5 Princes Gate
London SW7 1QJ
Telephone: 44 20 7808 0988
Fax: 44 20 7808 0986
Web site: http://www.antofagasta.co.uk
Incorporated: 1888 as The Antofagasta (Chile) and Bolivia Railway Company Plc
Sales: £659.4 million ($1.1 billion) (2003)
Stock Exchanges: London New York
Ticker Symbols: ANTO.L; ANFGY
NAIC: 482111 Line-Haul Railroads; 212221 Gold Ore Mining; 212234 Copper Ore and Nickel Ore Mining; 221310 Water Supply and Irrigation Systems; 237210 Land Subdivision; 334290 Other Communication Equipment Manufacturing; 522293 International Trade Financing
Antofagasta plc is one of the world's leading producers of copper, with total production levels nearing 472,000 tons in 2003. The focus of the company's operations is its Los Pelambres mine site, which began production in 2001 and has extended its life expectancy to some 50 years. The Los Pelambres site represents nearly three-quarters of the group's mining revenues. The shift of its mining focus to the Los Pelambres site has also enabled Antofagasta to claim a position as one of the global copper market's lowest cost producers, at just 36.4 cents to the pound. Antofagasta also holds controlling stakes in two other mines, El Tesoro, which adds 16 percent to the group's revenues; and Michilla, which represents 9.5 percent of Antofagasta's total mining revenues. Since the late 1990s, Antofagasta has restructured itself as one of the industry's most focused mining groups—more than 93 percent of the company's revenue comes from its mining operations. Nonetheless, the company continues to participate in two other important and related areas. The company's Transportation division oversees its monopoly control of the FCAB railroad linking Antofagasta in Chile to the Bolivian border, a 650-kilometer stretch of railroad crossing the Andes, which also represents the company's historic core operation. The company also operates the Bolivia-based Andino rail network, and a road-based door-to-door transportation subsidiary, Train Ltda., servicing the northern Chile region. Antofagasta's Water and Forestry division oversees its water pipeline and treatment operations, originally an offshoot of its railroad business, as well as the company's 32,000-hectare forest holdings. The company has moved to expand its water operations, and in 2004 was awarded a 30-year concession for the water distribution and treatment rights in the Antofagasta region. Yet mining remains the focus of the group's efforts, with an active exploration program in place, including a stake in Chile's Esperanza Project, and exploration partnerships in Peru. Listed on the London and New York stock exchanges, Antofagasta is controlled at more than 60 percent by Chile's powerful Luksic family.
Railroad Origins in the 19th Century
Toward the mid-1800s, British interests joined with the Bolivian government to construct a railroad crossing the Andes mountain and linking Huanchaca to the port of Antofagasta, along the Pacific coast. Founded in 1867 as a small fishing village, Antofagasta, which means "hiding place for copper" in Quechua, soon after became an important port town with the discovery of significant nitrate and other mineral deposits, including copper, in the Atacama desert.
The construction of the initial interior portion of the railroad, starting from Antofagasta, was originally completed under Compañía de Salitres de Antofagasta. Construction continued into the 1870s, and the resulting railroad represented one of the era's significant feats of engineering—as it neared the Bolivian border on its Collahausi branch (later shut down) the line topped an altitude of 4,827 meters, becoming the world's highest railroad.
Antofagasta and the Atacama region originally belonged to Bolivia and represented that country's link to the Pacific ocean. Nonetheless, Chilean interests were active in the region's early mining operations, including the production of nitrates, used for fertilizers and explosives, and copper. The importance of the nitrate trade in particular led the Bolivian government to attempt to increase its control over the region, and in 1879, the government imposed new, stiffer taxes on the Chilean-owned nitrate mines. When the mine owners balked at paying the higher tax, the government attempted to confiscate their holdings, then instituted an embargo on all Chilean goods entering Bolivian territory. This move precipitated in the five-year War of the Pacific, in which Chile emerged victorious over Bolivia and its ally Peru. As a result of the Treaty of 1884, Antofagasta and the Atacama region, as well as a significant portion of the Peruvian coast, fell under Chilean control.
