Financial statements of Minera Escondida Limitada

EX-15.3 10 dex153.htm FINANCIAL STATEMENTS OF MINERA ESCONDIDA LIMITADA Financial statements of Minera Escondida Limitada

EXHIBIT 15.3

MINERA ESCONDIDA LIMITADA

Financial Statements

June 30, 2007, 2006 and 2005

(With Independent Auditor’s Report Thereon)

MINERA ESCONDIDA LIMITADA

CONTENTS


1.		Independent Auditor’s Report

2.		Balance Sheets

3.		Statements of Income

4.		Statements of Equity

5.		Statements of Cash Flows

6.		Notes to Financial Statements

Independent Auditors’ Report

The Owners

Minera Escondida Limitada:

We have audited the accompanying balance sheets of Minera Escondida Limitada as of June 30, 2007 and 2006, and the related statements of income, equity, and cash flows for the years ended June 30, 2007, 2006 and 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Minera Escondida Limitada as of June 30, 2007 and 2006, and the results of its operations and its cash flows for the years ended June 30, 2007, 2006 and 2005 in conformity with accounting principles generally accepted in the United States of America.

/s/ KPMG Auditores Consultores Ltda.

Santiago, Chile

September 12, 2007

MINERA ESCONDIDA LIMITADA

Balance Sheets

June 30, 2007 and 2006

(in thousands of USD)


	2007	2006
Assets

Current assets:
Cash and cash equivalents	127,299	12,400
Trade accounts receivable	1,729,031	1,450,018
Due from related companies	25,907	28,544
Other receivables, including employee receivables	17,280	7,125
Production inventories	178,485	107,129
Supplies and spare parts, net	79,594	50,601
Other current assets	187,452	152,758
Total current assets	2,345,048	1,808,575

Property, plant and mine development, net	3,620,235	3,378,681

Other assets:

Intangible assets, net	53,371	56,969
Other assets, net	166,580	134,705
Total other assets	219,951	191,674
Total assets	6,185,234	5,378,930

(Continued)

MINERA ESCONDIDA LIMITADA

Balance Sheets

June 30, 2007 and 2006

(in thousands of USD)


	2007	2006
Liabilities and Owners’ Equity

Current liabilities:
Short-term debt	-	190,000
Short-term portion of senior unsecured debt	85,000	85,000
Short-term portion of subordinated owners’ debt	48,000	48,000
Short-term portion of bonds	19,336	40,000
Accounts payable to suppliers	147,502	152,812
Due to related companies	40,295	29,518
Accrued liabilities and withholdings	174,243	87,015
Sundry creditors	4,392	4,061
Income taxes payable	65,873	255,088
Deferred income taxes	40,083	77,303
Interest payable	23,089	18,951
Financial liabilities	175,955	187,473
Total current liabilities	823,768	1,175,221

Long-term liabilities:
Senior unsecured debt	892,500	827,500
Subordinated owners’ debt	314,000	362,000
Bonds	-	18,578
Sundry creditors	51,136	55,527
Accrued employee severance indemnities	60,161	56,360
Deferred income taxes	236,654	103,331
Accruals and reclamation reserve	131,558	96,668
Total long-term liabilities	1,686,009	1,519,964

Owners’ equity:
Paid-in capital	647,902	597,902
Retained earnings	3,027,555	2,085,843
Total owners’ equity	3,675,457	2,683,745
Total liabilities and owners’ equity	6,185,234	5,378,930

Accompanying notes from 1 to 23 are an integral part of these financial statements.

MINERA ESCONDIDA LIMITADA

Statements of Income

June 30, 2007, 2006 and 2005

(in thousands of USD)


	2007	2006	2005
Operating revenues:
Sales	9,843,344	8,073,540	3,887,684
Refining and treatment charges	(626,715)	(762,021)	(390,654)
Concentrate and cathode shipping charges	(196,036)	(149,716)	(117,264)
Net sales	9,020,593	7,161,803	3,379,766

Operating costs and expenses
Cost of products sold	(1,408,227)	(1,179,954)	(997,519)
Sales commissions	(27,621)	(14,209)	(8,703)
Net operating income	7,584,745	5,967,640	2,373,544
Non-operating income (expense):
Interest income	11,748	10,500	5,245
Interest expense	(113,792)	(57,391)	(68,550)
Realized fair value change – derivative	(89,280)	(188,086)	-
Unrealized fair value change – derivative	61,801	(95,746)	-
Exchange loss, net	(6,635)	(14,270)	(16,063)
Miscellaneous expenses, net	(69,399)	(54,588)	(48,089)
Non-operating expense	(205,557)	(399,581)	(127,457)
Income before income taxes	7,379,188	5,568,059	2,246,087
Income taxes	(1,376,483)	(1,027,534)	(385,101)
Net income for the year	6,002,705	4,540,525	1,860,986

Accompanying notes from 1 to 23 are an integral part of these financial statements.

MINERA ESCONDIDA LIMITADA

Statements of Equity

June 30, 2007, 2006 and 2005

(in thousands of USD)


	Capital	Retained earnings	Total stockholders equity

Balance at July 1, 2004	531,202	321,191	852,393
Net income	-	1,860,986	1,860,986
Capitalization of retained earnings	16,700	(16,700)	-
Dividends declared	-	(1,070,159)	(1,070,159)
Balance at July 30, 2005	547,902	1,095,318	1,643,220

Net income	-	4,540,525	4,540,525
Capitalization of retained earnings	50,000	(50,000)	-
Dividends declared	-	(3,500,000)	(3,500,000)
Balance at June 30, 2006	597,902	2,085,843	2,683,745

Net income	-	6,002,705	6,002,705
Capitalization of retained earnings	50,000	(50,000)	-
Dividends declared	-	(5,010,993)	(5,010,993)
Balance at June 30, 2007	647,902	3,027,555	3,675,457

Accompanying notes from 1 to 23 are an integral part of these financial statements.

MINERA ESCONDIDA LIMITADA

Statements of Cash Flows

June 30, 2007, 2006 and 2005

(in thousands of USD)


	2007	2006	2005
Cash flows from operating activities:
Cash received from customers	8,587,229	6,248,350	3,271,382
Cash paid to suppliers and employees	(1,113,194)	(1,048,252)	(932,600)
Interest received	11,748	10,500	5,245
Other Income	14,595	6,725	4,542
Interest paid	(103,385)	(92,615)	(73,362)
Income taxes paid	(1,470,662)	(780,212)	(367,130)
Fair value change – derivative	(89,280)	(188,086)	-
Exploration activities	(18,764)	(9,410)	(10,369)
Other expenses paid	(30,541)	(26,294)	(28,300)
Net cash flows provided by operating activities	5,787,746	4,120,706	1,869,408

Cash flow from investing activities:
Proceeds from sale of equipment	939	1,250	2,071
Purchase of property, plant and equipment	(445,737)	(650,478)	(591,313)
Net cash flows used in investing activities	(444,798)	(649,228)	(589,242)

Cash flow from financing activities:
Borrowing from banks and financial institutions	150,000	190,000	229,500
Dividends paid	(5,010,993)	(3,500,000)	(1,070,159)
Principal payments on long-term debt	(279,056)	(221,744)	(365,500)
Principal payments on bonds	(40,000)	(40,000)	(40,000)
Repayments of loans from related parties	(48,000)	(40,500)	(33,000)
Net cash flows used in financing activities	(5,228,049)	(3,612,244)	(1,279,159)
Net cash flows for the year	114,899	(140,766)	1,007
Cash and cash equivalents at beginning of year	12,400	153,166	152,159
Cash and cash equivalents at end of year	127,299	12,400	153,166

