annual operating summary

Transcription

1 annual operating summary MINERIA

2 CONTENTS/ GENERAL BACKGROUND/ PROPERTIES AND REAL ESTATE/ 2 Executive Summary 4 Letter to Shareholders 8 The Company 10 Board of Directors and Management 13 Organization Structure 14 Ownership and Control of the Company 15 Subsidiaries and Associates 20 Properties and Real Estate ACTIVITIES AND BUSINESS/ SOCIAL RESPONSABILITY/ CONSOLIDATED FINANCIAL STATEMENTS/ 28 Commercialization 33 Production 37 Other Operating Activities 38 Financial Activities 40 Human Resources 44 Social Responsability 47 Enviromental Management and Control System (SGA) 49 Safety and Occupational Health 54 Consolidated Financial Statements Material Information

3 2011

4 EXECUTIVE SUMMARY EXECUTIVE SUMMARY EBITDA (ThUS$) ,115, , , , , , ,953 47,911 36, , , , ,000 1,000,000 1,200,00 PRODUCtion (thmt) , , ,534 8,427 7,871 7,727 7,217 7,437 7,316-2,000 4,000 6,000 8,000 10,000 12,000 14,000 Assets (ThUS$) ,669,608 2,623, , , , , , , , ,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 2

5 Annual Operating Summary 2011 COMPAÑÍA MINERA DEL PACÍFICO S.A. sales (thmt) , ,213 10, , ,377 7,674 7,579 7,312 7,437-2,000 4,000 6,000 8,000 10,000 12,000 14,000 equity (ThUS$) ,855,262 2,018, , , , , , , , ,000 1,000,000 1,500,000 2,000,000 2,500,000 results (ThUS$) , , , , , , , ,544 12, , , , ,000 1,000,000 3

6 LETTER TO SHAREHOLDERS LETTER TO SHAREHOLDERS Dear Shareholders, The Company closed the year 2011 with the best production and sales figures in its history. Earnings for the year, excluding the accounting and non-recurring gain booked the previous year due to the merger with Compañía Minera Huasco, were also the highest since the company was created in The year 2011 was heavily influenced by the dynamism in demand for iron ore in Asia, particularly China. Global production of iron ore in 2011 exceeded 2,100 million MT, while international seabornetrade in these passed the barrier of 1,000 million MT, with CAP Minería having a participation of slightly more than 1% of that total. According to figures published by the World Steel Association (WSA), global crude-steel production was 1,490 million MT in 2011, reflecting an increase of 4.3% over the 1,429 million MT produced the previous year. China once more led this expansion, setting a new production record of 683 million MT of crude steel which is 46% of global production. During the same period, China imported 686 million MT of iron ore, of which CAP Minería accounted for approximately 1%. In this scenario, the Company s consolidated sales amounted to a record figure of 11 million 459 thousand MT, 12.2% more than in Of this, the Asian market represented 98% of exports, with China concentrating 76%, being the principal market for our shipments. This greater market dynamism was reflected also in the mineral price which rose on average by 26.2% to US$ per MT. Despite this net rise, the international iron-ore market was characterized by price volatility. Toward the end of the year, the Chinese market decoupled from the Japanese market by changing the basis on which long-term prices are set, from a scheme based on the previous quarter with a one month time lag, to one based on the current quarter. The Company followed this market trend. CAP Minería s commercial strategy was centered on achieving a suitable combination between customers with long-term contracts and business based on the spot price, seeking at the same time to expand its customer base in China. The spot market accounted for 38% of the Company s total sales and all was shipped to China. The above market situation enabled the Company to increase its ordinary revenues by 39% over the year before, to US$ 1,770 million. Post-tax earnings for 2011 were US$ 700 million, 35% higher than in 2010, which is a record for the Company. Cash generation, expressed as EBITDA, amounted to US$ 1,116 million in The Company s total production amounted to 12 million MT, which represented an increase of 14.3% with respect to Of this, 3.6 million MT came from Elqui valley, with a significant increase of 67% over the year before, the result of the full operation of Phase IV of El Romeral mine; 6.7 million MT from Huasco valley (+5%), and 1.7 million MT produced by Minera Hierro Atacama S.A. (-13%) which was affected by a reduced volume of available raw material and with a lower magnetic quality than that programmed. 49% of the Company s production corresponded to pellet feed, in response to the requirements of the international market. The inventory of products at the end of the year was 1,149,000 MT, 76% more than the year before. The Company continued with the exploration in its own ferrous mining districts during the year. Soundings programs were also carried out in different areas of interest in order to obtain increases in its mining resources, and to transform these into reserves and so expand the portfolio of future projects. As a result, important new magnetic resources were identified, which constitute solid support for the Company s development. These figures are being certified by competent people in accordance with Law 20,235. The mining concessions at the end of 2011 amounted to 1,077,123 hectares. The two projects approved in August 2010 have continued their development. The Huasco valley expansion project, with an estimated investment of US$ 364 million, will permit an increase in the production of the pellets plant by 2 million MT of pellet feed per year, and will begin its start-up in the second quarter of The Cerro Negro Norte greenfield project development, with an investment of US$ 800 million to produce 4 million MT per year of pellet feed, will do so in the last quarter of As has been habitual, the Company s relations with its personnel continued in a normal and respectful atmosphere. Collective bargaining deals in advance were concluded during the year with the unions of the subsidiaries Minera Hierro Atacama S.A. and IMOPAC Ltda. At the corporate level, all agreements with the personnel of CAP Minería and subsidiaries run until at least May 31, In line with the Safety and Occupational Health Policy of CAP S.A., measures continued to be pursued during the year for the prevention of accidents in all the works. It should be noted that there were no fatal accidents, the accident frequency rate was 20% below the previous year, the seriousness rate fell by 77%, and the management system at all the works and subsidiaries of CMP is certified under the OHSAS standard. Minera Hierro Atacama exceeded one million man-hours of work without any accidents with time lost. This achievement was praised by the National Safety Council. Care for the environment is also one of the Company s strategic priorities, being able to show important achievements in this area. During the year, the certification process was completed of Minera 4

