Chile s Outlook in Copper

(1)

Ana Isabel Zuñiga

Research and Policy Planning Director

LatAm MINING

April 30

Coral Gables

Congress 2010

Chile’s Outlook

in Copper

(2)

CONTENTS

Chile’s Leadership in the Copper

Industry

Legal Framework and Institutional

Arrangements

Portfolio of Mining Projects and

Production Forecast

Main Challenges and Public Policy

Priorities

(3)

Chile in Numbers

•

GDP 2009

–

US$170 Billions

–

$ 15.010 P/C (PPP)

•

Population:

–

17,031,873 (estimate 2010)

•

Area:

–

756,950 km

2

292,183 sq mi

(4)

•U.S.A. •European Union •Canada •South Korea •New Zeeland •Japan •Singapore •Brunei •China •Australia •Mexico

•Central and Latin

American Countries •EFTA •India •Malaysia, Turkey, Vietnam and Thailand in process

•

Member of:

– ONU, OEA, ALADI, OLADE, OEI, Grupo de Río, CIN, Unasur;

BID, OMC, APEC, P4, OCDE; CAF, CAN, Mercosur; G77, INTERPOL, OMS, ICSG

•

OCDE partner since January 2010

•

Free trade and commercial agreements:

–

One of the countries with more FTA’s

–

56 countries to date

Sources: Cental Bank of Chile, INE, The World Bank Group.

Integrated to global community

and an Open Economy

(5)

•

HDI 2009 =

0.878

(1

st

in LA)

•

49

th

Doing Business Ranking

(1st in LA)

•

34

th

Cost of Electricity Ranking

(2nd in LA)

•

23

rd

Corruption perception

(1st in LA)

•

40

th

in PISA educational Ranking

(1st in LA)

Going Beyond Income

(6)

Attractive Geological

Potential

USA; 7% _Australia, 5% Chile; 38% China; 7% Peru; 6% Polonia; 5% Zambia; 4% Canada; 2% Indonesia; 4% Mexico; 4% ROW, 17%

World Copper Reserve Base

30% 31% 56% 83% 85% 93% Ec ua dor V e n e zue la Ch in a Peru A ust ra lia Ch ile

Geological potential survey

results 2009

Sources: USGS 2010 , Fraser Institute.

(7)

Source: COCHILCO

Investments in Mining

(Millions of Dollars)

0.0 500.0 1,000.0 1,500.0 2,000.0 2,500.0 3,000.0 3,500.0 4,000.0 4,500.0 Pivate State

(8)

Copper Production and

Market Share

(

kMT)

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 0.0 2,000.0 4,000.0 6,000.0 8,000.0 10,000.0 12,000.0 14,000.0 16,000.0 18,000.0 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

Source: World Metal Statistics, USGS, COCHILCO

Chile ROW

(9)

World Class Copper

Mines in Chile

Sources: Brook Hunt.

0% 1% 2% 3% 4% 5% 6% 7% 8%

Escondida Codelco Norte (Chuqui) PT Freeport Indonesia Collahuasi El Teniente Norilsk Los Pelambres Cerro Verde Antamina Bingham Canyon Rudna Los Bronces Morenci Andina Sarcheshmeh Batu Hijau Cuajone Dzhezkazgan Mount Isa Cu Spence

(10)

GDP of Mining Industry

(Share of Country GDP)

Source: Central Bank of Chile, Cochilco.

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% -5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000

Mill

ions

US$

(11)

Mining Exports

0% 10% 20% 30% 40% 50% 60% 70% 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 Millions US$

Copper Rest of Mining Share of Total exports

(12)

Mining Contribution

to the Treasury

a

(Millions of Dollars)

Source: DIPRES and COCHILCO.

0% 10% 20% 30% 40% -2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000

(13)

Foreign Investment in Chile

•

Basic Principles

:

–

National Treatment

–

Stable Rules

–

Guaranteed Property Rights

•

Decree Law 600(1974): The

Foreign Investment Statute

–

Rules a Contract with the State.

(16)

•

First Category Tax, a business profit tax, 17% since

2004.

•

Global Complementary Tax, personal tax on total

income, between 5% and 40%.

•

Additional Tax, Tax on persons not resident in Chile,

35% or 42%.

•

Specific tax on mining activities (since 2005):

– This tax is levied on operational income derived from

mining activity obtained by a mining exploiter.

– Mining exploiters whose annual sales exceed the

equivalent of the value of 50,000 metric tons of fine copper pay a single 5% tax rate. In other cases it ranges between 0% and 4,5%.

Taxation

(17)

The Chilean Mining

Public Sector

Central Government Ministry Ministry of Mining Companies

CODELCO ENAMI ENAP

Agencies COCHILCO SERNAGEOMIN Ministry CODELCO’S New Corporate Governance Law (Nov 2009)

(18)

CONTENTS

Industry

Arrangements

Production Forecast

Priorities

(19)

Investments in Copper and Gold

Mining in Chile (2009-2015)

Millions of Dollars

Source: “Inversión en la Minería Chilena del Cobre y del Oro” (COCHILCO).

