Sierra Gorda District

The Group’s primary focus for exploration in Chile is the Sierra Gorda District. The Group owns or controls a number of properties in the district, containing both sulphide and oxide resource. The existing Esperanza concentrator plant and the El Tesoro SX-EW operation mean that the Group is well placed to develop this area as a wider mining district.

Mineral resource estimates were completed during 2010 in respect of Telégrafo and Caracoles deposits, increasing the Group’s total mineral resources by 3.9 billion tonnes with an average copper grade of 0.38% (along with additional gold and molybdenum credits). These deposits represent nearly 30% of the total mineral resources of the Group’s subsidiaries. The resources in the district could potentially extend the life or scale of the existing Esperanza and El Tesoro plants, or allow additional stand-alone operations.

In May 2010 Antofagasta Minerals approved further expenditure of approximately US$70 million on growth options in the Sierra Gorda District for the period to the end of 2011, covering further exploration, the preparation of a pre-feasibility study for the district and for infill drilling, geotechnical and metallurgical studies to support eventual feasibility studies at Telégrafo and Caracoles. During the second half of 2010 work commenced on the pre-feasibility studies for these two deposits, which is expected to continue throughout 2011, potentially then to be followed by feasibility study work.

Exploration work was performed in the Sierra Gorda District during 2010 in respect of a number of other properties which the Group owns in the area, in particular the Llano-Palaeocanal, Centinela and Polo Sur deposits. These deposits contain both sulphide and oxide mineralisation, and exploration work suggests that these deposits have the potential to contain between 450 to 690 million tonnes, with a corresponding average grade of between 0.54% and 0.44%.

Los Pelambres District

Los Pelambres is continuing to review options for the longer-term development of the mine, especially given the size of the resource base, which at 5.8 billion tonnes is more than four times the ore reserve of 1.4 billion tonnes.

A scoping study is in progress, looking at the opportunities to utilise this large resource base, focusing particularly on the key enablers of water supply, community engagement and environmental impact. The analysis is considering firstly opportunities to extend the mine life, as well as the potential for expanding the scale of the operation. It is expected that work on the scoping study will continue through much of 2011, potentially to be followed by the commencement of a pre-feasibility study.

Michilla

As detailed in the Michilla operations section above, Michilla is continuing with work in respect of its core resource base, to extend its current mine plan beyond 2012.

Antucoya

Antucoya is an oxide deposit located approximately 45 kilometres east of Michilla. The deposit is a large but low grade resource, with 1.5 billion tonnes of mineral resource at an average copper grade of 0.27% at a cut-off grade of 0.10%.

A feasibility study is under way, evaluating the potential for a project producing approximately 80,000 tonnes of copper per year, with a 19-year mine life. Preliminary estimations are that the capital cost of the project could be approximately US$950 million, and that operating cash costs could be in the region of between 135 to 150 cents per pound.

Detailed work on the feasibility study was undertaken in the second half of 2010. A test pit has been constructed allowing detailed metallurgical analysis to be performed, including test leaching of extracted ore on specially constructed leach pads at Michilla. The environmental impact assessment was submitted to the authorities in November 2010. It is expected that the feasibility study should be complete by mid-2011. Depending on the results of the study, and project approval, it is possible that construction could commence by the end of 2011. Given the low level of pre-stripping required at the deposit it is possible that construction could be completed within a two-year period, which could result in first production by early 2014.

Reko Diq

The Group holds a 50% interest in Tethyan Copper Company Limited (“Tethyan”), its joint venture with Barrick Gold Corporation (“Barrick”). Tethyan’s principal assets are a 75% interest in the exploration licence encompassing the Reko Diq prospects in the Chagai Hills region of south-west Pakistan including the western Porphyries, and a 100% interest in certain other licences in the region.

The mineral resource at Reko Diq is estimated at 5.9 billion tonnes with an average copper grade of 0.41% and an average gold grade of 0.22 g/tonne. The Group’s attributable share of this joint venture interest amounts to 2.2 billion tonnes.

Work on the feasibility study and the environmental and social impact assessment study are both complete. A copy of the feasibility study has been delivered to the Government of Balochistan in accordance with the terms of the joint venture agreement between Tethyan and the Government. The feasibility study indicates potential capital costs for the project of approximately US$3.3 billion on a 100% basis, based on a 110,000 tonne per day plant, which would be capable of future expansions. The study indicates average annual production for the first five full years of operation of approximately 190,000 tonnes of copper and 270,000 ounces of gold, again on a 100% basis. Cash costs before by-product credits are estimated at approximately 140 cents per pound, with the gold credit reducing net cash costs by approximately 6.5 cents for every US$100 in the gold price.