7 Annual Operating Summary 2011 COMPAÑÍA MINERA DEL PACÍFICO S.A. Hierro Atacama under the ISO 14001, OHSAS and ISO 9001 standards and the follow-up was made of the ISO standard certification of El Romeral mines, Guayacán port, pellets plant and Los Colorados mine, which showed the continuous improvement of environmental management. Various audits were also carried out to maintain its environmental commitments current. The Company has intensified its policy of integration with the community in 2011, giving priority to support for education in municipal schools in the regions of Atacama and Coquimbo, in close collaboration with the Fundación CAP. CAP Minería was also awarded the bronze medal for its results in PROHumana s National Corporate Social Responsibility Ranking 2011, which placed it as the best evaluated mining company. On the other hand, in accordance with our policy of proximity and collaboration with the communities where we operate and in the places of interest for the development of future projects, contacts were maintained and initiatives of interest to them carried out during 2011, in Socaire and in Caldera, Copiapó, Tierra Amarilla, Vallenar, Huasco, La Higuera, Chungungo, La Serena, Coquimbo and Guayacán. Prospects for 2012 and onward appear to be broadly favorable, with a market that will demand growing volumes of iron ore, especially the Asian region which will continue to show accelerated industrial development. As well as the solidity of our customer portfolio and competitive costs, there will be the execution of a combination of projects that have an adequate support in mining resources, which will permit us to expand production capacity to 18 million MT annually in a first stage. We are certain that, even in low price scenarios, these projects will be capable of generating returns that meet or even exceed the amounts evaluated and approved for the respective investments. Jaime Charles/ Chairman 5

8 GENERAL BACKGROUND/ 1.1 The Company 1.2 Management 1.3 Ownership and Control of the Company 1.4 Subsidiaries and Associates

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10 GENERAL BACKGROUND 1.1 the company Name Trading name Type of entity Legal domicile Compañía Minera del Pacifico S.A. Not registered Corporation Tax ID Securities Register Pedro Pablo Muñoz 675, La Serena With the coming into effect of Law 20,382 of October 2009, its registration under No. 489 was cancelled and became registered in the Special Register of Reporting Entities Number of registration 8 Date of registration May 9, 2010 Addresses General Offices La Serena Address Pedro Pablo Muñoz 675, La Serena Region of Coquimbo, Chile Telephone (51) Fax (51) cmpsa@cmp.cl Web Page PO Box Casilla 559, La Serena, Chile General Offices Vallenar Address Brasil 1050, Vallenar Region of Atacama, Chile Telephone (51) Fax (51) cmpsa@cmp.cl PO Box Casilla 57, Vallenar, Chile El Algarrobo MINES Address Brasil 1050, Vallenar Region of Atacama, Chile Telephone (51) Fax (51) PO Box Casilla 57, Vallenar, Chile General Offices (CNN) Address Atacama 661, Copiapó Region of Atacama, Chile Telephone (52) cmpsa@cmp.cl PO Box Atacama 661, Copiapó Pellets Plant Address Brasil 1050, Vallenar Region of Atacama, Chile Telephone (51) Fax (51) cmpsa@cmp.cl PO Box Casilla 57, Vallenar El Romeral MINES Address Pedro Pablo Muñoz 675, La Serena Region of Coquimbo, Chile Telephone (51) Fax (51) cmpsa@cmp.cl PO Box Casilla 559, La Serena 8

11 Annual Operating Summary 2011 COMPAÑÍA MINERA DEL PACÍFICO S.A. magnetite plant Address Route 397, Km 11, Tierra Amarilla Region of Atacama, Chile Telephone (52) Fax N/A PO Box Casilla 4, Tierra Amarilla Punta Totoralillo port Address Panamericana Norte Km 906, Caldera Region of Atacama, Chile Telephone (52) PO Box Casilla 161, Caldera Sociedad de Ingeniería y Movimientos de Tierra del Pacífico Ltda. Address Brasil 1050, Vallenar Region of Atacama, Chile Telephone (51) (51) (51) Fax (51) imopac@cmp.cl PO Box Casilla A 05 Vallenar Distribuidora de Petróleos del Pacífico Ltda. Address Pedro Pablo Muñoz 675, 2 nd floor, La Serena,Region of Coquimbo, Chile Telephone (51) (51) Fax (51) (51) jrosales@cmp.cl PO Box Casilla 559, La Serena Manganesos Atacama S.A. Address Vulcano 75, Sector Covico, Coquimbo Region of Coquimbo, Chile Telephone-Fax (51) (51) (51) manganesoatacama@manganeso.cl Web Page PO Box Casilla 74, Coquimbo Minera Hierro Antofagasta S.A. Address Avda. Kennedy 5757, Torre Oriente, Of. 508, Las Condes, Santiago, Chile 9

12 GENERAL BACKGROUND 1.2 Management Board of Directors Chairman JAIME CHARLES CODDOU Economist, Chilean Tax ID Alternate Director Vacant vice Chairman SERGIO VERDUGO AGUIRRE Civil Industrial Engineer, Chilean Tax ID K Alternate Director RENÉ CAMPOSANO LARRAECHEA Commercial Engineer, Chilean Tax ID Director RAÚL GAMONAL ALCAÍNO Commercial Engineer, Chilean Tax ID Alternate Director ANDRES DEL SANTE SCROGGIE Commercial Engineer, Chilean Tax ID Director ERNESTO ESCOBAR ELISSETCHE Civil Mechanical Engineer, Chilean Tax ID Alternate Director ROBERTO DE ANDRACA ADRIASOLA Commercial Engineer, Chilean Tax ID

13 Annual Operating Summary 2011 COMPAÑÍA MINERA DEL PACÍFICO S.A. Director ARTURO WENZEL ÁLVAREZ Commercial Engineer, Chilean Tax ID K Alternate Director STEFAN FRANKEN OSORIO Lawyer, Chilean Tax ID Director TOKURO FURUKAWA YAMADA Civil Mining Engineer, Japanese Tax ID Alternate Director TAKATO SHINOHARA Civil Engineer, Japanese Passport TH Director YUICHI ICHIKAWA Civil Engineer, Japanese Tax ID Alternate Director TAKEAKI DOI Civil Engineer, Japanese Tax ID K 11

