CHILE JAPAN BUSINESSCOMMITTEE CHILEAN COPPER MINING AND CODELCO CHALLENGES NelsonPizarro C. CEO December 2 nd, 2014 Copyrights 2014 CODELCO CHILE. Todos los Derechos Reservados. Copyrights 2014 by CODELCO CHILE. All Rights Reserved.
Chile: An attractive mining district Year 2013 SHARE IN GLOBAL PRODUCTION SHARE IN GLOBAL RESERVES Copper Others 68% 32% Chile Global Ranking: 1 Others 72% 28% Chile Molybdenum Others 15% Chile Global Ranking: 3 Others 85% 79% 21% Chile Chile Chile Natural Nitrates 100% Global Ranking: 1 100% Lithium Carbonate Others 61% Chile 39% Global Ranking: 1 Others 42% Chile 58% Source: Cochilco, Codelco, USGS.
Codelco has a great future CODELCO: WORLD LEADER IN COPPER RESERVES Others 29% Leadership in copper reserves Codelco 9% Estimated mineral resources Our mineral resources let us expect more than 70 years of exploitation Mineral (million tonnes) Copper grade (%) Copper content (million tonnes) Share (%) China 4% Russia 4% Mexico 6% USA 6% Peru 10% Source: U.S. Geological Survey, January 2014. Others Chile 19% Australia 13% Chuquicamata 2,147 0.70 15.1 11.6 Radomiro Tomic 3,671 0.46 16.8 12.9 MH 936 0.95 8.9 6.8 Salvador 1,678 0.46 7.7 5.9 Andina 6,017 0.75 45.1 34.7 El Teniente 4,195 0.83 34.8 26.7 Gabriela Mistral 491 0.36 1.8 1.4 Codelco 19,136 0.68 130.2 100.0 *: Mineral resources include mineral stocks and broken material.
Although, copper prices has shown a downward trend since 2011 1.000 Stocks in Metal Exchanges ** 000 tonnes Copper Price c/lb 500 900 475 800 450 700 425 600 400 500 375 400 300 Copper Price Pi 350 325 200 300 100 Stocks in Metal Exchanges 0 ene 2011 jul 2011 ene 2012 jul 2012 ene 2013 jul 2013 ene 2014 jul 2014 275 250 *: Year 2014: copper price and stocks until November 19 th. **: LME, COMEX and SHFE.
Price prospects remain auspicious in the long term Long term copper price forecasts, c/lb, 2015 currency FORECASTS EVOLUTION: BANKS AND ANALYSTS LATEST PROJECTIONS 400 350 300 250 200 150 100 2002 2006 2009 2011 2013 CRU Structural Fiscal Budget Macquarie Wood Mackenzie (Brook Hunt) Barclays Correlation between spot and long term forecast: 0.67 Wood Mackenzie CRU Analysts average J.P. Morgan IHS Economics BoA Merrill Lynch Barclays Capital CIMB Group Morgan Stanley Commonwealth Bank Goldman Sachs Credit Suisse Macquarie UBS Citigroup Deutsche Bank RBC Capital Markets Investec Wilson HTM Numis Banks & Others average Analysts, Banks & Others average Average without extremes 355 334 345 345 339 328 320 318 317 305 304 304 299 299 285 281 279 269 269 253 301 305 305 0 100 200 300 400 Note: Structural Budget price is the average in the next ten years after the year of forecast.
Despite the trend towards more discipline in capital use and delays in projects, important investments are projected in the coming years EXPECTED INVESTMENT IN COPPER PROJECTS* WITH STARTUP DURING THE PERIOD 2014 2023 Total Latin America: US$ 165 billion Total Rest of the World: US$ 127 billion 70 60 US$ billion, 2014 currency 65 WORLD TOTAL: US$ 292 billion 50 21 49 40 30 20 10-44 29 20 27 22 14 24 16 12 12 13 11 11 8 8 14 7 6 7 7 11 11 11 6 5 6 8 8 6 6 2 1 3 27 15 12 More probable Possible Sources: Codelco and Wood Mackenzie (September 2014). *: Includes CAPEX of projects under construction, highly probable, probable and possible.
