CHILEAN COPPER MINING AND CODELCO CHALLENGES

CHILE

‐

JAPAN BUSINESS COMMITTEE

CHILE JAPAN

BUSINESS

COMMITTEE

CHILEAN

COPPER

MINING

AND

CODELCO

CHALLENGES

Nelson Pizarro C

December 2

, 2014

Nelson

Pizarro

C.

CEO

Chile:

An

attractive

mining

district

Year

2013

SHARE IN GLOBAL PRODUCTION SHARE IN GLOBAL RESERVES

32%

28%

32%

68%

28%

72%

Source: Cochilco, Codelco, USGS.

Codelco

has

a

great

future

CODELCO:

WORLD

LEADER

IN

COPPER

RESERVES

Leadership in copper reserves Estimated mineral resources

Our mineral resources let us expect more than 70 years of exploitation

Codelco 9%

Others Others

29%

Our mineral resources let us expect more than 70 years of exploitation

Mineral (million tonnes) Copper grade (%) Copper content (million tonnes) Share (%) Chuquicamata 2,147 0.70 15.1 11.6 Chile 19% Australia Peru Russia 4% China 4% q 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 Australia 13% Peru 10% USA 6% Mexico 6% 4%

Source: U.S. Geological Survey, January 2014.

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

Although,

copper

prices

has

shown

a

downward

trend

since

2011

…

Stocks in Metal Exchanges ** 

‘000 tonnes 425 450 700 800 350 375 400 400 500 600 C P i 275 300 325 100 200 300 Stocks in Metal Copper Price 250 275 0 100

ene 2011 jul 2011 ene 2012 jul 2012 ene 2013 jul 2013 ene 2014 jul 2014

Stocks in Metal 

Exchanges

Price

prospects

remain

auspicious

in

the

long

‐

term

Long

‐

term

copper

price

forecasts,

c/lb,

2015

currency

400

FORECASTS EVOLUTION: BANKS AND ANALYSTS LATEST PROJECTIONS

334 355 CRU Wood Mackenzie 250 300 350 318 320 328 339 345 345 334 CIMB Group Barclays Capital BoA Merrill Lynch IHS Economics J.P. Morgan Analysts average CRU 150 200 250 299 299 304 304 305 317 UBS Macquarie Credit Suisse Goldman Sachs Commonwealth Bank Morgan Stanley p 100 2002 2006 2009 2011 2013

CRU Wood Mackenzie (Brook Hunt)

Structural Fiscal Budget Barclays Macquarie 301 253 269 269 279 281 285 B k & Oth Numis Wilson HTM Investec RBC Capital Markets Deutsche Bank Citigroup q 305 305 301 0 100 200 300 400 Average without extremes

Analysts, Banks & Others average Banks & Others average

Correlation between spot and long term 

forecast: 0.67

Despite

the

trend

towards

more

discipline

in

capital

use

and

delays

in

projects,

important

investments

are

projected

in

the

coming

years

US$ billi 2014

Total Latin America: US$ 165 billion Total Rest of the World: US$ 127 billion

EXPECTED

INVESTMENT

IN

COPPER

PROJECTS*

WITH

STARTUP

DURING

THE

PERIOD

2014

‐

2023

21

60 70

WORLD TOTAL: US$ 292 billion

US$ billion, 2014 currency 65 49 29 30 40 50 27 2 44 20 24 16 7 6 ₁₁ 15 10 20 30 22 14 12 12 _{11 11} 8 8 _{7 7} 13 27 2 6 5 6 8 8 1 3 12 14 7 6 11 11 ₆ 6 11 -Possible More probable 7 7 Possible More probable

Sources: Codelco and Wood Mackenzie (September 2014).

Major

copper

projects

in

Chile*

with

startup

between

2014

and

2023

(without Codelco)

Name

Owner

Status

Startup

year

Production

‘000 tonnes

Investment**

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 

(Organic Growth Project 1)

BHP Billiton/ 

Rio Tinto Under construction 2015 107 4,199

REVISAR

(Organic Growth Project 1) Rio Tinto

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

2019 2023

2019 2018‐2019

2014 2019 2019

Feasibility completed and early works

Under construction On feasibility

On commissioning On prefeasibility El Teniente New  Mine Level 432,000 tpy Andina Expansion 343,000 tpy Chuquicamata Underground 367,000 tpy Radomiro Tomic  Sulphides Phase II 354,000 tpy Ministro  Hales 176,000 tpy Salvador 

Inca Open Pit

196,000 tpy

Andina Transfer

161,000 tpy

Note: Projects production corresponds to the average of the first 10 years operating at  design capacity.

US$ million, 2014 currency

Codelco

faces

an

unprecedented

investment

challenge

Investment 

Program: history 

and future (PND* 

2014)

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

p er 2,500 2,000 ‘000   to nnes   of   cop p 1,500 1,000 500

New Mine Level Teniente Chuquicamata Underground Inca Pit El Salvador New Andina Phase II Other Projects Andina Plan with Projects Plan without Projects Ministro Hales Sulphides R.  Tomic – P. II

Primary Crushing System Andina

Codelco:

the

challenge

of

maintaining

production

in

the

short

and

medium

term,

despite

the

sharp

drop

in

ore

grades

GRADE

AND

TREATED

MINERAL**

(‘000 fmt)

COPPER

PRODUCTION*

Treated mineral _{Copper ore grade}

1.600 1.800 2.000 1 00 1,05 1,10 270 000 315.000 360.000 (‘000 fmt) _‘000 dmt pp g % 800 1.000 1.200 1.400 0,90 0,95 1,00 180.000 225.000 270.000 200 400 600 800 0,75 0,80 0,85 45.000 90.000 135.000 * I d ’ i l d C d l ’ k i El Ab d A l A i S 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 0,70 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 ** U il 2010 d d F 2010 d i d

*: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 

Projected

production

PND*

2014

and

critical

success

factors

•

Robust mine plans.