14 GENERAL BACKGROUND Executives President ERICK WEBER PAULUS Civil Chemical Engineer Tax ID Operations Manager, Elqui Valley CARLOS REINKING VILLALON Civil Mining Engineer Tax ID Operations Manager, Huasco Valley DANIEL PAREDES ANTIQUERA Civil Mechanical Engineer Tax ID Operations Manager, CNN EDUARDO TAPIA VILLAFAÑA Civil Mining Engineer Tax ID Manager, Environment, Safety and Occupational Health VASCO LARRAECHEA LOESER Engineer Tax ID Manager, Finance and Administration STUARDO ERAZO ROBLES Commercial Engineer Tax ID Mining Development Manager EDUARDO VALDIVIA CONTRERAS Civil Mining Engineer Tax ID Commercial Manager GERMAN GAJARDO DIAZ Commercial Engineer Tax ID Manager, Human Resources and Corporate Affairs GERMAN AMIOT AEDO Civil Mechanical Engineer Tax ID Legal Services Manager JOHN P. MC NAB Lawyer Tax ID K 12

15 Annual Operating Summary 2011 COMPAÑÍA MINERA DEL PACÍFICO S.A. ORGANIZATION STRUCTURE ARICA Y PARINACOTA TARAPACÁ LOS COLORADOS MINE PELLETS PLANT EL ROMERAL MINE ANTOFAGASTA CITY COPIAPÓ ATACAMA Operations Manager, CNN: EDUARDO TAPIA VILLAFAÑA COQUIMBO LA SERENA Operations Manager, Huasco Valley: DANIEL PAREDES ANTIQUERA REGIÓN METROPOLITANA Operations Manager, Elqui Valley: CARLOS REINKING VILLALON President: ERICK WEBER PAULUS Manager, Finance and Administration: STUARDO ERAZO ROBLES Mining Development Manager: EDUARDO VALDIVIA CONTRERAS Commercial Manager: GERMAN GAJARDO DIAZ Manager, Human Resources and Corporate Affairs: GERMAN AMIOT AEDO Manager, Environment, Safety and Occupational Health: VASCO LARRAECHEA LOESER Legal Services Manager: JOHN P. MC NAB 13

16 GENERAL BACKGROUND 1.3 Ownership and control of the Company Capital, Shares & Shareholdings The capital agreed by the extraordinary shareholders meeting of April 27, 2010 amounts to ThUS$ 887,223,521.40, in United States dollars, divided into 4,694,836 shares of no par value. The paid capital of Compañía Minera del Pacífico S.A as of December 31, 2011 amounts to ThUS$ 887,223, The list of shareholders and the total number of 4,694,836 shares was distributed in the following manner: shareholders TAX ID N OF SHARES PERCENTAGE (*) CAP S.A ,521, % MC Inversiones Ltda ,173, % Guillermo Bruna % Contreras Carlos Ruiz de % Gamboa Gómez José Villalba % Pernas Jorge Zalaquett Daher % (* ) CAP S.A., tax ID , is therefore the controller of Compañía Minera del Pacífico S.A, (with a shareholding of %) in accordance with Section XV of Law 18,045. Invercap S.A. is the controller of CAP S.A. under that definition. Invercap S.A. in turn lacks a controller under that definition and none of its individual shareholders have a shareholding of more than 0.417%. Invercap S.A. has no joint management agreement. A shareholders agreement exists between CAP S.A. and MC Inversiones Ltda., signed on February 10, 2010 and duly formalized. Our Company Compañía Minera del Pacífico S.A. was formed in 1981 as a result of an organic restructuring of Compañía de Acero del Pacífico S.A. (today CAP S.A.) whereby the latter became an investment company whose objectives are to carry out its production activities and services through subsidiary companies with operative independence and management responsibility. Compañía Minera del Pacífico S.A., CMP, is the owner and successor of the exploitation of the mining deposits belonging to CAP S.A. These deposits are El Algarrobo, bought by CAP S.A. in 1959 from the Dutch company Mijnen N.V.; El Romeral, acquired in 1971 from Bethlehem Iron Mines Co., and other ferrous mining claims in Chile s Antofagasta, Atacama and Coquimbo regions. Compañía Minera del Pacífico S.A. was constituted as an independent corporation by public deed dated December 15, 1981 signed before the Santiago notary Félix Jara Cadot, in replacement of Eduardo González Abbott, which contains its bylaws. The corresponding abstract was registered on December 16, 1981 in folio 294 No.145 of the La Serena Trade Register and published in the Official Gazette on December 21, Corporate Objectives The principal objectives of CMP are: To evaluate, develop and exploit mining deposits; process and commercialize its products; develop complementary, derivative or secondary industries or raw material, inputs or services suppliers, or those related directly or indirectly to the above objectives; provide services in geological and mining research, engineering, mechanical and industrial maintenance, construction and earth movement; create and establish companies in order to carry out any of these objectives. 14

17 Annual Operating Summary 2011 COMPAÑÍA MINERA DEL PACÍFICO S.A. 1.4 Subsidiaries and Associates Pacific Ores and Trading N.V. Foreign company established in Willemstad, Curaçao, Dutch Antilles. Its principal objective is to act as the sales agent of its owner. Its paid capital is US$ 11,173, fully owned by Compañía Minera del Pacífico S.A.. This subsidiary is the holder of all the shares of the Dutch company Pacific Ores and Trading B.V. As of December 31, 2011, the members of its board are Sergio Verdugo Aguirre (chairman, mining and steel operations manager, CAP S.A.), Stuardo Erazo Robles (manager, finance and administration, Compañía Minera del Pacífico S.A.) and Erick Weber Paulus (president, Compañía Minera del Pacífico S.A). Its general manager is Arturo Wenzel Álvarez (manager, planning and strategic resources, CAP S.A.). Sociedad de Ingeniería y Movimientos de Tierra del Pacífico Ltda. (IMOPAC Ltda.) Constituted by public deed dated February 3, 1988, before the La Serena notary Carlos Medina Fernández and registered (folio 23 No.17) in the La Serena Trade Register for that year, whose abstract was published in the Official Gazette No of February 10, On March 15, 1992, this company was merged with Empresa de Ingeniería y Movimientos de Tierra Marte Ltda. (EMAR Ltda.), retaining the name of IMOPAC Ltda. The company is owned by Compañía Minera del Pacífico S.A., with 99.88% and Manganesos Atacama S.A., with 0.12%. Its principal objectives are to exploit own and third-party mine deposits, carry out all kinds of civil engineering works, earth movement, study of engineering, geological and mining projects, the provision of advice and consultancy in these matters and any other related activity, in Chile or abroad. Its paid capital as of December 31, 2011 is US$ 1,733, The management council of this company consists of Stuardo Erazo Robles (chairman, and manager, finance and administration, Compañía Minera del Pacífico S.A.), Daniel Paredes Antiquera (Huasco Valley operations manager, Compañía Minera del Pacífico S.A.) and René Corbeaux Cruz (general manager, MASA). The interim general manager is René Corbeaux Cruz. 15