Further progress on this project will be dependent on the grant of the mining lease, for which an application has been filed on 15 February 2011, and successful conclusion of litigation which is currently in progress before the Supreme Court of Pakistan.

United States – Twin Metals – Nokomis deposit

On 21 July 2010 the Group signed a definitive Participation and Limited Liability Company Agreement pursuant to the legally binding Heads of Agreement (“HoA”) signed on 14 January 2010 with Duluth Metals Limited (“Duluth”), to acquire a 40% interest in the project company Twin Metals Minnesota LLC (“Twin Metals”) which holds the Nokomis copper-nickel-platinum group metal (“PGM”) deposit (“Nokomis”), located in the highly prospective Duluth Complex in north-east Minnesota, USA. The Group will fund a total of US$130 million of further exploration and feasibility study expenditure over a three-year period and has the option to acquire an additional 25% interest in Nokomis under certain conditions including the completion of the feasibility study.

The deposit is situated in an established mining district, with significant existing infrastructure in place. Duluth has published an NI 43-101 compliant resource estimate for the deposit, consisting of 550 and 274 million tonnes of indicated and inferred resource, respectively, with a combined copper grade of approximately 0.6% and a combined copper equivalent grade of approximately 1.5% taking into account the nickel, platinum, palladium and gold content.

On 20 December 2010 the Group entered into arrangements with Duluth in connection with Duluth’s proposed acquisition of 100% of Franconia Minerals Corporation (“Franconia”). Following approval of the acquisition by Franconia’s shareholders and by the Court of Queen’s Bench of Alberta, Duluth completed the acquisition on 7 March 2011. Franconia’s principal assets are a 70% interest in the Birch Lake Joint Venture (“BLJV”) which holds the Birch Lake, Maturi and Spruce Road copper-nickel-platinum and palladium deposits that are contiguous to the Nokomis deposit held through Twin Metals. Franconia announced in November 2010 its intention to increase its ownership at the Birch Lake Project to 82% under the terms of the BLJV Agreement. Duluth and Antofagasta agreed that following the proposed acquisition, Franconia’s assets will be transferred to Twin Metals.

Other Exploration and evaluation activities

The Group has continued with its extensive early-stage exploration activities beyond its existing core districts, both in Chile and internationally. In general, this is undertaken by the Group’s internal exploration team in those areas where the Group has historically had its deepest experience, namely Chile and Peru. Typically when the Group wishes to engage in early-stage exploration work outside of those areas it does so through partnerships with other companies already established in those locations. During 2010 the Group established an office in Toronto, Canada, to support its continuing search for such opportunities.

During 2010 the Group’s internal exploration team continued to perform exploration work in Chile, in areas beyond the existing core locations of the Sierra Gorda, Los Pelambres and Michilla/Antucoya districts. As well as this internal exploration work in Chile, the Group also continued to fund work at Rio Figueroa, the exploration project located in the Atacama Region in which the Group holds a 30% stake. In August 2010 the Group also entered into an earn-in agreement with a subsidiary of Codelco in respect of a prospect close to the Group’s own properties in the Sierra Gorda District.

The Group has continued to expand its portfolio of early-stage international exploration interests through a number of earn-in agreements. During 2010 the Group entered into agreements in Alaska in the United States and in Australia. In 2011 the Group entered into a further agreement in Sweden. The Group’s portfolio of international earn-in agreements also includes projects in Spain and Eritrea.

Opportunities in geothermal and coal exploration and generation

Energía Andina S.A, the joint venture between the Group and the Chilean state-owned Empresa Nacional del Petróleo (“ENAP”), is continuing with its activities for the exploration and development of geothermal energy prospects in Chile. Energía Andina has been granted 13 concessions to date, grouped into six projects, and is engaged in the bidding process to acquire a number of further concessions.

Exploration activity to date has focused on surface exploration, with exploration drilling expected to commence in 2011. Depending on the results of this work, it is anticipated that drilling of the first geothermal well could commence in late 2011, allowing feasibility work to be undertaken during 2012.

Work is continuing on the potential underground coal gasification (“UCG”) project at the Mulpun coalfield, situated near Valdivia in southern Chile, along with the Group’s partner in the project Carbon Energy Limited (“Carbon Energy”) of Australia. In August 2010 the Group received environmental approvals for the first stage of the project, which allows construction and operation of a pilot scheme including the first UCG panel and on-site facilities, and engineering studies in relation to the trial project were undertaken in the second half of 2010.