(Continued)

MINERA ESCONDIDA LIMITADA

Statements of Cash Flows

June 30, 2007, 2006 and 2005

(in thousands of USD)


	2007	2006	2005
Reconciliation of net income to net cash flows provided by operating activities
Net income for the year	6,002,705	4,540,525	1,860,986

Result on sale of assets-
(Gain)/Loss from sale of equipment	(939)	(1,250)	671

Debits/(credits) to net income not representing cash flows:
Depreciation and amortization	242,671	280,324	209,040
Net foreign exchange loss	6,635	14,270	16,063
Deferred income taxes	96,104	83,070	28,663

(Increase)/decrease in current assets:
Trade accounts receivable	(279,013)	(903,183)	(177,228)
Due from related companies	2,637	(3,081)	(25,142)
Other receivables	(10,155)	(34,707)	(739)
Production inventories	(74,125)	(36,782)	(12,226)
Supplies and spare parts, net	(48,322)	(26,798)	(3,949)
Other current assets	(40,873)	(84,539)	9,918

Increase/(decrease) in current liabilities:
Accounts payable to suppliers	(5,310)	(47,939)	(33,950)
Due to related companies	10,777	5,499	12,630
Accrued liabilities and withholdings	91,029	10,535	2,672
Sundry creditors	(4,060)	309	170
Income taxes payable	(189,215)	143,766	(13,079)
Financial liabilities	(11,518)	187,473	-
Other	(1,282)	(6,786)	(5,092)
Net cash flows from operating activities	5,787,746	4,120,706	1,869,408

Accompanying notes from 1 to 23 are an integral part of these financial statements.

MINERA ESCONDIDA LIMITADA

Notes to Financial Statements

June 30, 2007, 2006 and 2005

(in thousands of USD)

(1)

Description of Business

Minera Escondida Limitada (the “Company” or “Escondida”) is a mining company engaged in the exploration, extraction, processing, and marketing of mineral resources. The Company is currently exploiting the Escondida copper ore body located in the Second Region of the Republic of Chile, 170 kilometers southeast of the city of Antofagasta at an altitude of 3,100 meters above sea level. The Company produces copper concentrates and copper cathodes through an open-pit mining operation and cathode treatment plants at the mine site. The concentrate also includes gold and silver. The concentrate is transported by pipeline to the port facility in Coloso near Antofagasta where it is filtered and shipped to the customers. The copper cathodes are produced at an Oxide Plant, a heap leaching and SX/EW facility, located at the mine site. The copper cathodes are transported by rail to the port of Antofagasta for shipment to customers.

The Company, at the present operated by BHP Billiton, was formed by public deed on August 14, 1985 as a partnership. As of June 30, 2007 and 2006, the Owners are as follows:


		Percentage of Equity %

BHP Escondida Inc.		57.5
Rio Tinto Escondida Limited		30.0
JECO Corporation		10.0
International Finance Corporation		2.5
Total		100.0

The company has completed several expansions. The Phase I expansion was completed in 1993, Phase II in 1994 and Phase III in 1998. On December 1, 1998, Escondida commissioned its Oxide Leach Plant, a heap leaching operation and SX/EW plant. In January 1999, the Phase III.5 expansion was completed. The Phase IV expansion was completed in October 2002. On October 1, 2002, Minera Escondida Limitada merged with its related company Sociedad Contractual Minera Escondida, which until that date, held the mining rights over the Escondida copper ore body.

(Continued)

MINERA ESCONDIDA LIMITADA

Notes to Financial Statements

June 30, 2007, 2006 and 2005

(in thousands of USD)

(2)

Summary of Significant Accounting Policies and Practices

(a)

General

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The Company maintains accounting records in United States dollars, the Company’s functional currency, as authorized by the Company’s Foreign Investment Contract with the Chilean government. Transactions in other currencies are recorded at actual rates of the transaction date. Year-end balances in Chilean pesos and other currencies are translated at the applicable closing exchange rates.

(b)

Cash Equivalents

Cash equivalents of $126,069 and $12,077 at June 30, 2007 and 2006, respectively, consist of short term investments with an initial term of less than one month in financial instruments issued by Commercial Banks and Central Bank of Chile Securities. For the purpose of the statement of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents.

(c)

Trade Accounts Receivable

The accounts receivable balances at June 30, 2007 and 2006 include provisional invoices issued for copper concentrate and copper cathode shipments. Such invoices are based on the Company’s weights and assays, which are subject to review and final agreement by the customers. Under the terms of the sales contracts, the final prices to be received will also depend on the prices fixed for copper by independent metal exchanges, including the London Metal Exchange, during the future quotation periods applicable to each delivery. At June 30, 2007 and 2006, the sales under provisional invoicing arrangements have been valued based on forward price. Refining, treatment and shipping charges are netted against operating revenues in accordance with industry practices. The Company has not recorded an allowance for doubtful accounts, as management considers all accounts and notes receivable are collectible.

(d)

Inventory

Minerals in process (including stockpile inventory), copper concentrate and copper cathodes are valued at the lower of cost or market value. Mining and milling costs and non cash costs are included in the value of the inventories, as well as the allocated costs of central maintenance and engineering and the on-site general and administrative costs including all essential infrastructure support. Materials and supplies are valued at the lower of average cost and estimated net realizable value.

(Continued)

MINERA ESCONDIDA LIMITADA

Notes to Financial Statements

June 30, 2007, 2006 and 2005

(in thousands of USD)

(e)

Financial Instruments

The Company accounts for derivatives and hedging activities in accordance with FASB Statement N° 133, Accounting for Derivative Instruments and Certain Hedging Activities as amended, which requires that all derivate instruments be recorded on the balance sheet at their respective fair value. Derivatives, including those embedded in other contractual arrangements but separated for accounting purposes because they are not clearly and closely related to the host contract, are initially recognized at fair value on the date the contract is entered into and are subsequently remeasured at their fair value. The resulting gain or loss on remeasurement is recognized in the income statement. The measurement of fair value is based on quoted market prices. Where no price information is available from a quoted market source, alternative market mechanisms or recent comparable transactions, fair value is estimated based on the Company’s views on relevant prices.

The Company’s financial instrument policy is designed to achieve sales at the average annual LME price shifted forward by one month and three months, for cathodes and concentrates respectively, for all tonnes of copper shipped in a given calendar year. In the case where copper is sold with a different quotation period than our targeted standard price or shipments are not distributed evenly over the year, paper adjustments will be made.

Financial instruments in revenue – see note 2(p). Financial instruments in treatment charges – see note 23.

All derivatives are marked to market at year end.

(Continued)

MINERA ESCONDIDA LIMITADA

Notes to Financial Statements

June 30, 2007, 2006 and 2005

(in thousands of USD)

(f)

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Cost includes capitalized interest incurred during the construction and development period and during subsequent expansion periods.

Plant and equipment with a useful life of less than the life of the mine are depreciated on a straight-line basis over the respective useful lives, ranging from 3 to 11 years. The remaining items of plant and equipment are depreciated on a units-of-production basis over the life of the proven and probable copper reserves.

Mine development is depreciated on a units-of-production basis over the life of the proven and probable copper reserves. Land is not subject to depreciation.

Changes in estimates are accounted for over the estimated remaining economic life or the remaining commercial reserves of the mine as applicable.