Major copper projects in Chile* with startup between 2014 and 2023 (without Codelco) Name Owner Status Startup year Production 000 tonnes Investment** US$ million Caserones Pan Pacific Copper On commissioning 2014 174 4,080 Sierra Gorda KGHM On commissioning 2014 190 4,240 Antucoya Antofagasta Under construction 2015 76 1,900 Escondida OGP1 BHP Billiton/ Under construction 2015 107 4,199 (Organic Growth Project 1) Rio Tinto REVISAR Encuentro Oxides Antofagasta On feasibility 2016 45 760 Los Pelambres Expansion Antofagasta On prefeasibility 2020 95 7,000 Lomas Bayas Sulphides Glencore On prefeasibility 2020 97 1,600 El Morro Goldcorp On prefeasibility 2021 127 3,900*** Quebrada Blanca Hypogene Teck Resources On feasibility 2021 205 5,590 Santo Domingo Sur Iris Capstone Mining On feasibility 2021 87 1,700 El Abra Mill Freeport On feasibility 2022 198 5,000 Relincho Teck Resources On feasibility 2022 174 4,500 Collahuasi Phase 3 Anglo American/ Glencore On prefeasibility 2023 294 6,500 Sources: Codelco, SNL and Wood Mackenzie (3rd quarter 2014), companies reports and press releases. *: The list includes highly probable and probable projects. Average production of copper content in the first 10 years operating at capacity. **: CAPEX according to companies reports or other sources. ***: Currently under revision, as the company withdrew its EIA's in November 7, 2014.
Codelco s target: around 2.5 million tonnes of annual copper production by 2025 MINING STRUCTURAL PROJECTS 2014 2018 2019 2019 2019 2019 2019 2023 Ministro Radomiro Tomic Chuquicamata El Teniente New Salvador Andina Andina Hales Sulphides Phase II Underground Mine Level Inca Open Pit Transfer Expansion 176,000 tpy 354,000 tpy 367,000 tpy 432,000 tpy 196,000 tpy 161,000 tpy 343,000 tpy On commissioning Under construction Feasibility completed and early works Note: Projects production corresponds to the average of the first 10 years operating at design capacity. On feasibility On prefeasibility Investment Program: history and future (PND* 2014) Codelco faces an unprecedented investment challenge US$ million, 2014 currency *: PND: Business and Development Plan.
Production contribution of all the Structural Projects, PND 2014 (under construction and pending approval) 3,000 Ministro Hales, Radomiro Tomic Sulphides Phase II, Chuquicamata Underground, El Teniente New Mine Level, Salvador Inca Open Pit, Andina Transfer, Andina Expansion 2,500 2,000 000 tonnes of copp per 1,500 1,000 500 Ministro Hales Primary Crushing System Andina Sulphides R. Tomic P. II New Mine Level Teniente Chuquicamata Underground Inca Pit El Salvador New Andina Phase II Other Projects Andina Plan with Projects Plan without Projects Note: Ministro Hales project commissioned included in production of Codelco with and without Projects. PND: Business and Development Plan of Codelco (with projects)
Codelco: the challenge of maintaining production in the short and medium term, despite the sharp drop in ore grades COPPER PRODUCTION* GRADE AND TREATED MINERAL** 2.000 Treated mineral ( 000 fmt) 000 dmt 360.000 Copper ore grade % 1,10 1.800 315.000 1,05 1.600 1.400 270.000000 100 1,00 1.200 225.000 0,95 1.000 180.000 0,90 800 135.000 0,85 600 400 90.000 0,80 200 45.000 0,75 0 0 0,70 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 *: It doesn t include Codelco s stake in El Abra and Anglo American Sur. **: Until year 2010, treated ore grade. From year 2010 to date, mined ore grade.
Projected production PND* 2014 and critical success factors 2.000 Production 000 fmt Treated ore grade (%) 1,0 Robust mine plans. 1.800 1.600 0,9 0,8 Optimize the use of treatment capacity, reaching design capabilities. 1.400 1.200 1.000 800 0,7 0,6 0,5 0,4 Increase concentrator recovery and smelter yield. Higher rates of operational continuity. Increased own and third parties productivity. 600 400 200 0 2014 2015 2016 2017 2018 0,3 0,2 0,1 0,0 Management alignment and leadership in the administration of assets and production processes. Commitment of employees and the entire organization. Note: It doesn t include Codelco s stake in El Abra and Anglo American Sur. *: PND stands for Business and Development Plan.
Business and Development Plan (PND): 2014 2018 Investments (on cash base) and Financing US$ million, currency of the year* 2014 2018 Annual average Share % Total investment 23,542 4,708 Projects 20,190 4,038 86% Deferred expenditure (mines development) 2,789 558 12% Contributions to societies 563 113 2% Financing 23,542 4,708 Internal 14,116 2,823 60% Net debt 5,426 1,085 23% Capitalization 4,000 800 17% Projects by objective** 20,190 4,038 Structural Projects 12,265 2,453 61% Sustainability 2,735 547 14% Development projects 2,712 542 13% Equipment replacement and facilities repairs 1,403 281 7% Information 1,075 215 5% Structural Projects 12,265 2,453 RT Sulphides Phase II 3,480 696 28% Chuquicamata Underground 3,265 653 27% El Teniente New Mine Level 2,881 576 23% Transfer 975 195 8% Andina Expansion 777 155 6% Salvador Inca Open Pit 571 114 5% Ministro Hales 317 63 3% *: OO.CC. 2014, November 2013. **: Estimated based on accrued investment.