18 GENERAL BACKGROUND Manganesos Atacama S.A. (MASA) Constituted by public deed dated March 20, 1941 before the Santiago notary Luis Cousiño Talavera. It was declared legally installed by Ministry of Finance decree dated June 2, The original registration of the company was folio 807 No. 703 in the Santiago Trade Register of The extraordinary shareholders meeting of June 15, 1981 approved a new text of the bylaws, resulting in a closely-held corporation. In accordance with Art. 11 of Law 18,196, the company, despite being a closely-held corporation, became subject to the regulatory authority of the Superintendency of Securities and Insurance (SVS) in the same way as open corporations, being registered with No.0215 in the SVS. This registration was cancelled by resolution of an extraordinary shareholders meeting held on August 18, On March 27, 1989 the ordinary shareholders meeting changed the life of the company to indefinite. On January 27, 2006, the board agreed to buy from CAP S.A. 1,185,169 shares of Manganesos Atacama S.A. at the book value as of December 31, Its principal objectives are to participate in the mining and ferroalloys industry, preferably in manganese, to exploit mine deposits of all kinds, explore and acquire them, register claims and mining rights, import and export mining products and commercialize them, acquire and install all kinds of industry, provide all kinds of services, participate in or constitute companies and in general carry out all acts and contracts necessary for achieving these objectives. The company is dedicated to the exploitation of manganese deposits located in the Coquimbo Region. It also owns Estancia Corral Quemado near to the mine of same name, at which it carries out agricultural and goat-breeding experiments. The board on July 26, 2001 agreed to comply immediately with the prohibition of functioning of the electric foundry at Guayacán, as resolved by the Supreme Court in sentence given on July 10, Since August 1, 2001, the company only produces and sells manganese ore. In view of lack of demand for MASA s products and as the accumulated stocks were sufficient to cover commercial commitments for 2 years, MASA s production activities were suspended indefinitely on May 25, Its paid capital as of December 31, 2011 amounts to US$ 7,512,158.59, held by Compañía Minera del Pacífico S.A., with %, and other shareholders with %. The directors of the company are Erick Weber Paulus (chairman, and president of Compañía Minera del Pacífico S.A.), Archivaldo Ambler Hinojosa (head of exploration and new businesses, Compañía Minera del Pacífico S.A.) and Daniel González Correa (operations manager, Compañía Siderúrgica Huachipato S.A.). The general manager is René Corbeaux Cruz. 16

19 Annual Operating Summary 2011 COMPAÑÍA MINERA DEL PACÍFICO S.A. Compañía Distribuidora de Petróleos del Pacífico Ltda. (PETROPAC Ltda.) Constituted by public deed dated August 24, 1989, before the La Serena notary Carlos Medina Fernández. Its principal objective is commercial activities in the area of oil and fuels, especially trading, import, export, distribution, supply and commercialization of all kinds of oils, fuels and their derivatives, the representation of Chilean or foreign companies and other related activities. Its paid capital as of December 31, 2011 amounts to US$12,569.72, owned by Compañía Minera del Pacífico S.A. with 99% and IMOPAC Ltda. with 1%. The company s management council comprises Germán Gajardo Díaz (executive president and commercial manager of Compañía Minera del Pacífico S.A.), Stuardo Erazo Robles (manager, finance and administration, Compañía Minera del Pacífico S.A.) and Daniel Paredes Antiquera (Huasco Valley operations manager, Compañía Minera del Pacífico S.A.). The general manager is Jaime Rosales Fredes. Compañía Minera La Jaula (CMLJ) On November 30, 2011, the share assignment and absorption of Sociedad Contractual Minera Compañía Minera La Jaula by Compañía Minera del Pacífico S.A. was completed. Abastecimientos CAP S.A. (ABCAP S.A.) Constituted by public deed dated June 20, 2001 before the Santiago notary Félix Jara Cadot. Its principal objective is to provide procurement and other services to companies of the CAP S.A. group, also being able to attend other parties and carry on business for its own account. The company s paid capital is US$ 3,500,000 held by Compañía Minera del Pacífico S.A. with 25%, Compañía Siderúrgica Huachipato S.A. with 25% and CAP S.A. with 50%. The directors are Raúl Gamonal A., chairman (Chief Financial Officer, CAP S.A.), René Camposano L. (treasurer of CAP S.A.) and Carlos Sepúlveda V. (head of corporate finance, CAP S.A.). The general manager is Mauricio Araneda Gálvez (accounting section, INVERCAP S.A.). Sociedad TECNOCAP S.A. Constituted by public deed dated September 27, 2005, before the Santiago notary Félix Jara Cadot. Its principal objective is to invest, develop, manufacture and sell materials or elements of a technological nature necessary or related to steel, metallurgical or mining activities, engineering projects and works and the provision of all kinds of advice and services related to this object and the investment in all kinds of companies or their constitution, whatever their nature or origin, in associations of any kind, form or modality, related to these ends and manage these investments. The company s paid capital as of December 31, 2011 is Ch$20,000,000, held by Compañía Minera del Pacífico S.A. with 20%, Compañía Siderúrgica Huachipato S.A. with 20% and CAP S.A. with 60%. The board comprises Raúl Gamonal A., chairman (Chief Financial Officer, CAP S.A.), René Camposano L. (treasurer of CAP S.A.) and Carlos Sepúlveda V. (head of corporate finance, CAP S.A.). The general manager is Mauricio Araneda Gálvez (accounting section, INVERCAP S.A.). 17