Total depreciation and amortization for the years ended June 30, 2007, 2006 and 2005 is included as a cost of the production of inventories.

Expenditures for replacements and improvements are capitalized when the asset’s standard of performance is significantly enhanced or the expenditure represents a replacement of a component of an overall tangible fixed asset which has been separately depreciated.

(g)

Mining Property

At June 30, 2007 and 2006, the Company has recognized certain costs relating to mining property as property, plant and equipment. These include:

Costs incurred in delineating and developing the Escondida copper ore body and neighboring mineral areas of interest (in areas which have been subject to feasibility studies), together with the cost of drilling programs aimed at determining the extent of the mineral body, obtaining other technical data, and related direct expenses.

ii)

Other expenditure incurred in the pre-operating stage of the project.

(Continued)

MINERA ESCONDIDA LIMITADA

Notes to Financial Statements

June 30, 2007, 2006 and 2005

(in thousands of USD)

(h)

Exploration

Exploration expenditures incurred in search of mineral deposits and the determination of the commercial viability of such deposits are charged against income as incurred until project feasibility is attained, from which time onward such costs are capitalized.

At June 30, 2007 and 2006 there were no capitalized exploration expenditures.

(i)

Intangible Assets

This corresponds to the fair value of the water rights at the date of acquisition. This asset is amortized on a units-of-production basis over the life of proven and probable copper reserves.

(j)

Other Assets

Other assets consist of medium-grade ore stockpiles, deferred borrowing expenses, spare parts and other minor assets.

The medium-grade ore stockpiled for future use is valued at the lower of average production cost or market value.

Borrowing expenses corresponding to the issuance of debt are capitalized and amortized based on the interest method over the period of the debt.

Spare parts are assets that will not be consumed within one year from balance sheet date, and are stated at cost and net of a provision for inventory obsolescence.

(Continued)

MINERA ESCONDIDA LIMITADA

Notes to Financial Statements

June 30, 2007, 2006 and 2005

(in thousands of USD)

(k)

Income Taxes

Pursuant to its Foreign Investment Agreement with the Chilean government, the Company has opted to pay income taxes based on the generally applicable rate in effect, instead of the fixed rate set forth in such agreement. As a result, current income taxes are calculated in accordance with existing Chilean tax legislation.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

(l)

Reclamation and Environmental Costs

The Company provides for the costs of mine reclamation activities as required by various Chilean governmental agencies and Escondida owners regarding required minimum environmental business conduct. Certain reclamation costs are incurred and expensed as part of ongoing mining operations where no current or future benefit is discernible. For other reclamation costs the estimated future cost of decommissioning and restoration, discounted to its net present value, is provided and capitalized as part of the cost of each project. The capitalized cost is amortized over the life of the project and the increase in the net present value of the provision is treated as an operating expense.

Liabilities for loss contingencies, including environmental remediation costs not within the scope of FASB Statement No. 143, Accounting for Asset Retirement Obligations, arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. Recoveries of environmental remediation costs from third parties, which are probable of realization, are separately recorded as assets, and are not offset against the related environmental liability, in accordance with FASB Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts.

(m)

Severance Indemnities

The Company has an agreement with its employees to pay severance indemnities on termination of labor contracts. Provision has been made on the basis of one month’s remuneration per year of service, calculated on the latest month’s remunerations.

(Continued)

MINERA ESCONDIDA LIMITADA

Notes to Financial Statements

June 30, 2007, 2006 and 2005

(in thousands of USD)

(n)

Use of Estimates

The preparation of the financial statements requires the management of the Company to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimation and assumptions include the carrying amount of property, plant and equipment, mining property, exploration and intangibles; valuation allowances for receivables, inventories and deferred income tax assets; environmental liabilities; and obligations related to employee benefits. Actual results could differ from those estimates.

(o)

Impairment of Long-Lived Assets

In accordance with FASB Statement No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets, such as property, plant, and equipment (including mining property, exploration), and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized being the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held for sale are presented separately in the appropriate asset and liability sections of the balance sheet.

(Continued)

MINERA ESCONDIDA LIMITADA

Notes to Financial Statements

June 30, 2007, 2006 and 2005

(in thousands of USD)

(p)

Revenue Recognition

Revenue is recognized when title to Copper Concentrate and Copper Cathode passes to the buyer when the ships depart from the loading port. The passing of title to the customer is based on the terms of the sales contract.

Under our copper concentrate sales contracts with smelters, final prices are set on a specified future quotational period, typically three months after the month of arrival. For copper cathode sales contracts, final prices are typically one month after the month of arrival. Revenues are recorded under these contracts at the time title passes to the buyer based on the forward price for the expected settlement period. The contracts, in general, provide for a provisional payment based upon provisional assays and quoted metal prices. Final settlement is based on the average applicable price for a specified future period, and generally occurs from four to six months after shipment in copper concentrates and two months for copper cathodes. Final sales are settled using smelter weights, settlement assays (average of assays exchanged and/or umpire assay results) and are priced as specified in the smelter contract. The Company’s provisionally priced sales contain an embedded derivative that is required to be separated from the host contract for accounting purposes. The host contract is the receivable from the sale of concentrates measured at the forward price at the time of sale. The embedded derivative does not qualify for hedge accounting. The embedded derivative is recorded as a receivable on the balance sheet and is adjusted to fair value through revenue and cost of sales (for the smelting and refining charges of the sales) each period until the date of final copper settlement. The form of the material being sold, after deduction for smelting and refining is in an identical form to that sold on the London Bullion Market. The form of the product is metal in flotation concentrate, which is the final process for which the company is responsible.

(q)

Recently Issued Accounting Standards

In March 2006, the EITF of the FASB reached a consensus in Issue No. 06-3 How Taxes Collected From Customers and Remitted to Governmental Authorities Should be Presented in the Income Statement (That is, Gross versus Net Presentation) (EITF 06-3). The disclosure required by the consensus will be applicable for annual reporting periods beginning after December 15, 2006. This permits companies to elect to present on either a gross or net basis based on their accounting policy. This applies to sales and other taxes that are imposed on and concurred with individual revenue producing transactions between a seller and a consensus would not apply to tax systems that are based on gross receipts or total revenues. The Company is currently assessing the impact of EITF 06-3.

(Continued)

MINERA ESCONDIDA LIMITADA

Notes to Financial Statements

June 30, 2007, 2006 and 2005

(in thousands of USD)

(q)

Recently Issued Accounting Standards, continued

In July 2006, the FASB issued FASB Interpretation No. 48 Accounting for Uncertainly in Income Taxes, an interpretation of FASB Statement 109 (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a threshold of more-likely-than-not for recognition of tax benefits of uncertain tax positions taken or expected to be taken in a tax return. FIN 48 also provides related guidance on measurement, derecognition, classification, interest and penalties, and disclosure. The provisions of FIN48 will be effective for the Company on July 1, 2007, with any cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Company is in the process of assessing the impact of adopting FIN 48 on its results of operations and financial position.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 provides interpretive guidance on how the effects of prior-year uncorrected misstatements should be considered when quantifying misstatements in the current year financial statements. SAB 108 requires registrants to quantify misstatements using both an income statement (“rollover”) and balance sheet (“iron curtain”) approach and evaluate whether either approach results in a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. If prior year errors that had been previously considered immaterial now are considered material based on either approach, no restatement is required so long as management properly applied its previous approach and all relevant facts and circumstances were considered. If prior years are not restated, the cumulative effect adjustment is recorded in opening accumulated earnings (deficit) as of the beginning of the fiscal year of adoption. SAB 108 is effective for fiscal years ending on or after November 15, 2006. The adoption of SAB 108 did not have an impact on the Company’s financial statements.

