UPDATE 3-Antofagasta reins in dividend to focus on growth
* Total dividend for 2011 44 cents vs 116 cents in 2010, below expectations
* EBITDA up 32 percent to $3.66 billion
* Takes $140.5 million provision for Reko Diq
* CEO exit motivated by need for new leadership for "new phase of growth"
* Shares down 3.5 percent, underperform rising sector
LONDON, March 13 (Reuters) - Antofagasta cut back on dividends on Tuesday to spend more on a new generation of growth projects, a shift which the copper mining company said was also behind the abrupt departure last week of its long-serving chief executive.
The Chilean miner, which paid out a 100 cents special dividend on 2010 earnings, disappointed market hopes for another bumper payout, announcing a full year dividend of less than half 2010 levels, though profits rose 32 percent on strong metal prices.
The London-listed group's dividend cut followed the unexpected exit of Chief Executive Marcelo Awad on March 7.
"It was necessary to bring a new leadership to the company in order to conduct this second phase for Antofagasta, with special emphasis on operations and projects," Antofagasta CFO Alejandro Rivera said.
"Antofagasta from now on will have a new phase of growth," he told Reuters, referring to new projects including Antucoya in Chile, where construction will begin this year and production from 2014.
The miner's full-year earnings before interest, tax, depreciation and amortisation (EBITDA) came in at $3.66 billion, broadly in line with expectations, thanks in part to a record average copper price for the year. Analysts had forecast EBITDA of $3.6 billion, according to Thomson Reuters I/B/E/S.
But its total dividend was down sharply on the year before at 44 cents per share as it slashed a proposed special dividend for 2011 to 24 cents, less than a quarter of 2010 levels. Its payout ratio matched the historic level of 35 percent of profit.
"Last year's special dividend, we said clearly, was a one-off, exceeding even our profit for the year -- that is not sustainable," Rivera said.
Antofagasta said the decision to restrain its special dividend was driven by capital expenditure plans to drive future growth -- set to hit $1 billion in 2012 with an additional $300 million for exploration and evaluation of new projects -- and with Antucoya costs, the bulk of the main spend, set to rise.
It could also face additional costs at its Esperanza flagship plant to lift daily production levels to full capacity.
The miner is currently negotiating with contractors at Antucoya, the first of the new mines to come on stream, on a lump-sum agreement which it warned could drive up the initial $1.3 billion estimated cost of the mine. Under current estimates, work there could cost $300 million to $400 million this year, rising to double that in 2013.
It expects to conclude contractor talks within weeks and revise its cost estimates thereafter, the company said.
The mining group has paid special dividends for the best part of a decade, even through the worst of the global financial crisis. While analysts had expected a lower 2011 dividend, the market had forecast a total closer to 73 cents per share.
Steady payouts and an above-average dividend yield are a key reason behind Antofagasta's robust valuation, at the top end of the UK mining sector. Rivera said any decision on 2012 dividends would depend on its cash balance at the year end.
Antofagasta said it had a cash balance of $1.1 billion at the end of December.
"The company has returned to its previous 35 percent payout ratio policy paid 2006-2010, however, market expectations were higher following the bumper $1.16 dividend for 2010," Credit Suisse said in a note. "The 2011 yield for Antofagasta reduces from 4 percent to 2.1 percent. We expect this to be a disappointment to the market."
Shares in the group were down 3.5 percent at 1,226 pence at 1230 GMT, underperforming a 1.3 percent rise in the sector.
REKO DIQ PAIN
Antofagasta said last month it had topped its production target for 2011 but was dogged by slower-than-expected progress at Esperanza, and rising costs elsewhere. It expects the pace of output growth to slow to 9 percent in 2012, from 23 percent.
Awad, who was chief executive since 2004, has been replaced by Chairman Jean-Paul Luksic, whose family control the group.
Analysts had pointed to "teething" problems at Esperanza as a factor behind his departure, but also to a potential disagreement over the company's conservative strategy, focused on Chilean projects.
Among the few exceptions to that path are some of Antofagasta's "long-term growth" projects including the Reko Diq mine in Pakistan, where Antofagasta has partnered with Canadian gold miner Barrick Gold.
That project is currently in international arbitration, after the local government rejected an application for a mining license, and the miner said on Tuesday it had taken a $140.5 million provision against the carrying value of assets linked to the operation.
Rivera said the miner was still committed to the project.
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