20 GENERAL BACKGROUND Minera Hierro Atacama S.A. (MHA) Constituted by public deed on February 9, 2007 before the La Serena notary Carlos Medina Fernández. Its principal objective is the processing, commercialization and sale of minerals, exploit own or other mine deposits of any substances concessionable by law, explore, recognize, formulate claims, show, measure, constitute claims and mining rights over all kinds of mineral substances and in general acquire mine deposits in any way, dispose of, give or receive them under leases or any other form, acquire, dispose of, import or export minerals, alone or jointly with others, acquire, build, exploit, take or give under leases or other title production plants, foundries and related ports and installations, commercialize and sell minerals in any state, whether or not of its production and whether or not direct or indirectly, acquire, install and exploit complementary, derivative or secondary industries, suppliers of raw materials, inputs or services, whether or not direct or indirectly related to the above, provide services or geological and mining research, engineering, mechanical and industrial maintenance, construction and earth-movement services, form, constitute, participate, modify and administer companies of any kind for carrying out the above objectives and coordinating them. The company s subscribed capital is US$1,000,000, belonging to Compañía Minera del Pacífico S.A., with 99% and Imopac Ltda. with 1%. Its paid capital amounts to US$ 110,000. Its directors are Sergio Verdugo Aguirre (chairman, mining and steel operations manager, CAP S.A), Erick Weber Paulus (president of Compañía Minera del Pacífico S.A.), Arturo Wenzel Alvarez (manager, planning and strategic resources, CAP S.A.), Stuardo Erazo Robles (manager, finance and administration, Compañía Minera del Pacífico S.A.) and Raúl Gamonal Alcaíno (Chief Financial Officer, of CAP S.A.). The interim general manager is Fernando Olea Sorrel. 18

21 Annual Operating Summary 2011 COMPAÑÍA MINERA DEL PACÍFICO S.A. Compañía Minera Hierro Antofagasta S.A. Constituted by public deed dated March 14, 2008 before the Santiago notary Patricio Zaldívar Mackenna. The bylaws were amended by public deed dated July 9, 2008 before the Santiago notary Patricio Zaldívar Mackenna, by which corporate rights were assigned, and the name, management and capital clauses were amended. Later, by public deed dated November 30, 2009 before the Santiago notary Raúl Iván Perry Pefaur, the company was transformed into a corporation and its capital increased. On September 24, 2009, Inversiones SBX Limitada and Compañía Minera del Pacífico S.A. signed a letter of intent to regulate the incorporation of Compañía Minera del Pacífico S.A. as a shareholder. As a result, Compañía Minera del Pacífico S.A. signed a subscription and payment agreement over shares in Minera Hierro Antofagasta S.A. with its shareholder Inversiones SBX Limitada, by which Compañía Minera del Pacífico S.A. subscribed for the total of 600,000 shares issued by the company as the capital increase. Its principal objective is directly the study, exploration, exploitation, development, preparation, extraction, benefit, processing, production and commercialization of minerals obtained from the exploitation of the mining concessions in Chile owned by it and/ or with respect to which it has signed a mining option contract. It may, within this contract, constitute and acquire additional mining properties in order to protect the properties and the installations, as well as all other operations related to this objective. The company s paid capital as of December 31, 2011 is Ch$8,338,686,271, held by Compañía Minera del Pacífico S.A., with 17.54% and Inversiones SBX Limitada, with 82.46%. Its directors are Albrecht Schneider Stadtfeld (chairman), John Patrick McNab Martin (director and legal services manager, Compañía Minera del Pacífico S.A.), Archivaldo Ambler Hinojosa (head of exploration and new businesses, Compañía Minera del Pacífico S.A.), Andrea Ingeborg Brandes Weschke and Antonio Barros Tocornal, general manager, who also acts as the secretary. Composition of the consolidated group of the Company and its subsidiaries as of December 31, 2011 PACIFIC ORES & TRADING N.V % IMOPAC Ltda % MANGANESOS ATACAMA S.A % PETROPAC Ltda % MINERA HIERRO ATACAMA S.A % ABASTECIMIENTOS CAP S.A % TECNOCAP S.A % MINERA HIERRO ANTOFAGASTA S.A % 19

22 PROPERTIES AND REAL ESTATE/ 2.1 Properties and Real Estate

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24 PROPERTIES AND REAL ESTATE 2.1 Properties and Real Estate Compañía Minera del Pacífico S.A. owns mining claims and maritime concessions, industrial and port installations, fixed and mobile equipment, land and buildings. It also has water rights, concessions and easements required for its business activities. The principal properties can be grouped as follows: 1. Mining Properties, Geological Resources and Mining Reserves Los Colorados Located in the Region of Atacama. Its resources amount to million MT of 45.0% Fe and mineral reserves of million MT with an average ore grade of 43.8% Fe. El Romeral Located in the Region of Coquimbo, this produces lumps, fines and pellet feed for both the domestic market and for export. Its geological resources amount to million MT with 28.4% Fe, which include million MT with 28.7% in the ground and 21.3 million MT with 21.9% Fe stockpiled. Mining reserves are estimated at 84.2 million MT, with 32.5% Fe in minerals in situ. These reserves also include 21.3 million MT with 21.9% Fe stockpiled. Cerro Negro Norte Located in the Region of Atacama, 37 kilometers to the north of Copiapó. It has total resources of million MT, with an average ore body of 34.6% Fe. Its reserves amount to million MT, with 39.0% Fe. Their exploitation is planned to start in Tofo Located between the extreme north of the Region of Coquimbo and the extreme south of the Region of Atacama. This is a project under development for the production of pellet feed, and contains resources of 1,527 million MT, with an average grade of 27.4% Fe. The reserves are currently estimated as million MT, with an average grade of 28.7% Fe. 22