In February 2006, the FASB issued Statement of Financial Accounting Standard No.155 Accounting for Certain Hybrid Financial Instruments (SFAS 155). SFAS 155 provides entities with relief from having to separately determine the fair value of an embedded derivate that would otherwise have to be bifurcated from its host contract in accordance with SFAS 133. SFAS 155 allows an entity to make an irrevocable election to measure such a hybrid financial instrument at fair value in its entirety, with changes in fair value recognized in earnings. Additionally, SFAS 155 requires that interests in securitized financial assets be evaluated to identify whether they are freestanding derivatives or hybrid financial instruments containing an embedded derivative that requires bifurcation (previously these were exempt from SFAS 133). SFAS 155 is effective for all financial instruments acquired, issued or subject to a remeasurement event occurring after the beginning of an entity’s first fiscal year that begins after 15 September 2006. The Company is currently assessing the impact of adopting SFAS 155.

(Continued)

MINERA ESCONDIDA LIMITADA

Notes to Financial Statements

June 30, 2007, 2006 and 2005

(in thousands of USD)

(q)

Recently Issued Accounting Standards, continued

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets — An Amendment of FASB Statement No. 140” (“SFAS 156”). SFAS 156 requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. The statement permits, but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. SFAS 156 is effective as of the beginning of the first fiscal year that begins after September 15, 2006, with earlier adoption permitted. The Company does not believe the adoption of SFAS 156 will have a significant effect on its financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements and accordingly, does not require any new fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of adopting SFAS 157 on its results of operations and financial position.

(r)

Deferred Stripping - Change in Accounting Policy

Previously costs incurred through the removal of overburden and other waste materials once saleable materials have begun to be extracted from a mine were referred to as production stripping costs. Previously these production stripping costs were charged to the income statement as operating costs when the ratio of waste material to ore extracted for an area of interest is expected to be constant throughout its estimated life. When the current ratio of waste to ore was greater than the estimated life-of-mine ratio, a portion of the production stripping costs was capitalized. In subsequent years, when the ratio of waste to ore was less than the estimated life-of-mine ratio, a portion of capitalized stripping costs was charged to the income statement as operating costs. The amount capitalized or charged in a year was determined so that the stripping expense for the financial year reflects the estimated life-of-mine ratio.

(Continued)

MINERA ESCONDIDA LIMITADA

Notes to Financial Statements

June 30, 2007, 2006 and 2005

(in thousands of USD)

(r)

Deferred Stripping - Change in Accounting Policy, continued

In March 2005, the Emerging Issues Task Force (EITF) of the FASB reached a consensus in Issue No. 04-6 Accounting for Stripping Costs Incurred During Production in the Mining Industry (EITF 04-6) that stripping costs incurred during the production phase of a mine are variable production costs (effective July 1, 2006). As such, stripping costs incurred during the production phase are treated differently to stripping costs incurred during the development stage. The Company has adopted EITF 04-6 and retrospectively adjusted the 2006 and 2005 comparative financial years as follow:


		FY 2005
Balance Sheet	As originally stated	As adjusted	Effect of charge
Deferred stripping, net	492,533	-	(492,533)
Deferred income taxes non current	(151,175)	(68,419)	82,756
Retained earnings – beginning	(708,452)	(321,191)	387,261
Retained earnings – ending	(1,505,095)	(1,095,318)	409,777

Income Statement
Cost of products sold	970,391	997,519	27,128
Income taxes	389,713	385,101	(4,612)
		FY 2006
Balance Sheet	As originally stated	As adjusted	Effect of charge
Deferred stripping, net	441,111	-	(441,111)
Deferred income taxes non current	(188,110)	(103,331)	84,779
Retained earnings – beginning	(1,505,095)	(1,095,318)	409,777
Retained earnings – ending	(2,442,175)	(2,085,843)	356,332

Income Statement
Cost of products sold	1,231,376	1,179,954	(51,422)
Income taxes	1,029,557	1,027,534	(2,023)

For the 2007 year all ongoing stripping costs have been recorded as production costs.

(Continued)

MINERA ESCONDIDA LIMITADA

Notes to Financial Statements

June 30, 2007, 2006 and 2005

(in thousands of USD)

(3)

Cash and Cash Equivalents

As of June 30, 2007 and 2006, cash and cash equivalents are summarized as follows:


	2007	2006

Cash and bank deposits	1,230	323
Deposits	126,069	12,077
Total	127,299	12,400

(4)

Trade Accounts Receivable

Trade accounts receivable at June 30, 2007 and 2006, consist of the following:


	2007	2006

Domestic clients	110,086	154,595
Foreign clients	1,618,945	1,295,423
Total	1,729,031	1,450,018

(5)

Other Receivables, including employee receivables

Other receivables are summarized as follows:


	2007	2006

Accounts and notes receivable from employees	15,904	3,011
Other accounts receivables	1,376	4,114
Total	17,280	7,125

(Continued)

MINERA ESCONDIDA LIMITADA

Notes to Financial Statements

June 30, 2007, 2006 and 2005

(in thousands of USD)

(6)

Production Inventories

Production inventories are summarized as follows:


	2007	2006

Work in progress – Ore stockpiles	4,993	6,938
Minerals in process	147,764	56,570
Finished Goods – Copper concentrate	11,019	35,362
Finished Goods – Copper cathode	14,709	8,259
Total	178,485	107,129

(7)

Other Current Assets

Other current assets are summarized as follows:


	2007	2006

Prepayment and deferred expenses (a)	77,900	54,696
Derivative asset	79,752	50,298
Deposit	-	45,019
Tax for recovery	29,796	2,626
Other assets	4	119
Total	187,452	152,758

(Continued)

MINERA ESCONDIDA LIMITADA

Notes to Financial Statements

June 30, 2007, 2006 and 2005

(in thousands of USD)

(7)

Other Current Assets, Continued

(a)

Prepayment and deferred expenses.

Details of this account include:


	2007	2006

Prepayment for Power line	10,000	9,834
Prepayment for Mineral Rights	1,340	1,551
Deferred borrowing expenses	645	1,881
Derivative asset (price participation in refining)	62,257	41,430
Employee benefit pre-payment	3,658	-
Total	77,900	54,696

(8)

Property, Plant and Mine Development

Property, plant and mine development is summarized as follows:


	2007	2006

Land	4,252	4,252
Mining development costs (pre-production)	238,379	238,379
Machinery, vehicles and installations	5,090,456	4,030,912
Construction in progress	491,746	1,070,663

Sub total	5,824,833	5,344,206

Accumulated depreciation and amortization	(2,204,598)	(1,965,525)
Total	3,620,235	3,378,681

Depreciation and amortization expense amounted to $239,073, $274,740 and $204,290 for the years ending June 30, 2007, 2006 and 2005, respectively, and is included as a cost of the production of inventories.

Interest capitalized for the years ending June 30, 2006 and 2005 was $39,359 and $12,328. No interest was capitalized for the year ending June 30, 2007.

The asset retirement obligation included in property, plant and mine development, net of accumulated amortization was $76,466 and $42,083 for the years ending June 30, 2007 and 2006, respectively.

