicates Antofagasta’s confidence in its ability to maintain this,” Marc Elliott, an analyst at Investec Securities Ltd., wrote in a note to clients. “Unfortunately, this may come at the expense of growth, as evidenced by the Antucoya writedown.”
Full-year net income tumbled 17 percent to $1.03 billion after the impairment charge, the London-based company said in a statement.
Last year, Antofagasta raised copper output by 11 percent to 709,600 metric tons and forecast 700,000 tons for 2013. The company plans to keep copper production at 700,000 tons until 2015, when supply is expected to exceed demand, Hernandez said.
“The supply/demand balance will be tight in the first half while new projects may shift it towards the surplus in the second half,” Hernandez said. “But we are very optimistic about the outlook for copper in the medium to long term, especially after 2015.”
The company, which is seeking to diversify outside Chile by buying early stage projects, in 2011 failed to win a mining license for a $3.4 billion copper and gold venture with Barrick Gold Corp. in Pakistan. It’s working with smaller companies, helping them fund developing projects in Canada and the U.S., Hernandez said.
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