25 Annual Operating Summary 2011 COMPAÑÍA MINERA DEL PACÍFICO S.A. El Laco This is located in the Region of Antofagasta, with estimated resources to date of million tons of magnetic and nonmagnetic minerals, with an average grade of 49.2% Fe. Its mine reserves are estimated at million tons, with 56.7% Fe. El Algarrobo Located in the Region of Atacama. It has total geological resources of 89.5 million MT, with 49.0% Fe, of which 82.0 million tons with 49.3% Fe is mineral in situ and 7.5 million tons with 45.3% stockpiled. The reserves are estimated as 46.9 million MT with 48.3% Fe, corresponding to 39.4 million MT with 45,3% Fe in situ and 7.5 million MT with 45.3% Fe stockpiled. Los Colorados District It is called this because of its proximity to the Los Colorados mine in the Region of Atacama. It has estimated resources of 26.0 million tons with 43.3% Fe. It comprises the Chañar Quemado, Sositas and Coquimbana deposits. Cristales Located in the extreme south of the Region of Atacama. Its geological resources are estimated at million tons, with 32.8% Fe. Its mine reserves are estimated at 1.2 million tons with 58.8% Fe Algarrobo District It is called this because of its relative proximity to the El Algarrobo Mine. It comprises various ore bodies with total estimated resources of million tons with 32.8% Fe. It includes million tons with 29.9% Fe in Alcaparra D, million tons with 46.0% in Alcaparra A, million tons with 28.0% Fe in Domeyko II, 42.0 million tons with 27.5% Fe in Charaña and 12.0 million tons with 34.5% Fe in Ojos de Agua. The mine reserves of the Alcaparra D deposit are estimated at million tons with 35.5% Fe. Note: Tonnages and grades of Fe are estimated by CAP Minería s specialized professionals. The information presented, to comply with Chilean law , is currently under certification process by independent professionals in mining resources and reserves. The referred process will take approximately three years to be completed. 23

26 PROPERTIES AND REAL ESTATE 2. Others Hierro Atacama Rights are held for processing the tailings of Compañía Contractual Minera Candelaria (CCMC). 3. Industrial Installations Elqui Valley (Region of Coquimbo) El Romeral crushing and concentration plant, by wet magnetic means, capable of producing 4 million metric tons of concentrates a year. El Romeral grinding and concentration plant, by wet magnetic means, capable of producing 2 million metric tons of pellet feed a year. Huasco Valley (Region of Atacama) El Algarrobito, crushing and concentration plant by dry magnetic means, capable of processing 1.2 million metric tons of mineral a year. Los Colorados, crushing and concentration plant by dry magnetic means, capable of processing 11.2 million metric tons of mineral a year. Huasco, grinding and concentration plant by wet magnetic means, capable of producing 6.4 million metric tons of mineral a year. Pellets Plant, currently with a capacity to produce 5.3 million metric tons of pellets and other iron-ore products a year. Copiapó Valley (Region of Atacama) Grinding and concentration plant (magnetite plant) by wet magnetic and floatation means, with a capacity to process 25 million metric tons a year from low-grade tailings. Punta Totoralillo port filtering plant to filter and later stockpile pellet feed. The filter plant is associated with the corresponding pellet feed stockpile installations with a capacity of 3.0 million tons a year. 24

27 Annual Operating Summary 2011 COMPAÑÍA MINERA DEL PACÍFICO S.A. 5. Railways and Other Transport Systems Railways 86 km. line between El Algarrobo Mines and the Huasco pellets plant. 14 km. railway line between Los Colorados Mines and km. 765 of the north line network of FERRONOR S.A. (Llano La Jaula sector). 38 km. line between El Romeral Mines and the mechanized port of Guayacán. Locomotives, points, equipment and railway infrastructure suitable for transporting part of the company s products. El Laco (Region of Antofagasta) El Laco crushing and sifting plant with a capacity to process 50 thousand metric tons per month. Minerals Treatment Plant Mobile crushing, classification and magnetic separation plant, mounted on special semi-trailers with a capacity for processing minerals at 350 to 400 tph. 4. Port Installations Guayacán Mechanized Port in Coquimbo The installations can attend ships of up to 315 meters long, meters draught and 50 meters beam. Guacolda II Merchanized Port in Huasco The installation can attend ships of up to 315 meters long, 22 meters draught and 55 meters beam. Punta Totoralillo Mechanized Port close to Caldera The installations can attend ships of up to 330 meters long, 18.6 meters draught and 55 meters beam. Concentrates Pipeline 10 diameter and 120 km. long transportation system linking the magnetite plant at Tierra Amarilla with the port installations at Punta Totoralillo, in the town of Caldera. 6. Equipment Revolving and impact perforators, spades and cranes, excavators, loaders, bulldozers, heavy trucks, apparatus for the transport, stockpiling and recovery of minerals, railway locomotives and hopper wagons, light vehicles for moving cargo and people, machinery, tools, generator groups, compressors, etc. Insurance of the Principal Assets The company has all-risk insurance cover for machinery damage, combined loss of physical assets and damage through stoppages. The risks covered are located at Los Colorados mines, the pellets plant, Las Losas port and Guacolda II port in Huasco, El Algarrobo mines in Vallenar, El Romeral mines in La Serena, Guayacán port in Coquimbo, Hierro Atacama iron-ore works in Tierra Amarilla; Punta Totoralillo port in Caldera, railway line and equipment between El Romeral mines and Guayacán port; railway line between Los Colorados Mine and Llano La Jaula in Vallenar; railway line between Maitencillo and Guacolda II port in Huasco and railway line between El Algarrobo mines and Guacolda port. 25

28 ACTIVITIES AND BUSINESS/ 3.1 Commercialization 3.2 Production 3.3 Other Operating Activities 3.4 Financial Activities 3.5 Human Resources