$ 0 $ 1,000 $ 2,000 $ 3,000 $ 4,000 $ 5,000 $ 6,000 $ 7,000 $ 8,000 < 2009 2009 2010 2011 2012 2013 2014 2015 > 2015

Rest of Mining Industrie Codelco

(20)

Main Projects

ANTOFAGASTA MINERALS ESPERANZA

Start up: ends of2010

195 Kton/year Cu

XSTRATA

EXTENSIÓN LOMAS BAYAS

Start up:

Lomas Bayas I: 2008 Lomas Bayas II: 2011

+ 75 Kton/year Sx Ew Cathodes

Source: COCHILCO “Inversión en la Minería del Cobre y del Oro Proyección 2009– 2015”

BHP BILLITON ESCONDIDA FASE V Start up: 2015 + 210 Kton/yearCu COLLAHUASI Expansión Fase I Start up: 2010

+ 200 Kton/year Cu CODELCO DIVISION ANDINAANDINA FASE II

Start up: 2015 Hasta 350 Kton/year Cu XSTRATA EL MORRO Start up: 2014 195 Kton/year Cu

PAN PACIFIC COPPER CASERONES

Start up: 2013

120 Kton/año from Concentrates 30 kton/year Sx Ew cathodes

ANGLO AMERICAN CHILE EXPANSIÓN LOS BRONCES

Start up: 2011

+170 Kton/year Cu

ANTOFAGASTA MINERALS EXTENSIÓN LOS PELAMBRES

Start up: : 2011

80 Kton/year Cu

CODELCO NORTE

R. TOMIC SULFUROS

Start up: 2010

80 Ktonyear Cu from Concentrates

MINA MINISTRO A. HALES

Star-Up: 2014

165-200 Kton/year Cu from Concentrates

(21)

0% 5% 10% 15% 20% 25% 30% 35% 40% 0 1000 2000 3000 4000 5000 6000 7000 8000 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: COCHILCO KTM

Copper Mine Production

Forecast

2010-2020

Base Production New Projects Share of New Projects KTM 5.4 mill ton 7.5 mill ton

(22)

Chilean Projects:

Useful Experience for Others

Esperanza

(Antofagasta Minerals)

Technical innovations:

Thickened Tailings

Ore processing with Sea Water Desalination Plant (for human

consumption)

Sulfolix El Abra

Freeport McMoran / Codelco)

Technological change from conventional Lix/Sx/Ew process to

Sulfide Leaching Process

Collahuasi Expansion

Project(Anglo American

/Xstrata Copper)

Brownfield project Huge potential to increase

production, supported by one of the largest and richest copper deposits

of the world

Andina Expansion

Phase II

Project (CODELCO)

Technical challenges: localization, environmental conditions,

(23)

CONTENTS

Chile’s Leadership in the Copper

Industry

Arrangements

Production Forecast

Priorities

(24)

Increase Exploration…

Major 74% Junior 14% Major 44% Junior 38%

Chile World Total

Exploration

Stages

Types of

Companies

0% 2% 4% 6% 8% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Share of Chile in total exploration expenditures

Source: MEG Close to the mine 52% Basic 30% Advance 18% Basic 32% Advance 41% Close to the mine 27% Others 3% Gob 2% Medium 7% Others 1% Gob 3% Medium 13%

(25)

Copper Mining in Chile (By Production Segment) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0 5000 10000 15000 20000 25000 30000 35000 40000 Small (N°=2050) Medium (N°=29) Big (N°=16) Shar e of P roducti on (% ) N ° of dir ect employees

Direct Employment (N°) Share of Production (%)

Source: SERNAGEOMIN

Develop Medium-Scale

Mining…

(26)

110.000 36% 80.000 27% 30.000 10% 36.000 12% 30.000 10% 14.000 5%

Ahorro en Chile: US$ 300,000 millones

AFP Depósitos Seguros Fondos Mutuos Banca Privada Otros Energía 20% Telecom 2% Sanitarias 2% Transport e 4% Bebidas 4% Comercio 15% Forestales 17% Minería / Acero 8% Bancos 15% Holdings 13%

IPSA según Sector Productivo

Address “divorce” between Mining

and Capital Market…

(27)

Expand our scope for mineral

exploitation…

Source: own calculations based on data from COCHILCO & BrookHunt

Main products 2009 Production World Ranking Market Share Share in global total reserves Metal Mining Copper (MT) 5,389.60 1° 34.0% 29,1% Molybdenum (MT) 34.9 3° 15.6% 12,8% Rhenium (MT 2008) 27,6 1° 48,4% 52% Silver(MT) 1,301 5° 6.2% N.D. Gold (MT) 40.83 15° 1.7% 4,3% Industrial Minerals Natural Nitrates (MT) 1,048,706 1° 100.0% 100% Lithium Carbonate (MT) 25,154 1° 53.0% 27% Iodine (MT) 17,399 1° 61,6% 60%

(28)

Strengthen Mining Cluster…

0 2,000 4,000 6,000 8,000 10,000 12,000 Product Mil lions of US$ 2003 Others

Retail and Food Transport and Communication Electricity Construction Industrial Financial Services Mining

Important multiplier effect

Source: COCHILCO and Central Bank of Chile.

0 50 100 150 200 250 300 350 Employment Thou san d of Employee s Others Transport and Communication Social services Industrial

Retail and Food Financial Services and Others

Construction Mining

(29)

Foster INNOVATION to address

industry challenges…

•

Geological

conditions:

–

Lower grade

–

Depth of deposits

•

Environmental

Conditions:

–

Energy

management

–

Water Management

–

Closing of sites

•

Human capital

•

Cluster

Innovation

and

Economy of

Knowledge

Sustainable

development

based on Mining

Mining Specific TAX

(30)

Why is Chile attractive

for Mining Investment?

•

Favorable geologic potential

•

Social, political and legal stability

•

Good infrastructure

•

Qualified personnel

•

Adequate technological level

•

Model has proved to be successful

•

Future challenges are properly identified

(31)

Ana Isabel Zuñiga

Research and Policy Planning Director

LatAm MINING

April 30

Coral Gables

Congress 2010

Chile’s Outlook in Copper

Thank You!