With hostilities ended, construction of the Antofagasta railroad was renewed. Companhia Huanchaca de Bolivia became the controlling force behind the railroad, which featured a proposed 650-kilometer length of the line. By the late 1880s, the Huanchaca company had succeeded in building some 440 kilometers of rail from Antofagasta to the Andes.
In 1888, the Huanchaca company began negotiations to cede its concession on the railroad to a group of British entrepreneurs, which launched the Antofagasta (Chile) and Bolivia Railway Company Plc in 1888. The company listed its stock on the London Stock Exchange that same year, and used the proceeds of the public offering to back completion of the railway. The Huanchaca company remained responsible for the actual construction operations, which were scheduled for completion by 1890, at a price of £300,000. The new London-based company became known alternatively as FCAB, or, for its British investors, "Fags." In addition to its railroad concession, Fags also gained the concession for developing the water treatment and distribution network for the region.
Based on the booming nitrate trade, Antofagasta quickly developed into Chile's fourth largest city, and Fags found itself in control of the country's largest and most lucrative independently operated railway. Throughout its history, Fags maintained a monopoly on the railroad serving northern region's mining communities. The importance of the nitrate trade through the turn of the century and into the early decades of the 20th century stimulated the growth of a string of towns and villages along the railroad.
By the 1930s, however, the development of chemically derived nitrates spelled the end of the nitrate mining sector. Steady decreases in production led a significant loss in importance of the Fags-owned railroad. As nitrate mines shut down, the villages along the line were abandoned. Fags remained in business through the 1970s, yet lack of investment had resulted in a decrepit railroad and unreliable service, and had led the company to the edge of bankruptcy.
Transporting Copper Mining Success in the 1980s
Fags might have faded out entirely if not for the rapid development of a new mining sector in the northern Chilean region, that of copper, and particularly the efforts of Andrónico Luksic. Luksic was the son of Policapro Luksic, a former native of Croatia under the Austro-Hungarian empire. In 1910, the elder Luksic immigrated to Chile at the age of 17, and came to Antofagasta, where he married into a prominent local family. Son Andrónico went on to study law in Santiago, then, following World War II, went to Paris to study at the Sorbonne.
In Paris, Luksic worked in the monetary exchange market, raising enough capital to purchase a 10 percent stake in the Ford automobile concession in Antofagasta. Soon after, Luksic returned to Chile and joined a law firm. Luksic then went to work at the Ford automobile business, and later acquired full control of the concession.
Luksic had long held an interest in geology and mining, and was especially attracted to the opportunities presented by the Atacama desert region. In the early 1950s, Luksic was approached by one member of a three-way partnership of Frenchmen that had been developing a nearby copper mine. Disagreements had led to a falling out among the partners, and Luksic agreed to buy out the initial one-third share. Unable to pay outright, Luksic negotiated an agreement to pay back the stake over a 25-year period.
Shortly after, Luksic acquired the remaining shares in the mine by 1952. Then, in 1954, Luksic had a stroke of luck. Lacking the resources to develop the copper mine, Luksic instead sought a buyer for the holding. As the legend had it, Luksic approached Nippon Steel, offering to sell the mine for CLP 500,000, worth about $45,000 at the time. Yet the Japanese were said to have misunderstood Luksic, and agreed to pay him $500,000 instead.
Luksic founded the Luksic Group that same year. Over the next two decades, Luksic developed widely diversified business interests, becoming a major force in the country's fishing industry through his purchase of the local Star-Kist operation in the 1950s, as well as redeveloping the Ford dealership as an equipment rental company for the fast-growing mining industry in the region. At the same time, Luksic remained a force within the mining industry itself, conducting exploration and production operations, and buying stakes in a number of mining operations through the 1960s. In addition to interests in copper mining, Luksic controlled the Carbonifera Lota Schwager coal mining group, while his holding company, Madeco, in addition to being the country's leading producer of copper wire and tubing, emerged as one of the country's top conglomerates.