(Continued)

MINERA ESCONDIDA LIMITADA

Notes to Financial Statements

June 30, 2007, 2006 and 2005

(in thousands of USD)

(9)

Intangible Assets, net

Intangible assets are summarized as follows:


	2007	2006

Water rights - at cost	75,886	75,886
Accumulated amortization	(22,515)	(18,917)
Total intangible assets, net	53,371	56,969

The above water rights were acquired from Minera Zaldívar in November 2000 and are related to operations of Phase IV of the mining project.

Aggregate amortization expense for amortizing intangible assets was $3,598, $5,584 and $4,750 for the years ended June 30, 2007, 2006 and 2005, respectively. For each of the next 5 years amortization expense for intangibles is expected to be approximately $3,167 in 2008, $3,289 in 2009, $2,606 in 2010, $2,517 in 2011 and $2,448 in 2012.

(10)

Other Assets, net (Non current)

Other assets are summarized as follows:


	2007	2006

Medium-grade ore stockpile (a)	89,188	86,419
Deferred borrowing expenses (b)	175	832
Spare parts (c)	53,063	33,734
Other assets (d)	24,154	13,720
Total	166,580	134,705

(a)

Medium-grade ore stockpile

During mining operations the portion of ore mined below a specific copper grade is stockpiled in the medium-grade ore stockpile for future use. This ore is valued as described in note 2(j).

(Continued)

MINERA ESCONDIDA LIMITADA

Notes to Financial Statements

June 30, 2007, 2006 and 2005

(in thousands of USD)

(10)

Other Assets, net (Non current), continued

(b)

Deferred borrowing expenses

The amortization expense for the periods ending June 30, 2007, 2006 and 2005 amounts to $657, $1,721 and $2,975, respectively, calculated as described in note 2(j).

(c)

Spare parts

Corresponds to spare parts that will not be consumed within one year from balance sheet date.

(d)

Other assets


	2007	2006
Recoverable withholding taxes (*)	6,180	4,938
Notes receivable – employee housing program and other	17,974	8,782
Total other assets	24,154	13,720

(*)

The Chilean Internal Revenue Service allows for the recovery of withholding taxes relating to technical service contracts over the tax life of the related asset. The non-current portion of recoverable withholding taxes has been included under other assets.

(Continued)

MINERA ESCONDIDA LIMITADA

Notes to Financial Statements

June 30, 2007, 2006 and 2005

(in thousands of USD)

(11)

Balances and Transactions with Related Companies

(a)

Balances with related companies are summarized as follows:

Due from - current


Company	Nature of relationship	2007	2006

BHP Escondida Inc.	Parent Company	-	281
BHP Billiton Marketing AG	Common ownership	25,775	28,040
Other	Various	132	223
Total		25,907	28,544

ii)

Due to - current


Company	Nature of relationship	2007	2006

BHP Minerals International Inc.	Common ownership	1,338	600
BHP Billiton Marketing AG	Common ownership	31,706	11,523
BHP Chile Inc.	Common ownership	5,290	15,123
BHP International Finance Corporation	Common ownership	826	926
Other	Various	1,135	1,346
Total		40,295	29,518

(Continued)

MINERA ESCONDIDA LIMITADA

Notes to Financial Statements

June 30, 2007, 2006 and 2005

(in thousands of USD)

(11)

Balances and Transactions with Related Companies, Continued

(b)

Transactions with related companies are summarized as follows:


			Revenue/(expense) for the year ended
Company	Nature of relationship	Transaction	2007	2006	2005

BHP Billiton Marketing AG	Common ownership	Sales agency commissions & others commissions	(27,621)	(14,209)	(8,709)
		Reimbursement of expatriate salaries	(645)	(6,869)	(5,985)
BHP Billiton Marketing AG	Common ownership	Freight	(169,888)	(140,396)	(110,806)
BHP Billiton Marketing AG	Common ownership	Sales	623,908	400,111	146,458
Minera Cerro Colorado	Common ownership	Sales	40,933	-	-
Minera Spence	Common ownership	Sales	3,843	-	-
BHP Chile Inc.	Common ownership	Financial service	(6,700)	(4,797)	(3,698)
	Common ownership	Reimbursement of capital project	(17,172)	(12,351)	(9,729)

Payment conditions for all intercompany liabilities are 30 days from the date the transactions are received and accepted.

(12)

Income Taxes

(a)

Current income taxes payable

Income tax expense attributable to income from continuing operations of $1,376,483, $1,027,534 and $385,101 for the years ended June 30, 2007, 2006 and 2005, respectively, differed from the amounts computed by applying the Chilean income tax rate of 18.92% (2006: 18.09%; 2005: 17%), to pretax income from continuing operations as a result of the following:


	2007		2006		2005

Computed expected tax expense	1,396,142		1,007,262		381,835
Increase (reduction) in income taxes resulting from:
Adjustment to deferred tax assets and liabilities from increase in tax rate	-		36,692		-
Other, net	(19,659	)	(16,420	)	3,266
Computed effective tax expense	1,376,483		1,027,534		385,101

(Continued)

MINERA ESCONDIDA LIMITADA

Notes to Financial Statements

June 30, 2007, 2006 and 2005

(in thousands of USD)

(12)

Income Taxes, continued

On 1 January 2006 the Chilean tax rate for the Company increased from 17% to 18.92% (Calendar year 2006 & 2007) and to 20.85% (from calendar year 2008 to 2018), following the introduction of a mining tax. The effect of this on current income tax from 1 January 2006 is included in “Computed expect tax expense”.

(b)

Income tax charge for the year

The income tax charge for the year is summarized as follows:


	2007	2006	2005

Current income taxes provision	1,280,379	944,464	356,438
Deferred income taxes	96,104	83,070	28,663
Total	1,376,483	1,027,534	385,101

All income tax expense is domestic tax. There is no foreign income tax expense.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. In order to fully realize the deferred tax asset, the Company will need to generate future taxable income of US$396,817. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences.

The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced.

(Continued)

MINERA ESCONDIDA LIMITADA

Notes to Financial Statements

June 30, 2007, 2006 and 2005

(in thousands of USD)

(12)

Income Taxes, Continued

(c)

Deferred income taxes

Deferred income taxes are summarized as follows:


	2007		2006
	Current	Long-term	Current	Long-term
Deferred tax assets:
Obsolescence reserve	-	2,601	-	4,654
Price variance provision for provisional sales	-	-	10,435	-
Accrued employee vacation	1,457	-	1,393	-
Accrued employee benefits	-	13,402	-	11,314
Accrued reclamation	-	26,260	-	17,656
Hedging non realized	33,296	-	6,833	-
Other	32	2,140	31	2,961
Gross deferred income tax assets	34,785	44,403	18,692	36,585
Deferred tax liability:
Property, plant and equipment, net	-	(281,057)	-	(136,144)
Pre paid expenses	-	-	-	(3,772)
Price variance provision for provisional sales	(74,868)	-	(95,995)	-
Gross deferred income tax liabilities	(74,868)	(281,057)	(95,995)	(139,916)
Net deferred tax liability	(40,083)	(236,654)	(77,303)	(103,331)

(Continued)

MINERA ESCONDIDA LIMITADA

Notes to Financial Statements

June 30, 2007, 2006 and 2005

(in thousands of USD)

(13)

Accrued Liabilities and Withholdings

Accrued liabilities and withholdings are summarized as follows:


	2007	2006
Accrued liabilities and withholdings for employee compensation	31,885	36,888
Accrued project and vendor costs	137,169	47,342
Other	5,189	2,785
Total	174,243	87,015

(14)

Accruals and Reclamation Reserve

Details of this account include:


	2007	2006
Restoration and Rehabilitation (a)	125,970	86,892
Deferred customs duties and other	5,588	9,776
Total	131,558	96,668

(a)

Provision for restoration and rehabilitation movements are summarized:


	2007	2006
Opening balance	86,892	61,654
Accretion	3,256	2,171
Increases to the provision	36,307	24,161
Payments	(485)	(1,094)
Closing balance	125,970	86,892

(Continued)

MINERA ESCONDIDA LIMITADA

Notes to Financial Statements

June 30, 2007, 2006 and 2005

(in thousands of USD)

(14)

Accruals and Reclamation Reserve, Continued

The estimated undiscounted value of the restoration & rehabilitation provision is US$287,080 as at June 30, 2006 and US$359,279 for June 30, 2007. The discount rate applied to the cash flows is 3.72% and 3.5% respectively and it is not expected to have relevant payments in the next five years.

