Growth Opportunities and Challenges for the Chilean Copper Mining Industry

Transcription

1 Growth Opportunities and Challenges for the Chilean Copper Mining Industry COCHILCO Seminar Mining in the Bicentennial: The Road Ahead Bicentennial Mining Week, Antofagasta 29th September 2010 David Coombs

2 Wood Mackenzie Disclaimer This presentation has been prepared by Brook Hunt, a Wood Mackenzie Limited company. The information upon which this presentation is based comes from our own experience, knowledge and databases. The opinions expressed in this presentation are those of Brook Hunt. They have been arrived at following careful consideration and enquiry but we do not guarantee their fairness, completeness or accuracy. The opinions, as of this date, are subject to change. We do not accept any liability for your reliance upon them. Wood Mackenzie 2

3 Agenda Can Chile Maintain its Market Share of Global Copper Supply? 1 Chilean Copper Mining Today - Global Context 2 Challenges Facing the Mining Sector 3 Opportunities for Growth 4 Conclusion Wood Mackenzie 3

4 Agenda 1 Chilean Copper Mining Today - Global Context 2 Challenges Facing the Mining Sector 3 Opportunities for Growth 4 Conclusion Positive Outlook Wood Mackenzie 4

5 Chile Will Produce 32% of Global Mined Copper in 2010 Can it Maintain its Market Share? % of Glob bal 40% 35% 30% Nitrate t Industry American Investment Tension with Investors - Profit Re- Distribution Formation of CODELCO, Political Reform, Foreign Investment r - Chilean Min ned Coppe 25% 20% 15% 10% 5% 0% Source Brook Hunt, M etallgesellschaft, World Non Ferrous M etals Production and Prices , Schmitz Source: Brook Hunt, Metallgesllschaft, World Non Ferrous Metals Production and Prices , Schmitz Wood Mackenzie 5

6 Ore Reserves & Resources >10Mt contained Cu Operating Mines Chilean assets 25% In-Situ Cu in Reserves, 75% in Resources Rese eource Grade Cu% Equivale nt Tenke-Fungurume SxEw Kamoto_KOV Cuajone Norilsk KGHM Polish Copper Cerro Verde Olympic Dam Antamina Grasberg Los Bronces Los Pelambres Collahuasi Escondida Cananea SCALE (In-Situ Cu) 50 Mt 20 Mt 5 Mt Andina El Teniente Codelco Norte 0 5,000 10,000 15,000 20,000 Resource Mt Global Chilean Scale Source: Company Disclosure Wood Mackenzie 6

7 Ore Reserves and Resources Operating Mines & Projects New Scale t Resou urce Grade Cu u% Equivelant El Morro 0.5 Caserones Antucoya 0.0 Los Sulfatos (Inf) San Enrique Monolito (Inf) Esperanza Sierra Gorda - Cerro Casale Antofagasta Sierra Gorda - Quadra SCALE (In-Situ Cu) 50 Mt 20 Mt 5 Mt 0 5,000 10,000 Resource Mt Other Greenfield Projects in Chile Relincho Vizcachitas Barreal Seco Pascua Elenita Santo Domingo Sur/Iris Inca de Oro El Espino Filipina Grande Andina Codelco Norte El Teniente Source: Company Disclosure Global Base Chile Projects Chile Base Global Projects Wood Mackenzie 7

8 Chile s Mines are Competitive Wood Mackenzie 8

9 Limited capacity in the highest cost decile the Vulnerable zone Wood Mackenzie 9

10 Agenda 1 Chilean Copper Mining Today - Global Context 2 Challenges Facing the Mining Sector 3 Opportunities for Growth 4 Conclusion Positive Outlook Wood Mackenzie 10

11 Chile Provides a Competitive Policy environment in which to Invest The Fraser Institute Survey of Mining Companies, 2009/10 Policy Potential Index 13 Measures incl. Chile USA (Alaska) Mexico Canada (BC) Peru China Zambia PNG Indonesia Mongolia Congo D.R. Philippines Policy Potential Index Regulation and Enforcement Environmental Regulation Fiscal Regime and Stability Land Title Issues Infrastructure Socioeconomic Agreement Political Stability Labour Regulation and Availability Mineral Potential Security Source: The Fraser Institute - used with permission Wood Mackenzie 11

12 Key Challenges - Water Wood Mackenzie 12

13 Key Challenges - Power Courtesy Gas Atacama Wood Mackenzie 13

14 Chilean Power Costs in 2008 Uncompetitive - Gas Supply Related Future Price Risk considered greater then Supply Risk 2008 Chile hit by gas shortage PNG Canada USA Zambia Chile Philippines Poland Mexico Peru Global Australia Indonesia Power Cost (c/kwhr) Global average costs in the mining sector was 7.9c/kWhr in 2008 Power averaged 14.1c/lb of direct mine-site costs globally (12%), 4.5c/lb of direct smelter costs (21%) and energy, predominantly power, 1.9c/lb at refineries (34%) Source: Brook Hunt Wood Mackenzie 14

15 Future Regional Gas Supply Potentially Leads to Lower Power Prices 16, mmcfd 14,000 12,000 10, ,000 6,000 4,000 2, Mcmd Bolivia Brazil Non-Pre-Salt Brazil Pre-Salt Argentina Conventional Argentina Unconventional Other LNG Regas Capacity Demand EMS 0 Source: Brook Hunt a Wood Mackenzie Company Wood Mackenzie 15