Luksic's fortunes met with a setback in 1970 when Salvador Allende was elected president of Chile. Allende's government quickly nationalized much of the mining and other industries. Luksic was granted some compensation for the expropriation of Madeco and other holdings, and his Ford equipment rental business remained a primary supplier to the northern mining industry now controlled by the Chilean government.
Antofagasta is a large scale, low cost copper producer with good opportunities for growth.
The company was forced to turn to the international market for continued investment in the 1970s. Luksic's string of business successes continued outside of Chile, and included control of Salta, Argentina's largest brewery, farming interests, canneries in Colombia, and an extension of his Ford dealership concession into Argentina and Brazil.
The overthrow of the Allende government by a U.S.-backed military dictatorship in 1974 led to a new reversal of fortune for Luksic. The new government began privatizing the businesses appropriated by the Allende government during the decade, yet Luksic found himself barred from acquiring the newly privatized companies—because of the compensation he had received from the Allende government and his continued trade with the government-controlled mining industry. Instead, Luksic concentrated his Chilean activities on redeveloping his copper exploration and mining interests in the northern region.
The blacklisting turned out to be a blessing in disguise. Unlike competing Chilean groups, which took on high levels of debt in order to acquire the privatized companies, Luksic remained financially solvent. With the collapse of the Chilean economy amid the Latin American debt crisis of the early 1980s, Luksic found himself in position to acquire a significant number of the bankrupted companies, establishing himself as the company's most powerful businessman.
At the same time, Luksic had spotted a new opportunity. Exasperated by the poor and unreliable service of the Antofagasta (Chile) and Bolivia Railway Company at the end of the 1970s, Luksic decided to gain control of the company. In 1979, Luksic acquired a majority stake in Fags, a move that largely went unnoticed by the investment community at the time. By the early 1980s, Luksic had succeeded in restoring Fags' operation, transforming it into a highly profitable enterprise. These profits in turn fueled Luksic's investments in other industries, such as his buyback of Madeco, and his partnership in the acquisition of CCU, another of Chile's largest and most profitable conglomerates.
Fags rapidly grew into the holding company for much of Luksic's industrial and mining operations, as well as its railroad and water concessions. By the end of the 1990s, the Luksic empire had expanded to include such significant operations as Indelqui SA, a leading copper products company in Argentina that had been expanding into the telecommunications sector, acquired in 1990. In 1992, the company joined Argentina's Perez Companc at the head of a consortium providing electric power generation and distribution to Buenos Aires.
Focused Copper Group for the New Century
During this same period, Fags had been building up new copper mining businesses. In 1983, the company acquired the concession for the Michilla copper mine. By the mid-1990s, that mine was producing more than 50,000 tons of copper per year. Fags also controlled another important mine, El Chacay, an underground operation. Then, in 1992, Fags joined a consortium to buy a controlling stake in the El Mince copper mine, together with Outokumpu Oy of Finland.
By then, Fags had already become the lead partner in developing a new and highly important mining concession. Fags had originally purchased the Los Pelambres concession in 1986, paying ARCO $6.2 million to acquire porphyry copper reserves estimated at more than 1.4 billion tons. The original life expectancy of the mine was placed at 30 years. Work began on developing the site in the early 1990s. Instead of constructing an underground mine, Fags opted for an open-mine model, allowing the Los Pelambres site to become one of the world's lowest-cost copper mines. Similar development began at a second, smaller site, El Tosoro, which featured total reserves of 178 million tons.
As the launch of production at the Los Pelambres site drew nearer, Luksic, by then joined by sons Andronico, Jr., Guillermo and Jean-Paul, began taking steps to streamline the operation. In 1996, the Luksics created a new holding company, Quinenco, which took over most of the family's industrial and financial holdings. The Luksic group held a 65 percent stake in Quinenco, with the remainder owned by Fags.