The provision for restoration & rehabilitation includes the dismantling of all the mine site facilities including Los Colorados and Laguna Seca plants, the Cathode oxide plant, Cathode Sulphide Leach plant, a portion of the Coloso port facilities and the rehabilitation of the Salar de Punta Negra environment. Refer to note 8 for details of the asset retirement obligation.

(15)

Short Term Debt

At the close of 2007 and 2006, the Company records short term debt as follows:


	Current Rate	Payment Date	2007	2006
Banco Santander Santiago	L+0.035%	31/07	-	70,000
Banco Estado	L+0.05%	21/07	-	70,000
Banco BCI	L+0.05%	13/07	-	50,000
Total			-	190,000

L: LIBOR 30 days

(Continued)

MINERA ESCONDIDA LIMITADA

Notes to Financial Statements

June 30, 2007, 2006 and 2005

(in thousands of USD)

(16)

Long Term Debt

The balances of long-term debt outstanding are summarized as follows:

(a)

Senior unsecured debt

The balances of the senior unsecured debt outstanding (including the short-term position) are summarized as follows:


	Current rate	2007		2006
BNP Paribas (1998)	**L+0.25%	275,000		275,000
The Bank of Tokyo – Mitsubishi UFJ Ltd. (2001)	**L+0.175%	62,500		87,500
Japan Bank for International Cooperation (2001)	**L+0.25%	227,500		262,500
Kreditanstalt für Wiederaufbau (2001)	**L+0.275%	112,500		137,500
The Bank of Tokyo – Mitsubishi UFJ Ltd. (2005)	**L+0.275%	90,000		45,000
Japan Bank for International Cooperation (2005)	**L+0.20%	210,000		105,000
Sub total		977,500		912,500
Less:
Short term portion		(85,000	)	(85,000	)
Total		892,500		827,500

(**) L: LIBOR 30 days

On June 12, 1998 the Company entered into an unsecured loan agreement for the amount of $275 million with BNP Paribas. As at June 30, 2007 the interest rate is LIBOR + 0.25%. The loan is due for repayment in June 2009 (full amount).

On September 14, 2001, the Company entered into a loan agreement for the amount of $500 million, of which $350 million is with Japan Bank for International Cooperation, and $150 million with a syndicate of banks, with The Bank of Tokyo-Mitsubishi Ltd. being the agent bank. At June 30, 2003, the total loan had been drawn down. The loan with Japan Bank for International Cooperation is payable in 20 semi-annual payments commencing March 1, 2004 and bears interest at LIBOR (180-day) plus 0.25%. The syndicate loan with The Bank of Tokyo-Mitsubishi Ltd. as lead bank is payable in 12 semi-annual payments commencing March 1, 2004, and at commencement bore interest at LIBOR (180-days) + 0.90%. On March 2006 the interest rate was renegotiated and decreased to Libor (180 days) + 0.175%. The outstanding balance as of June 30, 2007 was $290 million (June 30, 2006: $350 million).

(Continued)

MINERA ESCONDIDA LIMITADA

Notes to Financial Statements

June 30, 2007, 2006 and 2005

(in thousands of USD)

(16)

Long Term Debt, Continued

On January 31, 2005 the Company entered into an unsecured loan agreement for the amount of $300 million of which $210 million is with Japan Bank for International Cooperation and $90 million with a syndicate of banks, with The Bank of Tokyo-Mitsubishi UFJ Ltd being the agent bank. The loan with Japan Bank for International Cooperation bears interest at LIBOR (180 days) +0.20% and will mature after 12 years commencing January 31, 2010. The syndicate loan with The Bank of Tokyo-Mitsubishi Ltd as lead bank bears interest at LIBOR (180 days) + 0.275% and will mature in 5 years. The balance outstanding as of June 30, 2007 was $300 million (June 30, 2006: $150 million).

On September 14, 2001, the Company entered into a loan agreement for the amount of $200 million with Kreditanstalt für Wiederaufbau. The loan is payable in 16 semi-annual payments commencing April 1, 2004. At commencement the loan bore interest at LIBOR (180 days) + 0.75%. On December 2005 the interest rate was renegotiated and decreased to a rate of LIBOR (180 days) + 0.275%. The maturity of the loan did not change. The balance outstanding at June 30, 2007 was $112.5 million (June 30, 2006: $137.5 million).

(b)

At June 30, 2007, the Company maintains unused lines of credit with Banco de Chile, Banco Scotiabank, Banco Santander Santiago, Banco Bice, Banco del Estado and Banco BCI totaling $60 million. These lines of credit are not committed.

The above loans in (a) and (b) are subject to certain covenants, the most restrictive of which require that:

the total debt to Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) ratio be no greater than 2.75 to 1.0 at June 30, 2001, 3.50 to 1.0 at June 30, 2002, 3.00 to 1.0 at June 30, 2003 and 2.75 to 1.0 thereafter; and,

ii)

the net worth of the Company may not be less than US$900 million.

The senior unsecured debt ranks pari passu with any other senior unsecured debt.

The Company was in compliance with all debt covenants as of June 30, 2007 and June 30, 2006.

(Continued)

MINERA ESCONDIDA LIMITADA

Notes to Financial Statements

June 30, 2007, 2006 and 2005

(in thousands of USD)

(16)

Long Term Debt, Continued

(c)

Subordinated Owners’ debt


Lender	2007	2006
International Finance Corporation	9,050	10,250
Rio Tinto Finance PLC	108,600	123,000
JEFCO Corporation	36,200	41,000
BHP International Finance Corporation	208,150	235,750
Sub total	362,000	410,000
Less:
Short term portion	(48,000)	(48,000)
Total long-term portion	314,000	362,000

Drawdowns of subordinated Owners’ debt have been made as follows:

•

US$295 million during December 1998, payable in 30 semi-annual payments commencing on June 15, 1999. Interest accrues at LIBOR plus 4% and is payable semi-annually on June 15 and December 15.

•

US$200 million during May and June 2000, payable in 30 semi-annual payments commencing on December 15, 2000. Interest accrues at LIBOR plus 4% and is payable semi-annually on June 15 and December 15.

•

US$150 million on May 11, 2001, grace period of 5 years for principal payable in 20 semi-annual payments commencing on June 15, 2006. Interest accrues at LIBOR plus 4% and is payable semi-annually on June 15 and December 15.

Under the terms of the subordinated loan agreement, the borrower can elect to capitalize interest due on each payment date to existing debt. Interest payable is shown as a current liability until such time as the election is made or until such interest is paid. No interest was capitalized for the years ended June 30, 2007 and 2006.

