LONDON, Feb 20 (Reuters) - Chile's Antofagasta on Tuesday reported a 5% rise in 2023 profit as copper production and prices increased, offsetting higher costs.

Although the mining group reported earnings before interest, tax, depreciation, and amortisation (EBITDA) of $3.1 billion, up from $2.9 billion in 2022, it slashed its full-year dividend to 36 cents a share, compared to 59.7 cents last year.

"We are positioning the company for the next stage of growth, with projects we sanctioned in 2023, including the construction of a second concentrator at Centinela," Antofagasta Chief Executive Ivan Arriagada told Reuters.

"The balance of performance, growth opportunities that create value for shareholders in the long term, and keeping a strong balance sheet result in the recommendation to pay a 50% payout," he said.

Antofagasta made a record shareholder payout of 142.5 cents a share in 2021, amounting to $1.4 billion, helped by surging copper prices. Its policy is to return at least 35% of net earnings to shareholders.

The London-listed group's shares were down 2.3% at 0927 GMT, in line with other miners.

Antofagasta reported a 13% rise in capital expenditure to $2.13 billion last year due to expansion of its Los Pelambres flagship mine. It expects the figure to be $2.7 billion in 2024, as it starts work on its Centinela concentrator.

"Higher capex and what could be a year of lower prices should lead to trough FCF (free cash flow) this year, but the company is on a path to strong FCF later this decade," Jefferies analysts said.

Antofagasta earlier reported a rise of 2% in 2023 copper production, to 660,600 metric tons and expects 670,000 tons to 710,000 tons in 2024.

Copper is used in energy transition applications, including solar panels and electric vehicles.

Analysts have forecast a deficit from this year on signs that supply may not be as robust as previously thought after Panama ordered the closure of First Quantum's 350,000-ton mine and producers such as Anglo American and Vale Base Metals lowered annual guidance.

Antofagasta, majority owned by Chile's Luksic family, is looking to part-fund the Centinela work by having an investor in the water infrastructure assets and the expansion, Arriagada said. The deal would be around $1 billion in total.

"We are in very late stages of that negotiation, we expect that to close this by the end of March," he said. (Reporting by Clara Denina; Editing by Jason Neely, Clarence Fernandez and Alexander Smith)