16 Potential Regional Excess of Gas But will it Reach Chile? Courtesy Gas Atacama Wood Mackenzie 16

17 Key Challenges - Royalties and Taxation % % Roy yalties and Tax xes $M % 10% 5% Mining as % GDP CODELCO Main 10 Mining Companies Mining % of GDP 0% Source: Cochilco Wood Mackenzie 17

18 Agenda 1 Chilean Copper Mining Today - Global Context 2 Challenges Facing the Mining Sector 3 Opportunities for Growth 4 Conclusion Positive Outlook Wood Mackenzie 18

19 The copper price is cyclical and over the period from the 1970s to mid 2000s was in structural decline, this has now reversed $ Cycle average price guidance offered by incentive price analysis, cost relationships are weak This is a schematic not a forecast Trough prices can be gauged by reference to the cost curve Wood Mackenzie 19

20 Escalations in Nominal Capital Costs in US$ (Compound) Q Q Costs have increased by between 20 and 40% annually 12% 10% 8% 2005 Qtr Ave 7.4% Annualised 33% 2006 Qtr Ave 8.7% Annualised 40% 2007 Qtr Ave 9 1% 2008 Qtr Ave 9.1% Annualised 42% 2008 Qtr Ave 6.7% Annualised 30% 2009 Qtr Ave 5.0% Annualised 22% Escalation 6% 4% arterly Capex 2% Qu 0% (22) Q (23) Q (22) Q (19) Q (25) Q (28) Q (29) Q (35) Q (38) Q (41) Q (39) Q (46) Q (40) Q (41) Q (23) Q (24) Q (21) Q (19) Q (19) Q (12) Q (6) Q Source Brook Hunt, a Wood Mackenzie Company Period (Number of Data Points) Wood Mackenzie 20

21 Capital and operating cost escalation has shifted the Incentive Price curve up Required prices at 2009 input costs being double those of R (c/lb Cu Price for 12% IR Incentive Cumulative Average Production (Cu/kt/a) Source Brook Hunt, a Wood Mackenzie Company Wood Mackenzie 21

22 Long Term Demand for Additional Mine Capacity By 2015 we will require a further 2.1Mt mine capacity basis 5% disruptions By 2025 we anticipate the demand for an additional 13Mt/a capacity Recovera able Mine Coppe er - Mt /2.1 Mt / 5.8 Mt / Mt Base Case Mine Prodn (0% Disruption) Base Case Mine Prodn (5% Disruption) Base Case Mine Demand (3.6% CAGR ) So urce: B ro o k Hunt - A Wo o d M ackenzie Company Wood Mackenzie 22

23 Ore Reserves and Resources Operations & Projects New Scale Resou urce Grade Cu u% Equivelant El Morro 0.5 Caserones Antucoya 0.0 Udokan Cu eq Konkola Deep eq Aynak Resolution Copper Los Sulfatos (Inf) San Enrique Monolito (Inf) Oyu Tolgoi Reko Diq Esperanza Sierra Gorda - Cerro Casale Antofagasta Sierra Gorda - Quadra La Granja SCALE (In-Situ Cu) 50 Mt 20 Mt 5 Mt Cobre Panama (Petaquilla) 0 5,000 10,000 Resource Mt Pebble Andina Codelco Norte El Teniente Source: Company Disclosure Global Base Chile Projects Chile Base Global Projects Wood Mackenzie 23

24 Chilean & Global Mine Projects Chilean Projects Capex Cu Capital Intensity Cash Cost Global Projects Capex Cu Capital Intensity Cash Cost $Bn kt/a k$/(t/acueq) Quartile $Bn kt/a k$/(t/acueq) Quartile Codelco Norte Agua Rica MMH Antappacay Chuqui' UG Aynak Andina 230kt/d Cobre Panama El Teneinte NNM El Pachon Frieda River Caserones La Granja Cerro Casale Las Bambas Collahuasi Ph II Oyu Tolgoi El Morro Pebble Escondida V and VI Quellaveco Esperanza Reko Diq Los Bronces exp Resolution Copper Pascua Lama Rio Blanco Quebrada Blanca Tampakan Relincho Toromocho Sierra Gorda - Q-FNX Udokan Chile Total Global Sample Total Chile Average Global Sample Average Average Wt by Paid Cu 10.9 Average Wt by Paid Cu 9.6 Source: Corporate disclosure, Cochilco estimates for CODELCO- May 2010 Wood Mackenzie 24

25 Chilean Mine Production Growth 9 8 r Mine Produc ction - Mt Cu Coppe Operating In Construction Highly Probable Probable Possible Source: Brook Hunt a Wood Mackenzie Company Wood Mackenzie 25

26 Agenda 1 Chilean Copper Mining Today - Global Context 2 Challenges Facing the Mining Sector 3 Opportunities for Growth 4 Conclusion Wood Mackenzie 26

27 Key Policy and Investor Challenges Policy Challenges Maintaining Chiles Competitive Policy Environment Water Sustainability Power Availability and Costs Taxation Investor Challenges Controlling Capital and Operating Costs Decision Making with Price Uncertainty Wood Mackenzie 27

28 Potential Chilean Global Market Share of Mined Copper Production 45% Chiles as % Global Min ne Production 40% 35% 30% 25% 20% 15% 10% 5% 0% Possibles + Probable Base Case & High Probability Source: Brook Hunt a Wood Mackenzie Company Wood Mackenzie 28

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