Codelco s Investment: 2015 PRELIMINARY FIGURES* INVESTMENTS BY DISTRICT PROJECTS INVESTMENT BY OBJECTIVES US$ million NORTH DISTRICT 1,707 CENTER SOUTH DISTRICT 1,782 PROJECTS INVESTMENT 3,489 MINE DEVELOPMENT AND DEFERRED EXPENSES 800 CONTRIBUTIONS TO SOCIETIES 113 US$ million STRUCTURAL PROJECTS 1,364 SUSTAINABILITY 847 OTHER DEVELOPMENT PROJECTS 684 ENGINEERING STUDIES, GEOLOGICAL EXPLORATION AND RESEARCH EQUIPMENT REPLACEMENT AND FACILITY REFURBISHMENT 362 233 GRAND TOTAL ACCRUED 4,402 PROJECTS INVESTMENT 3,489 *: 2015, preliminary budget.
Structural mining projects: major milestones 2014 2015 Chuquicamata Underground: Taking investment decision and start construction, beyond the early works. El Teniente New Mine Level: Further progress in the development and construction of mining works. RT Sulphides Phase II: Environmental approval. Submit the First Stage of investment request. Andina Expansion: Continue advancing for environmental approval in 2015. Salvador Inca Open Pit: Completion of pre feasibilitystudy. Cross challenge: detailed engineering of change in management models of the projects
The increase in costs has been a widespread trend in the industry INDUSTRY AVERAGE COSTS 300 c/lb, currency of the year 280 260 240 Total Cathode Cost 220 200 180 160 Net Cathode Cost 140 120 Cash Cost (C1) 100 80 60 40 20 0 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 Source: Wood Mackenzie and Codelco.
After several years, during 2013, Codelco broke the upward trend in costs standing at the second quartile cut of the industry cost DIRECT CASH COST (C1), CODELCO AND INDUSTRY QUARTILES 200 c/lb, currency of the year 180 160 140 120 100 80 1 st quartile cut 2 nd quartile cut 3 rd quartile cut 60 40 20 0 CODELCO 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 Source: Wood Mackenzie and Codelco.
Since 2013, Codelco is engaged in a systematic effort to increase productivity and reduce costs STRUCTURAL PROJECT OF PRODUCTIVITY AND COSTS (PEPC) MODEL: DETAIL BY LEVER PRODUCTIVITY Optimize performance in critical path Services productivity Budget Optimization Hygienic Factors COSTS Maximize copper production through: Identify opportunities that provide fine copper, other than those defined in budget Visibility and closing the gaps of bottlenecks Project of Breaks in Management Promote initiatives to improve productivity: Project of Third Party Service Productivity (PPST) FTE and Productivity Measurement Relationship with APRIMIN, CCHC, AGEMA and Mining Council Management model based on KPI and Back Office (PGST) Optimize budget management corporately: Salaries Energy, supplies, materials and equipment Energy efficiency Contracts, services and strategic supplies Third Party Services Through savings on discretionary items, install a transverse message of cost containment, including: Vehicles Consultancies Service commissions Cellphones Communica ation plan and tr ransfer of good practices
Our challenge: to eradicate fatalities Number of Fatalities and Rate, 2000 2014* 12 Number of fatalities Fatalities per million of hours worked 0,12 0,104 10 0,10 8 0,079 0,084 0,085 008 0,08 0,076 6 0,06 0,054 0,053 4 0,038 0,039 0,042 0,033 0,04 2 0,023 0,013 0,024 0,017017 0,02 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0,00 FAT own workers FAT contractors t FAT total t rate *: Year 2014 up to November 7.
Environment and communities: PND 2014 goals and key success factors 50 40 30 20 10 0 SERIOUS AND VERY SERIOUS ENVIRONMENTAL INCIDENTS 2008 2009 2010 2011 2012 2013 2014* GOALS Zero serious and very serious environmental incidents. Zero serious or very serious sanctions of Environment Superintendence. Zero community conflicts with impact on business continuity or inprojectsexecution. ti Environmental and social approval of the Structural Projects. *: Year 2014 up to November 12. ENVIRONMENTAL VULNERABILITIES 2011 2014 Total 92 40 More critical 55 14 KEY SUCCESS FACTORS Closing gaps associated with the most critical environmental vulnerabilities. Ensuring RCAs commitments. Environmental Risk System integrated to the operation. Application of standards and tools for community management: close linkage with more critical localities. Commitment of employees and the entire organization.
CHILE JAPAN BUSINESSCOMMITTEE CHILEAN COPPER MINING AND CODELCO CHALLENGES NelsonPizarro C. CEO December 2 nd, 2014 Copyrights 2014 CODELCO CHILE. Todos los Derechos Reservados. Copyrights 2014 by CODELCO CHILE. All Rights Reserved.