The subordinated debt is unsecured.

(Continued)

MINERA ESCONDIDA LIMITADA

Notes to Financial Statements

June 30, 2007, 2006 and 2005

(in thousands of USD)

(16)

Long Term Debt, Continued

(d)

Scheduled principal payments on long-term debt (including short-term portion) at June 30, 2007 are as follows:


Principal payments during the year ending June 30	Senior Unsecured debt	Subordinated owner’s debt	Total
2008	85,000	48,000	133,000
2009	360,000	48,000	408,000
2010	175,625	48,000	223,625
2011	86,250	48,000	134,250
2012	73,750	48,000	121,750
2013 and after	196,875	122,000	318,875
Total	977,500	362,000	1,339,500

(17)

Bonds

Bond obligations at June 30, 2007 and 2006 are as follows:


	2007	2006
Total nominal value	200,000	200,000
Discount at issue	(6,510)	(6,510)
Net proceeds	193,490	193,490
Accumulated amortization of discount	5,846	5,088
Sub total	199,336	198,578
Less:
Principal repaid as of June 30	(180,000)	(140,000)
Current portion of principal outstanding	(19,336)	(40,000)
Total long-term portion	-	18,578

(Continued)

MINERA ESCONDIDA LIMITADA

Notes to Financial Statements

June 30, 2007, 2006 and 2005

(in thousands of USD)

(17)

Bonds, Continued

On October 22, 1999 the Company registered a Chilean bond issuance (N°218) with the Chilean Superintendence of Stock Corporations and Insurance Companies (SVS). The issuance was made as follows:


Series	Number of Bonds	Bond value	Total nominal value at issue	Outstanding nominal value

A1	1,000	10	10,000	1,000
A2	400	100	40,000	4,000
A3	100	500	50,000	5,000
A4	100	1000	100,000	10,000
	1,600		200,000	20,000

Each series of bonds is being amortized over 5 years in 10 semi-annual installments commencing May 15, 2003. Interest accrues at 7.5% per year and payments are made semi-annually on May 15 and November 15. The Company had accrued interest of $184 and $552 at June 30, 2007 and 2006, respectively. No guarantees have been given.

The bonds are subject to certain restrictive financial covenants:

The ratio of debt to Earnings Before Interest, Tax, Depreciation and Amortization (“EBITDA”) for the last twelve months must not exceed 6, based on the Chilean GAAP Financial Statements at December 31 of each year that the bonds are outstanding.

ii)

The Company’s net worth must not be less than $800 million.

The Company was in compliance with all bond covenants as of June 30, 2007 and June 30, 2006.

(Continued)

MINERA ESCONDIDA LIMITADA

Notes to Financial Statements

June 30, 2007, 2006 and 2005

(in thousands of USD)

(18)

Sundry Creditors Long-Term

Sundry Creditors are summarized as follows:


	2007	2006
Liability outstanding for water rights acquired	55,527	59,582
Less:
Short-term portion (included in Sundry creditors-current)	(4,391)	(4,055)
Total	51,136	55,527

The water rights purchased from Compania Minera Zaldivar is payable in 15 annual installments of $9,000 commencing July 1, 2001. Interest is calculated using the imputed interest method using a discount rate of 8.3%.

(19)

Interest Expense

Interest expense is summarized as follows:


	2007	2006	2005
Interest incurred	(113,792)	(96,750)	(80,878)
Interest capitalized in fixed assets	—	39,359	12,328
Total	(113,792)	(57,391)	(68,550)

(Continued)

MINERA ESCONDIDA LIMITADA

Notes to Financial Statements

June 30, 2007, 2006 and 2005

(in thousands of USD)

(20)

Capital

Capital has been contributed as follows:


Initial capital (*)		65,727
Capitalization of retained earnings by public deed dated:
July 27, 1988		1,497
October 7, 1988		22,877
February 6, 1989		6,110
April 7, 1989		6,013
March 30, 2001		161,000
December 21, 2001		196,700
December 19, 2002		54,578
December 30, 2003		16,700
December 30, 2004		16,700
December 30, 2005		50,000
Capital as of June 30, 2006		597,902
Capitalization of retained earnings by public deed dated:
December 30, 2006		50,000
Capital as of June 30, 2007		647,902

(*)

The Company’s initial capital of $65,727 was contributed by the former partners Minera Utah de Chile Inc. and Getty Mining (Chile) Inc., and relates to property, plant and equipment, cash advances and exploration costs.

According to the Foreign Investment Contract between the state of Chile and the Minera Escondida Owners, the financial debt / equity ratio must not be higher than 75% / 25% by the end of every calendar year. The compliance by the Foreign Investors with the referred percentage is verified by the Executive Vice Presidency of the Foreign Investment Committee on December 31 of each year. To comply with this legal requirement, the company has capitalized the retained earnings mentioned above.

(Continued)

MINERA ESCONDIDA LIMITADA

Notes to Financial Statements

June 30, 2007, 2006 and 2005

(in thousands of USD)

(21)

Fair Value of Financial Instruments

The Company’s financial instruments are composed of cash and cash equivalents, other receivables, recoverable taxes, accounts payable, other payables, due to and from related companies and accrued expenses (non derivatives). In management’s opinion, the carrying amount approximate the fair value due to their short-term nature of these instruments. In addition, the long-term debt does not present a significant difference between its carrying amount and its fair value, based on the interest rate re-negotiation performed in 2006 and the current market rates.

(22)

Commitments and Contingencies

(1)

At June 30, 2007, the Company had entered into long-term contracts for the sale of approximately 6 million dry metric tonnes of concentrates in total, in predetermined annual amounts through the year 2015. Under the terms of the contracts, annual prices are based upon prevailing market prices.

(2)

Minera Escondida Limitada (MEL) entered into a Sales Agency Agreement for export tonnage with BHP Billiton Marketing A. G., a related party. This agreement, dated January 1, 2002, replaces the Sales Agency Agreement between MEL and BHP Billiton Minerals International Inc., originally signed in October 1985 between MEL and Utah International Inc., and amended in 1995. The sales commission is variable and can be up to 0.5% of monthly sale volumes. Shipping operations for export tonnage are covered by a Shipping Agency Agreement between Minera Escondida Limitada and BHP Billiton Marketing A.G. dated January 1, 2002, with a rate of US$68/wmt. Sales and shipping operations of Escondida within Chile are covered by a Domestic Marketing Services Agreement signed between Minera Escondida Limitada and BHP Chile Inc., dated January 1, 2002, with a rate of 0.125% of sales volumes.

(3)

On October 2004, Minera Escondida Limitada was sued by Mr. Juan Cabezas who alleges that Escondida infringed his intellectual property rights and breached confidentiality in relation to the installation of certain acid fog collection devices at Escondida’s Oxide plant in Chile. The devices are being installed in the Oxide plant by contractor SAME Limited. The amount in dispute is approximately US$27 million.

In May 2007 the Company and Mr. Cabezas signed a settlement agreement by which the parties terminated this case. The Company paid a sum of US$ 0.6m.

(4)

On March 2005, Minera Escondida Limitada (MEL) was sued by Thai Copper Industries Public Company Limited (TCI) who alleges that MEL has breached its obligation to sell quantities of copper concentrates to TCI on a yearly basis. The marketing contract was entered into on March 23, 1998 for a term of 5 years, commencing January 1, 1999. TCI was to take delivery of the copper concentrate at its smelter (which was not yet built) in Thailand.

