* Changes to tax regime in Chile could impact the miner
* Weaker Chilean peso helps to keep costs down
* Company says on track to hit annual output target (Adds details on costs, background, comments)
By Silvia Antonioli
LONDON, April 30 (Reuters) - Chilean miner Antofagasta saw its copper production shrink in the first quarter due to scheduled plant maintenance and falling ore grades but a weaker Chilean peso helped it keep costs under control.
Like other copper producers, Antofagasta is grappling with falling ore grades and is trying to cut costs to protect margin as metals prices cool. A proposed tax regime change in Chile is also expected to weigh on its costs.
The London-listed miner produced 169,400 tonnes of copper in the first quarter, down 7.8 percent from a year earlier but broadly in line with analysts’ expectations.
The fall was mainly due to scheduled plant maintenance at its Los Pelambres and Esperanza operations and declining copper grades but the company said it was on track to meet its full-year guidance.
Antofagasta, controlled by Chile’s Luksic family, managed to keep its gross cash cost flat from the fourth quarter of last year at 183 cent per pound, helped by a weaker Chilean peso against the U.S. dollar. Most of its costs are priced in pesos while the copper it produces is sold in dollars or dollar equivalents.
To battle a fall in production due to aging mines and declining copper grades, Antofagasta is focusing on its $1.9 billion Antucoya greenfield project and other brownfield expansions.
“While the company’s copper production was in line with our estimates, its cost performance, aided by the weakening peso, beat our estimates,” said Bernstein Research analysts in a note. “Reining in its cost escalation in presence of deteriorating grades and timely and on-budget delivery of Antucoya will present the greatest challenges to the company this year.”
Under a new tax reform bill presented to the Chilean congress for consideration on April 1, corporation tax in the country could rise from 20 percent in 2013 to 25 percent in 2017. Withholding tax, which companies have to pay when distributing dividends, could rise too.
“What is going on with the withholding tax regime in Chile is slightly concerning,” said Investec analyst Marc Elliott. “This company is a strong dividend payer and that could impact the dividend longer term.”
The miner said it remained on track to produce 700,000 tonnes of copper this year, a repeat of its 2013 guidance, while gold production is expected to be 270,000 ounces, below 2013 guidance.
At 0743 GMT, shares in FTSE 100-listed Antofagasta were up 0.9 percent, outperforming a 0.3 percent rise in the broader UK mining sector. (Editing by Jason Neely)