EY III LATIN AMERICAN MINING & METALS TAX FORUM CODELCO S INVESTMENT PROGRAM: PROGRESS AND CHALLENGES

Transcription

1 EY III LATIN AMERICAN MINING & METALS TAX FORUM CODELCO S INVESTMENT PROGRAM: PROGRESS AND CHALLENGES Oscar Landerretche M. Chairman of the Board May 25 th, 2015

2 Codelco and Chile: leadership in copper production Chilean copper production Share in world copper production tonnes 40% % % % % 20% 15% % % 0 0% Codelco Others Chile Chile Codelco Others Chile Chile Source: Codelco, Cochilco and WBMS. *: Codelco includes 49% stake in El Abra and 20% in Anglo American Sur. 2

3 World copper reserves 2015 Codelco 8% Congo (Kinshasa) 3% Zambia 3% Other Countries 13% Rest of Chile 22% Australia 13% Peru 10% Chile, Peru and Mexico represent 45% of World Copper Reserves Russia 4% Kazakhstan 1% Poland 4% China 4% Indonesia 3% Canada 2% Mexico 5% United States 5% Source: U.S. Geological Survey, January

4 Despite the risks and turbulences of the market COPPER PRICE: * RECENT EVOLUTION: MAIN DRIVERS c/lb Slowdown in China and other emerging countries (Russian crisis). Uncertainty and concern over a possible Greek exit from the Euro. Speculation about the increase in interest rates in the United States. Significant dollar strengthening. Speculation about the impact of lower prices of production supplies (fall in oil prices) and services. Significant deterioration of expectations regarding price developments. 225 ene 2011 ene 2012 ene 2013 ene 2014 ene 2015 Market phase change: from deficit to surplus. 4 *: 2015 until May 14 th.

5 Very auspicious long-term price prospects EVOLUTION OF LONG-TERM FORECASTS LATEST LONG-TERM FORECASTS c/lb, 2016 currency CRU Price of Structural Budget Macquarie Brook Hunt Barclays Wood Mackenzie CRU Analysts' average J.P. Morgan BoA Merrill Lynch Macquarie Morgan Stanley Commonwealth Bank Credit Suisse Investec UBS IHS Global Insight RBC Capital Markets Goldman Sachs Wilson HTM Numis Banks' average Average of analysts & banks Average of Consensus Forecasts April c/lb, 2016 currency Correlation between spot price and forecasts' average: Note: Price of Structural Budget corresponds to the average of the following ten years, after the year of projection.

6 Mining investment: Codelco and other companies operating in Chile US$ million, currency of the year ANNUAL INVESTMENT % 25% 20% 15% 10% 5% ACCUMULATED INVESTMENT US$ million, 2014 currency % Codelco Others Operating in Chile Codelco Total mining investment as a % of Chilean investment* Others Operating in Chile Note: Codelco includes projects, mine development and contributions to subsidiaries (since 1990). Foreign investment materialized through DL 600. Source: Central Bank, Cochilco, Codelco, Foreign Investment Committee and IMF. (*): Gross fixed capital. 6

7 Mineral resources of Codelco Business and Development Plan 2015 At the current production rate: Our mineral resources have a useful life of more than 70 years Ore (Million Tonnes) Copper Grade (%) Copper (Million Tonnes) Share of total (%) Andina 4, % El Teniente 4, % Radomiro Tomic 3, % Chuquicamata 2, % Ministro Hales % Salvador 1, % Gabriela Mistral % Codelco 18, % Stake in other companies* 2, % Codelco Total 20, % Note: Mineral Resources include stocks of ore and broken material. *: Includes deposits of Los Bronces, El Soldado, Los Sulfatos, San Enrique Monolito, El Abra and Inca de Oro. 7

8 Structural Projects increase production* Maintain an annual production of 1.7 million tonnes in the period Capture the potential value of the enormous resources and reserves. Secure the cash flows to the State of Chile. 000 tonnes tonnes DEVELOPMENT PLAN Salvador Inca Pit Andina Transfer Andina Expansion BASE CASE WITHOUT PROJECTS Chuquicamata Underground 500 El Teniente New Mine Level - Ministro Hales Pit RT Sulphides Phase II Note: Ministro Hales Pit Project in startup, included in Codelco s production with and without Project. In the scenario without projects, Ministro Hales Underground is not included. *: Business and Development Plan 2015.

