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Protests, lawsuit at Chile mine cloud Antofagasta outlook

* Payout ratio cut to 35 pct in 2014 from 142 pct in 2013

* Los Pelambres desalination plant would cost $300-400 mln

* Shares (Berlin: DI6.BE - news) fall as much as 4.5 percent (Adds detail, CEO quotes)

By Silvia Antonioli

LONDON, March 17 (Reuters) - Environmental protests and a court ruling affecting Antofagasta (Other OTC: ANFGY - news) 's Los Pelambras mine in Chile have clouded the outlook for its copper production this year and driven the company to slash its dividend.

Antofagasta, majority owned by Chile's Luksic family, is grappling with weaker copper prices and falling metal grades, as well as the protests and lawsuit affecting Los Pelambres, which produces more than half the miner's copper.

A court in Chile ruled last week that the firm must demolish a mine tailings dam at Los Pelambres, which protesters say is affecting water availability. Antofagasta is appealing the ruling but said it casts doubt over the outlook for the mine.

"Local protests have reduced expected copper production at Los Pelambres by some 8,000 tonnes of copper," the company said in a statement on Tuesday announcing 2014 results.

"These protests, along with the adverse ruling from the Civil Court of Los Vilos, mean that there is some inherent uncertainty as to the potential impact on Los Pelambres 2015 production levels," the London-listed company said.

The miner said earnings before interest, tax, depreciation and amortisation (EBITDA) came in at $2.22 billion in 2014, down 17.8 percent from a year earlier and broadly in line with a company-provided consensus forecast of $2.24 billion.

However, the company cut its dividend to 21.5 cents per ordinary share, which implies a 35 percent payout ratio, down from 142 percent in 2013 and 70 percent in 2012.

Shares in Antofagasta fell as much as 4.5 percent and were trading 3.8 percent lower by 1110 GMT, making the company the biggest loser in the FTSE-100 index and underperforming a 0.5 percent rise in the UK mining sector.

Antofagasta has long traded at a premium to its peers, largely because of generous payments to shareholders and a solid balance sheet.

Chile has a long history of struggles between mines and local communities over scarce water, but disputes have increased in intensity recently as an eight year drought has worsened.

Last week, the company reached a deal with protesters who had been blocking access to the Los Pelambres mine. As part of the agreement, Antofagasta said it had committed to using sea water should a planned expansion of the mine go ahead.

CEO Diego Hernandez said on Tuesday that building such a plant would cost $300-400 million, in addition to previously estimated capital expenditure of $1.2 billion.

He said the decision on whether to proceed with the expansion plans should be taken by 2018.

"What is obvious is that it will be hard to take the investment decision if we haven't settled the lawsuit, and if we are exposed to the uncertainty of the lawsuit," Hernandez said in a call with reporters.

He said the lower dividend was "in view of the continued uncertainty in the copper market at the start this year, as well as the current uncertainties at Los Pelambres". (Editing by David Clarke)