14th americasschool of mines - pwc...salvador 64 43 65 74 65 andina 218 220 210 215 252 266 el...

14th Americas School of MinesInvesting in LatinAmerica

International Mining Industry Overview:Updates and Future Perspectives

Diego HernándezCodelco CEOSeptember 22nd, 2010

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Copyrights © 2010 by CODELCO-CHILE. All Rights Reserved.

0

5

10

15

20

25

0 10,000 20,000 30,000 40,000

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

1950 1960 1970 1980 1990 2000

Dev eloped Countries

OtherDev elopingCountries

China

Source: WBMS, IMF and Codelco. *: USA: 1980 – 2004. 2010: Forecast.

World Refined Copper Consumption GDP and Copper Consumption per Capita

1980 - 2010*

Consensus about Solid Market Fundamentals

1950 - 2009

‘000 tonnes Kg of Copper / Person

China

USA

Japan

SouthKorea Germany

Russia

GDP per Capita (PPP)

Diego Hernández | September 2010

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China’s Urbanization: a Massive TransformationVision towards 2025

350 millionWill be added to China’s urbanpopulation, more than US population.

221Chinese cities will have more thanone million people living in them.Europe has 35 today.

170Mass-transit systems could be built. InEurope there are 70.

5 millionBuildings will be built (40 billionsquare meters of floor space).

50,000Of these buildings could beskyscrapers, equivalent to ten NewYork cities.

Source: McKinsey Global Institute, March 2009.

5 timesThe number by which GDP will havemultiplied.

1 billionPeople or two-thirds of China’scitizens will be living in cities by 2025.

4


Global Development and Sustainability ChallengesProvide Great Opportunities

Green & SmartBuilding

HybridCars

Anti-BacterialProperties

RenewableEnergies

WorldElectrification

High EfficiencyMotors

Source: Codelco.


5


Slow Supply Response to Demand Increases in the LastDecadeAnnual Growth Rates

CONSUMPTION MINE PRODUCTION

Source: Codelco.

Existing producers’ability to expandstretched

Macroeconomiccrisis averts moreshortages-4%

-2%

0%

2%

4%

6%

8%

10%

2000 2002 2004 2006 2008


6


Note: Codelco includes49% of El Abra’sproduction.

Source: BrookHunt, companiesreportsand Codelco.

Copper Production, Main International Companies‘000 tonnes

2005 2006 2007 2008 2009Variation

2005 - 2009

Codelco 1,831 1,783 1,665 1,548 1,782 -3%

FCX 694 534 1,492 1,517 1,519 119%

BHP 1,129 1,179 1,333 1,336 1,145 1%

Xstrata 419 686 903 874 906 116%

Rio Tinto 758 766 744 663 805 6%

Anglo American 634 638 654 637 670 6%

Southern Copper 627 603 616 530 485 -23%

Antofagasta Plc 288 324 300 311 269 -6%

Vale 103 113 262 263 198 93%


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Long Term Copper Price Forecastc/lb, 2011 currency

Institution Forecast

Brook Hunt 255

CRU 202

Analysts Average 229

Barclays 278

Citibank 238

JP Morgan 245

Macquarie 224

Merrill Lynch 179

Scotiabank 184

Banks Average 225

Analysts and Banks Average 226

Banks and Analysts Forecasts Recent Forecasts

100

150

200

250

300

2002 2004 2006 2008 2009 2010

CRU Brook Hunt Barclays Macquarie


8


0.50%

0.55%

0.60%

0.65%

0.70%

0.75%

0.80%

0.85%

0.90%

0.95%

1.00%

1985 1990 1995 2000 2005 2010 2015 2020

0.5%

0.8%

1.0%

1.3%

1.5%

1992 1996 2000 2004 2008 2012 2016 2020

0.5%

0.6%

0.7%

0.8%

0.9%

1.0%

1.1%

1.2%

1992 1996 2000 2004 2008 2012 2016 2020

Average Grade of Treated Ore: Historical and Forecast

Source: Codelco and BrookHunt.

Industry’s Average Grade Average Grade: Open Pit & Underground

Average Grade: Mill & SxEw

Underground

SxEw

Open Pit

Mill


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Capital Cost EscalationUS$ per Tonne Annual Copper Equivalent Production2009 Currency

Source: BrookHunt.

Projects in construction are forecast to cost at least 75% more todevelop than those commissioned over the period 1985 to 2005

Historical Recent In Construction

1985-2005 2006-2009

Greenfield 5,682 5,532 8,827

Brownfield 4,218 4,762 8,722

Weighted Average 4,995 5,371 8,765% Increase 8% 75%

Projects


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0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

1995 2000 2005 2010 2015

Capital Cost EscalationPast and Recent Copper Projects

Source: BrookHunt.

Project Prior Capex Latest CapexEscalation

DateUS$

MillionDate

US$Million

GalenoQ1

2007993

Q32009

2,200 122%

CongaQ2

20081,500

Q12010

2,500-3,400

97%

Cerro CasaleQ2

20072,300

Q12010

4,300 87%

Frieda RiverQ1

20082,570

Q32009

4,200 63%

Salobo Phase IQ2

20081,150

Q42009

1,808 57%

Antamina ExpansionQ1

2009741

Q32009

1,100 48%

Los Bronces Expansion(61-148kt/d)

Q42007

1,744Q4

20092,400 38%

QuellavecoQ2

20082,200

Q32009

2,750 25%

TampakanQ2

20083,900

Q32009

4,800 23%

Antamina ExpansionQ3

20091,100

Q12010

1,288 17%

Copper Projects Have Become MoreExpensive

Capital Cost Escalation

Collahuasi

Los Pelambres

CerroVerde Mill

Tenke Fugurume

Oyu Tolgoi

Lumwana

Capex / Average Production(US$/tonne)

Salobo I

Toromocho

Caserones


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The Sites of the Future

Location (socio-political risk)

Source: EIU; BrookHunt, McKinsey.