9 Building the future: Structural Projects portfolio Capture the potential value of the enormous resources and reserves. Secure the cash flow for the State of Chile. Chuquicamata Underground RT Sulphides Phase II Andina Transfer El Teniente New Mine Level Salvador Inca Pit Andina Expansion Startup year CAPEX, US$ million Production, tonnes/year ,000 4,500 5,000 5,500 1,250 1,750 4,500 5,500 2,500 3,000 6,500 7, , , , , , ,000 Situation in December 2014 Under construction. 17.4% of project execution. Detailed engineering study and environmental permits proceedings. Under construction: excavation, underground development and others. Under construction. 31.8% project execution. Pre-feasibility study. Environmental permits proceedings. Note: The production of the projects is the average of the first 10 years of production, after commissioning. 9

10 Chuquicamata Underground Project Ventilation tunnels Development of the tunnel access excavation Infrastructure for shaft construction Ventilation shaft Pique ventilación 10

11 New Mine Level Project Tunnels development Development of tunnels excavations Confluence platform Sewell electrical substation Pique ventilación 11

12 Impact of Structural Projects in the suppliers market Relevant quantities of supplies and works: Chuquicamata Underground El Teniente New Mine Level Total Quantities (both projects) What does it mean? Infrastructure Tunnels 25 km 30 km 55 km 20 Lo Prado Tunnel Vertical Tunnels 28 km 8 km 36 km 95 Empire State Preparation Mine Tunnels 136 km 76 km 212 km Santiago Los Vilos Conveyor Belt 16 km 12 km 28 km Santiago Urban Area Reinforcement Bars 35,000 t 63,000 t 98,000 t 20 Costanera Center Steel Structure 11,000 t 18,000 t 29,000 t 3 Eiffel Tower Concrete 400,000 m3 700,000 m3 1,100,000 m3 1,2 Santa Lucía Hill Shotcrete 300,000 m3 300,000 m3 600,000 m3 Note: Costanera Center includes reinforcement bars of Tower 2 (highest tower). 12

13 Total staff present and recruited Human resources associated to the suppliers market Endowment associated with building projects Average ( ) 27,000 people 165 million M-H spent 250 million M-H to spend Recruited Staff (Direct + Indirect + PV*) Present Staff (Direct + Indirect + PV*) Peak ( ) 42,000 people Year Codelco will significantly increase the Man-Hour dedicated to projects in the next eight years. Notes: Includes initiatives from the portfolio of the Project Vice-Presidency (Structural Projects and others) and the Divisional projects. Consider the total staff hired (Direct and Indirect). Direct Staff: foremen, workers, miners, etc.. Indirect Staff: Professional for contractors supervision and administrative staff for structural projects. *: Project Vice-Presidency. 13

14 Value contribution of the Structural Projects of Codelco under execution stage Chuquicamata Underground New Mine Level Codelco Structural Projects within the Industry cost curve C1 of year c/lb, 2015 currency First Quartile Second Quartile Third Quartile Fourth Quartile Startup year Chuquicamata Underground Andina Transfer El Teniente New Mine Level IRR, %* 17% 14% 11% : Referential illustration. Codelco projects featured not in production in Notes: Primary production. Sources: Wood Mackenzie and Codelco. *: With Commercial Guidelines parameters, November Long-term price, according to market consensus, around US $ 3 / lb Source: Investment Evaluation and Projects Control Management and Vice-Presidency for Project. 14

15 FINANCE 15

16 Business and Development Plan: Investments and financing TOTAL INVESTMENT US$ 25.1 billion* FINANCING US$ 25.1 billion* 5% 2% 14% 18% 5% 11% 51% 19% 63% 12% Structural Projects Sustainability Projects Other Developmente Projects Equipment Replacement and Facility Restoration Studies* Mine development and deferred expenses Contributions to business or shareholding Own resources Financial Debt Capitalization Thanks to authorized capitalization by the owner, 19% of the financing is through financial debt 16 *: Figures correspond to cash. Nominal currency, Commercial Guidelines 2015, November **: Engineering studies, geological exploration and research.