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30 ACTIVITIES AND BUSINESS 3.1 Commercialization The Industry Compañía Minera del Pacífico S.A. is the principal producer and exporter of iron ore and pellets in Chile and participates as such in the international iron and steel market. Global production of iron ore amounted to over 2,100 million tons in 2011, while global sea-borne trade in iron ore passed barrier of 1,000 million tons. The Australian suppliers BHP Billiton and Rio Tinto, and Vale, Brazil, account for about 2/3rds of this figure, while the participation of Compañía Minera del Pacífico S.A. was around 1%. According to preliminary figures published by the World Steel Association (WSA), global production of crude steel was 1,490 million tons in 2011, reflecting a 4.3% increase over the previous year. China once again led this expansion in the world steel-making business, setting a new record by producing some 683 million tons of crude steel, i.e. 46% of global production. In the same period, China imported 686 million tons of iron ore, of which Compañía Minera del Pacífico S.A. accounted for approximately 1%. The year 2011 was therefore strongly influenced by the dynamism in demand for iron ore from the Asia region, in particular China. Global iron ore production in 2011 exceeded 2,100 million tons, while global seaborne trade in iron ore passed the barrier of 1,000 million tons, with Compañía Minera del Pacífico S.A. accounting for slightly more than 1%. In this scenario, the Company s consolidated sales amounted to a record 11 million 469 thousand metric tons, a 12.3% increase over Of this, total exports were 9 million 591 thousand metric tons, of which the Asian market represented 98%, with China concentrating 76% and being the principal market for our shipments. This greater market dynamism was also reflected in the rises seen in the price of the mineral which increased by 13.7% to an average of US$ per metric ton. Despite this net rise, the international iron ore market was characterized by price volatility and different mechanisms agreed for the quarterly price settings. Toward the end of the year, the Chinese market decoupled from the Japanese market by changing the basis on which long-term prices are set, moving from a scheme based on the previous quarter with a one-month lag to one based on the current quarter. The Company followed this market trend. The Company s commercial strategy was focused on achieving a suitable balance between its longterm customers and business based on the spot market, while seeking to broaden the customer base in China. The spot market represented 38% of the Company s total sales. The above market situation enabled the Company to obtain an increase of 129% in ordinary revenue over the previous year. 28

31 Annual Operating Summary 2011 COMPAÑÍA MINERA DEL PACÍFICO S.A. The following table compares the sales of 2011 with 2010: VARIATION thmt ThMT ThMt % TOTAL 11,469 10,213 1, % HUASCO VALLEY 6,467 6, % External Market 5,301 4, % Domestic Market 1,166 1,972 (806) (40.9)% ELQUI VALLEY 3,395 1,978 1, % Risk Factors The global economic uncertainty, deceleration of economic growth in China, heavy concentration of the Company s sales in Asia, particularly in China, market volatility, the change in the negotiation mechanism and price settings from an annual frequency to a quarterly one, and the appearance of new magnetic iron ore producers in Australia, are the main risks facing the Company in the near future. External Market 2,683 1,670 1, % Domestic Market % HIERRO ATACAMA 1,607 1,938 (331) (17.1)% External Market 1,607 1,938 (331) (17.1)% Domestic Market Commercial Relations with Subsidiaries or Associates Compañía Minera del Pacífico S.A. is the only supplier of iron ore and pellets to the integrated Chilean steel-producer Compañía Siderúrgica Huachipato S.A. (CSH). During 2010, 711 thousand tons of iron ore (lumps) and 1,166 thousand tons of pellets were delivered to it under long-term contracts. The tonnages delivered were around the historic average. The Company bought 28 thousand tons of magnetic fines from Compañía Siderúrgica Huachipato S.A. for later sale to China. Sales Consolidated sales of iron ore during 2011 amounted to 11 million 469 thousand metric tons which represents a 12.3% increase over the total shipped the previous year. Export sales were 9 million 591 thousand metric tons, while 1 million 878 thousand metric tons were sold on the domestic market. This led the external market to represent 83.6% of total sales and the domestic market the remaining 16.4%. 29

32 ACTIVITIES AND BUSINESS The following were the 5 different markets for the products of Compañía Minera del Pacífico S.A. during 2011: COUNTRIES CHINA CUSTOMERS Jinan Iron & Steel Hangzhou Iron & Steel Laiwu Iron & Steel Continental Minerals Company Ltd. Xinyu Iron and Steel Puyang Iron and Steel Kumming Iron & Steel Co., Ltd. RGL Group Guangzhou Teamgo Group Bao Steel Trading Co., Ltd. Bao Harvest Holding, Ltd. Central Mineral Holding General Nice Resources Ltd. Poly Resources (Asia) Ltd. Noble Resources Ltd. YYF International Ltd. Deutsche Bank AG. JAPAN JFE Steel Corporation Kobe Steel, Ltd. Nisshin Steel Co., Ltd. INDONESIA PT Krakatau Steel (Persero) UNITED STATES Reiss Viking Universal Minerals CHile Compañía Siderúrgica Huachipato S.A. (CSH) 30

33 Annual Operating Summary 2011 COMPAÑÍA MINERA DEL PACÍFICO S.A. The following compares market shares by end destination for the years 2011, 2010 and 2009: China 63.5% 61.6% 62.0% JapAn 12.9% 14.8% 9.3% Korea - 1.5% 1.5% Indonesia 5.5% 7.6% 7.5% MalaYsia - 2.8% 4.3% UNITED STATES 1.7% 1.8% 2.0% Chile 16.4% 9.6% 13.4% PerU - 0.3% - SALES BY MARKET ThMT 14,000 12,000 10,000 8,000 6,000 7,280 10,213 11,469 Regarding the product range, pellet feed is the principal sales product. This is followed in volume by self-fluxing pellets, lumps from the El Romeral mines, and fines, these representing 83.7% of shipments. The remainder consists of HyL direct-reduction pellets, sinter feed, lumps from the Algarrobo district, pellet chips and magnetite respectively. 4,000 2,000 1,480 1, China Japan Korea Peru Indonesia Malaysia United Chile TOTAL States SALES 2011 SALES

