Strategy & Operations » Leadership & Management » Antofagasta CFO on how finance drives value at the copper giant

Everything about Antofagasta is unusual. One of the largest copper miners in the world and in the top three of Chile’s biggest companies, it is a constituent of the FTSE-100 index with a market value of lamost $10bn, but nearly two thirds of the company is owned by the country’s Luksic family.

At Los Pelambres, Centinela, Antucoya and Zaldívar, in the northern half of the country, Antofagasta has some of the most striking open cast mines in the world.

Into this setting Alfredo Atucha arrived as CFO in 2013. Although the Chilean previously worked for mining giant BHP, his previous roles included a combination of consumer groups including Latin American arms of BAT and RB (Reckitt Benckiser).

He says that background enabled him to bring a completely different approach to the mining sector, which he says is traditionally focused on raising production to reduce costs. “The speed in which we are deciding and making decisions is completely different,” he says. “In the mining sector the majority of decisions are over the long term, using proven technology, and in companies like BAT you are making decisions all the time because you are competing every day, fighting for a percentage point of the market share.

“I have tried to incorporate the concept of velocity and shortening the period of analysis and decision-making to be even more agile. There is also more discipline in consumer companies when it comes to the capital allocation process, which I believe I have brought to this role,” he adds.

Transition to mining

Atucha’s previous role of VP finance for BHP Billiton at Escondida- the world’s largest copper mine, operated by the global giant with a number of smaller partners, was a great preparation for Antofagasta, but a baptism at the time.

“Escondida is a monster, in terms of size and production, the pressure on this asset in all areas was always very high, in margins and cash generation,” He says there was always an onus on raising production so that payback on investment was quick, “to demonstrate to the market that Escondida is not just the biggest copper mine in the world, but also the best,” he says.

Atucha spent a decade at Escondida, which produces 5% of the world’s total copper production. It was time in which he was able to develop predictive analysis skills that are becoming a feature of how finance is helping drive strategy in mining companies.

At Antofagasta, Atucha is applying the same disciplines, but in a different corporate model. Although a third of the company is listed on the London Stock Exchange which he says provides “strict rules, not just in terms of financials or Board dealings, but also in transparency and compliance”, there is the 65% ownership of Luksic family that defines the group. Chairman is Jean Paul Luksic Fontbon, who has been involved with the group for 25 years.

On corporate governance, Atucha says: “I think there is a very clear distinction between the chairman’s responsibilities and the CEO’s responsibilities, so our governance is very strong, very robust and especially because 65% of the company is owned by the family, we need to be very transparent in our relationship with the family,” he adds.

“I don’t think the family ownership is affecting or impacting any day-to-day decisions. The management is independent, we report to board committees. We don’t have any specific relationship with any one or some of the family,” says Atucha.

Is the management team frequently asked by shareholders about the structure? “Not really,” insists Atuch. “I think as FD of the group its relevant for me to know that in one shareholder is concentrated a lot of the company. But this is not really an aspect that affects performance, which is important from my perspective as I measure the financial performance of the company,” he says.

On risk, a vitally important area of a mining group, Atucha says the risk management function reports to him, and he in turn reports to the board members in charge of risk. Its an area that features heavily in the management information the group’s finance function puts together. “Today, risk management is one of the most important areas for the CFO to take care of,” he says.

“We’re able to put on the table the maximum amount of relevant information, regarding areas such as risk to help influence decision-making, supporting the CEO and the Board, and the Executive Committee with a whole set of numbers, to ensure a strong shareholder return,” Atucha informs.

To help inform strategic decision-making, Antofagasta has launched a digitalisation programme using AI and RPA technologies, aimed at improving productivity, and making the group more competitive. “Our obsession is to be a digital company in a couple of years- subject to a very strict capital assessment. We are investing some money to improve our technology, but the return will be spectacular compared to the cost,” he adds.

Global challenges

Better analytics will become increasingly valuable for Atucha and his team to combine insights from the group’s data with wider analysis of a fast-changing economic environment. “In order to really analyse and provide good information and to take decisions, you need to understand what is going on around you, from a political point of view, from an economics point of view, and in markets and technology,” he says. “I think the position of the corporate CFO is very relevant in this area because we have to be connected with many different areas, institutions or situations to build a solid and robust means of supporting decision-making,” he adds.

China is absolutely vital for Antofagasta, representing the lion’s share of the end market for copper, “so we need to follow what is happening in China, but also what’s happening in the States, not because the US is a big copper consumer, but because it is big in the economic and political world. Macroeconomics and the political situation must be part of analysis, and the information to be considered by the CFO,” says Atucha.

The slowdown of the Chinese economy, along with the rising value of the peso and blockages at Los Pelambres contributed to a slowdown for Antofagasta in the first half of 2018- EBITDA fell 16.2% to $904.2m in H1 compared to the previous year.

Atucha says that the group is now focused on preserving cash and maintaining margin, an area where finance can play a key role in planning. “We were able to act flexibly to reduce some cost and to eliminate some activities, to reduce duplication,” he says.

“The financial position of the company in general is very solid and we have been able to maintain global partnerships, and these provide us with a lot of flexibility to face many issues and challenges through the year,” he says.

Although he says Antofagasta is optimistic about markets, with a view that China will continue to grow at 6.5%, there are concerns about future access to debt markets should the global economy start to slow. “Projects are huge in terms of capital intensity, so it’s difficult to finance projects with $6-7bn and assume all the risk involvement, so perhaps sharing risk of projects with other companies could be a solution,” he suggests.

Transparency is another important priority, says Atucha. “Creating a greater level of transparency and compliance, is a must for the mining sector. I think we can provide information for many stakeholders, not just shareholders. We need to prepare information in terms of meeting all expectations. I don’t this is a problem today for our function,” he adds.

But it reflects a wider concern about the social licence that companies, especially in the extractive industries, require to operate. “This is a very hot topic,” says Atucha. “Communities need to understand better and in a deeper way what we do, and we need to ask the community what its issues and concerns are,” he says.