(Continued)

MINERA ESCONDIDA LIMITADA

Notes to Financial Statements

June 30, 2007, 2006 and 2005

(in thousands of USD)

(22)

Commitments and Contingencies, continued

The contract was amended on December 17, 1998 to delay the commencement date to January 1, 2000 as TCI’s smelter was not built and could not take any deliveries. The amendment provided that if TCI notified MEL that the completion of the smelter was to be later than January 1, 2001, MEL could elect to terminate the marketing contract. TCI notified MEL on February 5, 2003 that it expected production at its new smelter to commence in the 2nd quarter of 2004. MEL terminated the marketing contract by letter dated April 2, 2003. TCI alleges that MEL had no right to terminate the contract and seeks recovery of US$30 million in alleged damages.

On September 4, 2006 a settlement agreement was executed between Thai Copper and Minera Escondida, with no obligations for Escondida and TCI withdrawing the litigation.

(23)

Financial Instruments

The Company is exposed to movements in the prices of the products it produces which are generally sold as commodities on the world market. Relevant information on the Company’s material cash-settled commodity contracts, which have been recognized at fair value in the income statement, is provided below:


Forwards	Buy fixed/sell floating	Sell fixed/buy floating

Volume (‘000 tonnes)	245	247
Average price of fixed contract(US$/tonne)	7,081	6,995
Term to maturity (years)	0-1	0-1
Notional amount of fixed contract (US$M)	1,790	1,781

Price participation clauses are part of the TC/RC (treatment and refining charges) element of concentrate sales contracts. These price participation clauses include an embedded derivative, and as such have been marked to fair value for the reporting period. The impact of this adjustment can be found in the income statement under “Unrealized fair value change – derivatives”, while the balance sheet impact is recorded under “Financial Liabilities”.

(Continued)

MINERA ESCONDIDA LIMITADA

Supplementary Information - Unaudited

June 30, 2007 and 2006

(in thousands of USD)

Mining Operations Information

BHP Billiton owns 57.5% of Minera Escondida. The other 42.5% is owned by the affiliates of Rio Tinto plc (30%); JECO, a subsidiary of Mitsubishi Corporation (10%) a consortium represented by Mitsubishi Corporation (7%), Mitsubishi Materials Corporation (1%), Nippon Mining and Metals (2%); and the International Finance Corporation, (2.5%).

Minera Escondida Limitada holds a mining concession from the Chilean state that remains valid indefinitely (subject to payment of annual fees).

The mine is accessible by public / private road.

Original construction of the operation was completed in 1990. The project has since undergone four phases of expansions at an additional cost of $2,125 million plus $451 million for the construction of an oxide plant.

In October 2005, the Escondida Norte expansion was completed at a cost of $431 million.

In June 2006, the Escondida Sulphide Leach copper project achieved first production. The approved cost for the project was $907 million.

Escondida has two processing streams: two concentrator plants in which high quality copper concentrate is extracted from sulphide ore through a floatation extraction process; and a solvent extraction plant in which leaching, solvent extraction and electrowinning are used to produce copper cathode.

Nominal production capacity is 3.2 Mtpa of copper concentrate and 150,000 tonnes per annum of copper cathode.

Escondida Sulphide Leach copper plant has the capacity to produce 180,000 tonnes per annum of copper cathode.

Separate transmission circuits provide power for the Escondida mine facilities. These transmission lines, which are connected to Chile’s northern power grid, are company-owned and are sufficient to supply Escondida post Phase IV. Electricity is purchased under contracts with local generating companies.

(Continued)

MINERA ESCONDIDA LIMITADA

Supplementary Information - Unaudited

June 30, 2007 and 2006

(in thousands of USD)

Ore Reserves

The ore reserves tabulated are all held within existing, fully permitted mining tenements. The Company’s minerals leases are of sufficient duration (or convey a legal right to renew for sufficient duration) to enable all reserves on the leased properties to be mined in accordance with current production schedules.

All of the ore reserve figures presented represent estimates at 30 June 2007. All tonnes and grade information presented have been rounded; hence small differences may be present in the totals. In addition, all reserve tonnages and grades include dilution and are quoted on a dry basis, unless otherwise stated.

No third party audits have been carried out specifically for the purpose of this disclosure.

The reported reserves contained in this annual report do not exceed the quantities that, it is estimated, could be extracted economically if future prices were at similar levels to the average historical prices for traded metals for the last three calendar years to 31 Dec 2006. Current operating costs have been matched to the average of historical or long term contract prices in accordance with Industry Guide 7.

The three year historical average prices used for each commodity to estimate, or test for impairment of, the reserves of traded metals contained in this annual report are as follows:

Commodity Price US$

Copper 2.01/lb

(Continued)

MINERA ESCONDIDA LIMITADA

Supplementary Information - Unaudited

June 30, 2007 and 2006

(in thousands of USD)

Ore Reserves


		Proven Ore Reserve		Probable Ore Reserve		Total Ore Reserve		Nominal production capacity (Mtpa)	Mine life based on Reserve (years)
Commodity Deposit ^(1,2,3)	Ore type	Millions of dry metric tonnes	% TCu	Millions of dry metric tonnes	% TCu	Millions of dry metric tonnes	% TCu	Nominal production capacity (Mtpa)	Mine life based on Reserve (years)
Copper

Total Escondida ^(4,5)	Oxide	110	0.81	51	1.15	161	0.92	175.87	24.4
	Sulphide	659	1.26	1,083	1.08	1,743	1.15
	Sulphide Leach	667	0.54	1,728	0.55	2,395	0.547

(Continued)

MINERA ESCONDIDA LIMITADA

Supplementary Information - Unaudited

June 30, 2007 and 2006

(in thousands of USD)

Notes to previous table

1)	% TCu – per cent total copper.

2)	Approximate drill hole spacing used to classify the reserves is:


Deposit	Proven Reserve	Probable Ore Reserve

Escondida	Sulphide: 55m x 55m	Sulphide: 80m x 80m
	Sulphide leach: 55m x 55m	Sulphide leach: 100m x 100m
	Oxide: 45m x 45m	Oxide: 50m x 50m

3)	Metallurgical recoveries for the operations are:


Deposit		%Cu

Escondida
Sulphide		87% of TCu
Sulphide Leach		32% of TCu
Oxide		68% of TCu

Changes in the Escondida reserves for the year 2007 include an updated geological model using new data, updated cost and price estimates, full valuation of sulphide leach ore in ultimate pit limits, and variable cut-off grade of sulphide mill ore. This year reserve report combined the two mines into a single reportable reserve. Economic and metallurgical studies are being conducted to evaluate optimal sulphide leach cut-off grades, which may lead to revision in the reserve. The price used for Escondida was Cu = US$2.01/lb.

(Continued)

MINERA ESCONDIDA LIMITADA

Supplementary Information - Unaudited

June 30, 2007 and 2006

(in thousands of USD)

5)	Escondida production rate and mine life estimate is based on the current life-of-mine plan which uses a future variable production rate from the Escondida pits. The current combined nominal production rate available to the operation is 176 million tonnes per annum.

Proven reserves in stockpiles

Proven reserves in stockpiles at June 30, 2007 are:


Escondida Copper	Millions of dry metric tonnes	% TCu

Sulphide Ore	12.35	1.21
Sulphide Leach	172.83	0.68
Oxide Ore	105.53	0.74

These reserves will be used as follow:
Sulphide Ore	8 Years
Sulphide Leach	9 Years
Oxide Ore	12 Years