Production ‘000 fmt Treated ore  grade (%)

1,0

2.000

•

Optimize the use of treatment capacity,

reaching design capabilities.

•

Increase

concentrator

recovery

and

smelter yield.

0,7

0,8

0,9

1.400

1.600

1.800

y

•

Higher rates of operational continuity.

•

Increased

own

and

third

parties

productivity.

0,4

0,5

0,6

800

1.000

1.200

•

Management alignment and leadership

in the administration of assets and

production processes.

0,1

0,2

0,3

200

400

600

•

Commitment of employees and the

entire organization.

0,0

0

2014 2015 2016 2017 2018

Business

and

Development

Plan

(PND):

2014

‐

2018

Investments

(on

cash

base)

and

Financing

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%

US$ million, currency of the year*

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% 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%

Ministro Hales 317 63 3%

Codelco’s Investment:

2015

PRELIMINARY

FIGURES*

$ ll

INVESTMENTS

BY

DISTRICT

PROJECTS

INVESTMENT

BY

OBJECTIVES

US$ illi US$ million

NORTH

DISTRICT

1,707

CENTER

SOUTH

DISTRICT

1,782

STRUCTURAL

PROJECTS

1,364

SUSTAINABILITY

847

US$ million

PROJECTS

INVESTMENT

3,489

MINE

DEVELOPMENT

AND

DEFERRED EXPENSES

800

SUSTAINABILITY

847

OTHER

DEVELOPMENT

PROJECTS

684

ENGINEERING

STUDIES,

DEFERRED

EXPENSES

CONTRIBUTIONS

TO

SOCIETIES

113

GEOLOGICAL

EXPLORATION AND

RESEARCH

362

EQUIPMENT

REPLACEMENT

AND

FACILITY

REFURBISHMENT

233

GRAND

TOTAL

ACCRUED

4,402

PROJECTS

INVESTMENT

3,489

Structural

mining

projects:

major

milestones

2014

 ‐

2015

• Chuquicamata Underground:

– Taking investment decision and start construction, beyond the early works.

• 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.

• 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.

• RT Sulphides Phase II:

– Environmental approval.

– Submit the First Stage of investment request.

• Andina Expansion:

– Continue advancing for environmental approval in 2015.

• Andina Expansion:

– Continue advancing for environmental approval in 2015.

• Salvador Inca Open Pit:

– Completion of pre‐feasibility study.

The

increase

in

costs

has

been

a

widespread

trend

in

the

industry

300

INDUSTRY

AVERAGE

COSTS

c/lb, currency of the year

240 260 280 300

Total Cathode Cost

160 180 200 220

Net Cathode Cost

80 100 120 140 Cash Cost (C1) 0 20 40 60 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012

After

several

years,

during

2013,

Codelco broke

the

upward

trend

in

costs

standing

at

the

second

quartile

cut

of

the

industry

cost

200

DIRECT

CASH

COST

(C1),

CODELCO

AND

INDUSTRY

QUARTILES

c/lb, currency of the year

160 180 200 3rd_{quartile cut} 100 120 140 2nd_{quartile cut} 1st _{quartile cut} 40 60 80 0 20 40 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012

CODELCO

Since

2013,

Codelco

is

engaged

in

a

systematic

effort

to

increase

productivity

and

reduce

costs

Maximize copper production through: 

• Identify opportunities that provide fine copper other than those defined in budget

Optimize 

PRODUCTIVITY PRODUCTIVITY

STRUCTURAL

PROJECT

OF

PRODUCTIVITY

AND

COSTS

(PEPC)

MODEL:

DETAIL

BY

LEVER

• 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) 

Communic a performance  in critical  path Services 

• 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  ation   plan   and   tr productivity

• 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 

ransfer   of   good   Budget  Optimization g g y , g containment, including: • Vehicles • Consultancies  • Service commissions • Cellphones practices Hygienic  Factors COSTS COSTS

Our

challenge:

to

eradicate

fatalities

Number

of

Fatalities

and

Rate,

2000

– 2014*

Number of fatalities Fatalities per million of hours‐worked

0,12 12 0,079 0,104 0,084 0,085 0 08 0,10 8 10 0,076 0,054 _0,053 0,06 0,08 6 8 0,038 0,039 0,042 0,023 0,033 0,024 0 0170,02 0,04 2 4 0,013 0,017 0,00 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

FAT k FAT t t FAT t t l t

*: Year 2014 up to November 7.

Environment

and

communities:

PND

2014

goals

and

key

success

factors

50

SERIOUS

AND

VERY

SERIOUS

ENVIRONMENTAL

INCIDENTS

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

i j t ti 20 30 40 50 in projects execution.

• Environmental and social approval of the Structural Projects.

0 10

2008 2009 2010 2011 2012 2013 2014*

KEY

SUCCESS

FACTORS

*: Year 2014 up to November 12.

2011 2014

ENVIRONMENTAL

VULNERABILITIES

• Closing gaps associated with the most critical environmental vulnerabilities.

• Ensuring RCAs commitments.

2011 2014

Total 92 40

More critical 55 14

• Environmental Risk System integrated to the operation.

• Application of standards and tools for community management: close linkage with more critical localities.

CHILE

‐

JAPAN BUSINESS COMMITTEE

CHILE JAPAN

BUSINESS

COMMITTEE

CHILEAN

COPPER

MINING

AND

CODELCO

CHALLENGES

Nelson Pizarro C

December 2

, 2014

Nelson

Pizarro

C.

CEO