* Antofagasta expects 685,000-720,000 tonnes output
* Antofagasta sees lowers tax rate, Fresnillo sees higher taxes (Adds Fresnillo, analyst comments, updates shares)
By Esha Vaish and Zandi Shabalala
BENGALURU/LONDON, Jan 25 (Reuters) - Chilean copper miner Antofagasta reassured investors with a strong production increase in the final quarter of 2016 and by saying it expected to pay less tax, sending its shares sharply higher.
A 13.8 percent production rise in the fourth quarter helped the London-listed miner reach annual output of 709,400 tonnes of copper in 2016, just short of the 710,000-740,000 tonne guidance it had given at the start of last year.
The company had said in October that full-year copper production would be at the lower end of that guidance.
Antofagasta stood by its 2017 copper production target of 685,000-720,000 tonnes.
The production figures and expected lower tax rate briefly sent the shares up 7 percent to a near three-year high. By 1440 GMT, they were trading 3.7 percent higher, while the broader mining sector was down 1.2 percent.
"We struggled to see the company hitting its full-year guidance, so to see full-year production come in only very marginally shy of 710,000 tonnes is promising, in our view," Bernstein analysts said in a note.
Antofagasta said it expected to pay an effective tax rate of about 35 percent for 2016, lower than a previous range of 40-45 percent.
Analysts are focusing less on the details of production reports as miners' share prices are supported by expectations of global supply tightness, especially for the copper market.
Copper on the London Metal Exchange jumped 18 percent last year, its first annual rise since 2012. Some forecasters are still cautious about further rises because of a lack of clarity about demand from China.
Antofagasta's Chief Executive Ivan Arriagada said there were "elements of support" for copper prices of $2.40-$2.70 per pound. "I don't see elements to think about prices much higher than that," he said. That is roughly in line with current market prices of about $2.68 per pound.
The company's copper production, up 12.5 percent from 2015, was boosted by higher output at its Centinela mine and additional copper from two new operations.
Citi upgraded Antofagasta to buy from neutral this week mainly on expectations the company should pay lower taxes over the coming years.
Antofagasta's share price more than doubled last year as the broader industry recovered from a deep crash in 2015.
But Antofagasta said caution was still necessary.
"Although we believe the industry has passed the low point in this commodity cycle, uncertainty persists ...," Arriagada said in a statement.
Antofagasta said it expects 2017 net cash costs of about $1.30 per pound. Its 2016 net cash cost fell 20 percent year-on-year to $1.20 per pound, beating its target of $1.30 per pound on tighter cost control, increased production and lower input prices.
Also on Wednesday, fellow miner Fresnillo forecast higher silver production in 2017 but shares sank after it said the full-year tax rate was expected to be between 45 percent and 47 percent, which analysts said was higher than expected.
Shares in Fresnillo were down 3.8 percent, making it the largest bluechip loser. (Additional reporting by Fabian Cambero and Anthony Esposito in Santiago and Barbara Lewis in London; Editing by Louise Heavens and Adrian Croft)