Fags now concentrated its efforts on developing the low-cost Los Pelambros and El Tosoro sites. In 1997, the company announced its decision to shut down the El Chacay underground site. By 1999, the company, which adopted the name Antofagasta plc that year, had launched production at Los Pelambros, ramping up to full production by 2001. At the same time, construction began on the El Tosoro site, which launched production in 2002.
By the end of 2003, Antofagasta had emerged as one of the world's largest focused copper mining groups, with a total production that topped 427,000 tons. At the same time, the company was riding the crest of the copper pricing cycle—driven in part by the surge in demand from China and other Asian markets—which boosted its total revenues from just $185 million in 1998 to more than $1 billion in 2003. In that year, Antofagasta sold its stake in Quinenco to the Luksic Group.
- Antofagasta (Chile) and Bolivia Railway Company (Fags) lists on the London Stock Exchange and takes over operation of Antofagasta-Bolivia railway link.
- Luksic Group acquires Fags, which is renamed as Antofagasta Holdings plc and becomes vehicle for Luksic's copper mining, financial, and industrial investments.
- Company acquires Los Pelambros mining concession from ARCO for $6 million.
- Antofagasta transfers its non-mining operations to Quinenco, another Luksic-controlled holding.
- Company launches production at Los Pelambros, which becomes one of the world's largest and lowest-cost copper producers; changes name to Antofagasta plc.
- El Tosoro mining site begins production.
- Company acquires water concession for Antofagasta for $194 million.
- Antofagasta joins London Stock Exchanges FTSE 100 index.
Antofagasta successfully boosted the life expectancy of the Los Pelambros site to 50 years in early 2004. The company had also launched a series of exploration operations in Chile and Peru in order to develop future copper reserves. Meanwhile, the company expanded its water concession in the region, paying $194 million to acquire the water rights and distribution and treatment concession for the Antofagasta region in December 2003. Soon after, in March 2004, the company's rise in revenues earned it a spot on the prestigious FTSE 100 index of the London Stock Exchange. With more than 100 years in Chile's northern region, Antofagasta had repositioned itself as a major player in the global copper market.
Aguas de Antofagasta S.A. (Chile); Antofagasta Minerals S.A. (Chile); Antofagasta Railway Company plc (UK); Chilean Northern Mines Limited (UK); Empresa Ferroviaria Andina S.A. (Bolivia; 50%); Forestal S.A. (Chile); Minera Anaconda Perú S.A.; Minera El Tesoro (Chile; 61%); Minera Los Pelambres (Chile; 60%); Minera Michilla S.A. (Chile; 74.2%); Servicios de Transportes Integrados Limitada (Chile); Train Ltda.
Samancor Ltd.; CESBRA; Corporacion Nacional Del Cobre De Chile, Codelco; Gordo y Cia Eulogio; Empresa Nacional de Mineria; Cia Minera El Indio; American Pacific Honduras Incorporated S.A.; Cia Minera Huaron S.A.; Empresa Minera de Mantos Blancos S.A.
Blakemore, Harry, From the Pacific to La Paz, London: Lester Crook Academic Publishing, 1989.
Bream, Rebecca, "Gains in Copper Turn Investors on to Antofagasta," Financial Times, February 19, 2004, p. 21.
Cave, Freiderike Tiesenhausen, "Downbeat Reaction to Antofagasta Data," Financial Times, July 28, 2004, p. 20.
Conway, Edmund, "The Andean Ascent to the FTSE," Daily Telegraph, February 21, 2004.
——, "Antofagasta Makes Its Debut in the Top Flight," Daily Telegraph, March 10, 2004.
John, Peter, and Kevin Morrison, "Antofagasta Benefits from China Sales," The Financial Times, March 10, 2004, p. 22.
Millman, Joel, "Follow the Philosophy of the Ant," Forbes, October 12, 1992, p. 132.
Spence, Bruce, "Luksic Open to Selling Part of Mining Interests—Chile," Business News Americas, March 15, 2004.
Yafie, Roberta C., "Antofagasta Stays Upstream," American Metal Market, September 6, 2000, p. 1.