1 Based on 8 weighted factors: Economic data (25%), Political risk(25%), Debt indicators(10%), Debt in default (10%), Creditratings(10%), Access to bankfinance (5%), Accessto short-term finance (5%), Access to international bonds(5%), other (5%).


A significant portion of new Copper projects with high quality ore resources are in

geographic locations with high country risk

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Ebitda Margin and DebtMain International Mining Companies

20

30

40

50

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

EBITDA Margin Debt

Note: Group of Companies: Codelco, BHP Billi iton,Rio Tinto, Xstrata, Anglo American, FCX, Antofagasta, Southern Copper, Vale.Ebitda Margin = Ebitda / Total Revenue.

0

30,000

60,000

90,000

120,000

150,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0.0

0.4

0.8

1.2

1.6

2.0US$ mill ion,nominal currency times

EBITDA / Debt

Debt

%


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Conclusions

• Quality of projects in the pipeline has declined.

• Prices at current levels are necessary to trigger investment decisions.

• With current prices, margins for installed capacity will remain high.

• New capacity should have “normal” returns.

• Financing projects with cash flow may delay supply response.


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Codelco: Operations and Marketing Network*

Codelco NorteDivision

Copper

Codelco NorteDivision

Copper

Ventanas

Smelter & RefineryDivision

Ventanas

Smelter & RefineryDivision

Andina

Division

Copper

Andina

Division

Copper

SantiagoHeadquarters

SantiagoHeadquarters

Salvador

Division

Copper

Salvador

Division

Copper

El Teniente

Division

Copper

El Teniente

Division

Copper

New York - US

Codelco GroupInc.

New York - US

Codelco GroupInc.

Düsseldorf - Germany

Codelco KupferhandelGMHB

Düsseldorf - Germany

Codelco KupferhandelGMHB

London - UK

Chile Copper

Ltd.

London - UK

Chile Copper

Ltd.

Shanghai - China

RepresentativeOffice

Shanghai - China

RepresentativeOffice

Gabriela Mistral

Operation

Copper

Gabriela Mistral

Operation

Copper

*: Commercial Subsidiaries.


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Evolution and Perspectives of Codelco’s Short Term Production‘000 tonnes

Codelco Norte: Production by mineral origin.*: It correspondsto 49% of Codelco’sshare.

Source of Projections: Triennial Plan 2010-2012.

2007 2008 2009 2010 2011 2012

Codelco Norte 896 755 875 903 878 833

Chuquicamata 425 290 391 392 338 294

Radomiro Tomic 335 332 354 399 432 433

Extensión Norte Mina Sur 137 133 130 112 107 105

Salvador 64 43 65 74 65

Andina 218 220 210 215 252 266

El Teniente 405 381 404 401 418 419

Gabriela Mistral 68 148 157 162 162

El Abra* 81 81 80 66 64 82

Total Codelco 1,665 1,548 1,782 1,816 1,839 1,762


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0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2005 2006 2007 2008 2009 2010 2011 2012 2020

Evolution and Perspectives of Codelco’s Production‘000 tonnes

History

Program

Note: IncludesCodelco’s interest in El Abra mine (49%).Source of Program: Triennial Plan 2010-2012, Businessand Development Plan (PND) 2010 y Plan without Development (PSD) 2010, and SCM El Abra.

Codelco IncludingProjects

CodelcoWithoutProjects


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2017

Note: Inv estment Plan updated to July (budget 2010 currency). Preproduction investments.

Andina Phase IAndina Div ision

Inv : MUS$ 1,125Prod: 60,000 tonnes / y ear

IRR: 18%

2nd Q

2010

RT SulphidesCodelco Norte Div ision

Inv : MUS$ 370

Prod: 160,000 tonnes / y ear

3rd Q

2010

2013

MMHMMH Div ision

Inv .: MUS$ 2,333Prod: 170,000 tonnes / y ear

IRR: 14%

Andina Phase IIAndina Div ision

Inv : MUS$ 4,390Prod: 318,000 tonnes / y ear

IRR: 17%

New Mine LevelEl Teniente Div ision

Inv : MUS$ 1,718Prod: 445,000 tmf / año

IRR: 15%

2018

ChuquiUndergroundCodelco Norte Div ision

Inv : MU$ 2,006

Prod: 315,000tonnes/y ear

IRR: 16%

Under Commissioning

In FeasibilityStudy

Codelco’s Main Short Term and Structural Mining Projects

Pilar NorteEl Teniente Div ision

Inv : MUS$ 140

Prod: 60,000 tonnes / y ear

20122011


14th Americas School of MinesInvesting in LatinAmerica

International Mining Industry Overview:Updates and Future Perspectives

Diego HernándezCodelco CEOSeptember 22nd, 2010

14th americasschool of mines - pwc...salvador 64 43 65 74 65 andina 218 220 210 215 252 266 el...

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