34 ACTIVITIES AND BUSINESS PERCENTAGE SHARES OF DELIVERIES BY YEAR SELF-FLUXING PELLET 20.9% 25.0% 17.9% DR HyL PELLET 5.5% 10.4% 11.8% Pellet Chips 2.1% 2.6% 4.2% FinEs 5.7% 0.6% 2.8% Pellet Feed 49.6% 49.9% 53.3% Huasco VALLEY 20.2% 16.7% 24.1% Elqui VALLEY 15.4% 14.2% 14.1% Hierro Atacama 14.0% 19.0% 15.1% MagneTITE 1.0% 1.6% 2.0% Sinter Feed 3.9% 1.9% 1.4% LUMPS 11.3% 8.0% 6.6% Algarrobo DISTRICT 3.8% 5.0% 4.8% Romeral 7.5% 3.0% 1.8% total SALES per YEAR, ThMT Shipments of pellet feed in 2011 amounted to 5 million 688 thousand tons, which represents an increase of 11.6% compared to the 5 million 98 thousand tons shipped in Shipments of pellets amounted to 3 million 30 thousand tons, a decrease of 16.3% compared to the 3 million 618 thousand tons shipped in 2010, but shipments of lumps were 1 million 301 thousand tons, representing an increase of 58.7% over ,000 10,000 1,536 1,938 1,607 8,000 6, , , , , , , ,600 1,924 1,978 3,395 4,000 2,000 5,222 5,346 5,216 5,251 5,295 6,057 5,475 6,686 6,297 6,467 TOTAL SALES PER YEAR ,612 7,437 7,312 7,579 7,674 8,377 7,251 10,146 10,213 11,469 n TOTAL HUASCO VALLEY n TOTAL ELQUI VALLEY n HIERRO ATACAMA n PURCHASES 32

35 Annual Operating Summary 2011 COMPAÑÍA MINERA DEL PACÍFICO S.A. 3.2 ProducTION The total production of Compañía Minera del Pacífico S.A. in 2011 was 12 million 26 thousand metric tons, of which 6 million 708 thousand metric tons corresponded to Huasco valley production, 3 million 602 thousand metric tons to Elqui valley and 1 million 685 thousand metric tons to Copiapó valley. Purchases amounted to 31 thousand metric tons. TOTAL PRODUCTION IN ThMT PER YEAR TOTAL PRODUCTION PER YEAR 12, ,708 3,602 1, , ,404 2,161 1, , ,300 1,792 1, , ,385 1, , ,894 1, , ,384 2, , ,338 1, , ,265 2, , ,370 1, , ,418 2, ,000 4,000 6,000 8,000 10,000 12,000 14,000 n HUASCO VALLEY TOTAL n ELQUI VALLEY TOTAL n HIERRO ATACAMA n PURCHASES The total production and purchases in 2011 were 14.1% more than in 2010, i.e. 1 million 482 thousand metric tons of greater production. This is the result of increased production of 304 thousand metric tons by Huasco valley and 1 million 441 thousand by Elqui valley, offset by a reduced production of 245 thousand metric by Copiapó valley and reduced purchases of 18 thousand tons. The following table compares production and purchases in 2011 with those of 2010: PRODUCTION VARIATION (thousands of metric tons) ThMT ThMT ThMT % TOTAL PRODUCTION & PURCHASES 12,026 10,544 1, % TOTAL PRODUCTION 11,995 10,495 1, % HUASCO Valley 6,708 6, % Pellets Plant 5,547 5,666 (119) (2.1)% Self-Fluxing Pellet 2,335 2,622 (287) (10.9)% Direct Reduction HyL Pellets 649 1,046 (397) (38.0)% Pellet Feed 2,304 1, % Pellet Chips (16) (5.8)% Algarrobo District % Lumps (Algarrobo) % Lumps (Cristales) % Los Colorados % Sinter Feed % ELQUI VALLEY 3,602 2,161 1, % Lumps % Fines ,138.8% Pellet Feed 1,852 1, % HIERRO ATACAMA 1,685 1,930 (245) (12.7)% Final concentrates in Punta Totoralillo port 1,685 1,930 (245) (12.7)% TOTAL PURCHASES (18) (36.7)% 33

36 ACTIVITIES AND BUSINESS Copiapó Valley Magnetite Plant and Punta Totoralillo Port The Magnetite Plant in 2011 processed 28 million 650 thousand metric tons of tailings from Compañía Contractual Minera Candelaria with an average Fe mag fed grade of 8.4%. It also processed 63,641 tons of iron fines and since November has processed rejected material from Los Colorados, accumulating 44,846 metric tons of the latter. copiapó VALLEY PRODUCTION IN ThMT FINAL CONCENTRATES AT TOTORALILLO PORT 1,685 Year ,930 1,500 1,600 1,700 1,800 1,900 2,000 The operating time of the Magnetite Plant was 7,795 hours, the processing rate mts/h and the production rate of the ceramic filters for the year was 128 MTbh/hrs. The production of final concentrates at Punta Totoralillo port was 1 million 685 thousand metric tons, of which 1 million 276 thousand metric tons related to production from fresh tailings, 343 thousand tons from re-pulping and 66 thousand tons from iron fines. The magnetite plant had an additional production of primary concentrates of 275 thousand metric tons. During the year, technical modifications and improvements were made at the magnetite plant which, together with the maintenance program, permitted a physical availability for the year to be 97%, with utilization of 91%. The physical availability of the port filtering plant was 97%. Two investment projects were carried out during the year; the first related to the construction and installation of an aqueduct for supplying water to the process, corresponding to treated waters bought from Aguas Chañar. The purpose was to ensure the availability of water for the operation, as the water-well reserves fell dramatically during the year; the second relates to the transfer of tailings feed ducts and return of tailings in the magnetite plant. This project had to be carried out because Compañía Contractual Minera Candelaria had increased the capacity of its dam which implied the expansion of the south wall of the dam and therefore the movement of the feed and return lines along the wall. 13 ships were loaded during the year, totaling 1 million 606 thousand metric tons of final concentrates through Punta Totoralillo port. Finally, Minera Hierro Atacama in 2011 obtained the certification of its integrated management system under the standards ISO 9001, ISO and OHSAS Punta Totoralillo port received this certification in August and the magnetite plant in December. 34