17 Financing policy The Board defined a clear financing policy, which considers the use of debt consistent with our current investment grade rating. This ensures a competitive cost for the funds required by the Company (3.6%, US$, 12 years duration). Finally, a Law was enacted to capitalize Codelco, in the period , with up to US$ 4 billion through capital contribution and retained earnings. CODELCO'S ACCESS TO THE GLOBAL FINANCIAL MARKETS 26% FINANCIAL DEBT*: US$ 12.9 billion 6% 2% 0% 65% Bonds US$ Loans US$ Bonds EUR Bonds UF** Loans EUR Lowest cost of borrowing of any Latin American corporate issuer. These conditions reflect Codelco s financial strength and are a recognition to its consistent and well-defined Business Plan. 17 *: Excludes Mitsui debt to acquire 20% of Anglo American Sur asset, because it is non-recourse to Codelco. **: The Unidad de Fomento (UF) is a Unit of account that is used in Chile.

18 Codelco s financial strength Net Debt*/Capital Employed** EBITDA Margin 50 % 50 EBITDA Margin, % Copper price, c/lb *: Net of cash and cash equivalents. Excludes Mitsui debt to acquire 20% of Anglo American Sur asset, because it is non-recourse to Codelco. **: Capital Employed corresponds to debt plus equity w/o AAS impact EBITDA Margin Copper Price EBITDA / Net Financial Expenses Credit Rating 40 X International Debt Local Debt Outlook 30 Moody s A1 n/a Negative 20 S&P AA- n/a Stable Fitch A+ AAA Stable 10 Feller n/a AAA Stable w/o s/ efecto AAS impact AAS DBRS A n/a Stable

19 COMMUNITIES, WATER, ENERGY 19

20 Challenges: environmental and communities CHUQUICAMATA UNDERGROUND RT SULPHIDES PHASE II ANDINA TRANSFER EL TENIENTE NEW MINE LEVEL SALVADOR INCA PIT ANDINA EXPANSION ENVIRONMENTAL STATUS Approval in September 2010 (RCA No. 288/2010). EIA pending (entered May 2013). Approval in September 2011 (RCA No. 143/2011). Approval in March 2011 (RCA No. 118/2011). In study. EIA pending. N SECTORIAL PERMITS ,060 Adaptation to new environmental institutions in the process of projects evaluation. Legal uncertainty post-rca. Large number of permits require detailed planning. Uncertainty as to maturity of indigenous consultation process. Challenge: early community involvement. 20 Note: RCA stands for Environmental Qualification Resolutions.

21 Supply of critical inputs of Codelco: water and energy Actions for securing supplies Structural Projects WATER ENERGY Projects in Execution Stage CHUQUICAMATA UNDERGROUND EL TENIENTE NEW MINE LEVEL Current water sources. Additionally, Chuquicamata Underground considers The existing long-term contracts cover, with ANDINA MINE PLANT TRANSFER thickened tailings technology. competitive tariffs, the needs of the projects RADOMIRO TOMIC SULPHIDES PHASE II Consider the use of sea water and thickened tailings. under construction and some of the projects under study. Projects in Study Stage ANDINA EXPANSION Consider recycling tailings clear water. The remaining part will be supplied from the spot SALVADOR INCA PIT Current water sources and use of thickened tailings. market. Transversely, incorporating technology and best industry practices to reduce unit consumption of water and energy. 21

22 Desalination and direct use of sea water projects in Chile Period Related Mining Operation Capacity (l/s) Estimated year of plant / mining project startup Desalinated water (D) / Direct use of sea water (S) Escondida (Coloso I) 525 Operating (2006) D Esperanza 780-1,500 Operating (2010) S Candelaria * 300 Operating (2013) D Manto Verde * 120 Operating (2014) D Sierra Gorda 1,315 Operating (2014) S Antucoya S Diego de Almagro S Encuentro S Escondida (Coloso II) 2, D Lomas Bayas S Santo Domingo D S El Morro D Radomiro Tomic 1, D Relincho D 22 Source: Cochilco (2014). *: Intended to compensate communities.

23 Structural projects progress: year 2014 Chuquicamata Underground Early works close to completion with 92.4% of progress, at the end of the year. At the same time, execution of entire project recorded 17.4% of progress. El Teniente New Mine Level Progress of 31.8%. RT Sulphides Phase II Advances in its Detailed Engineering (26%) and in its environmental processing. Andina Expansion Environmental processing under development: it has until July 31 to submit its Adenda 2. Salvador Inca Pit Advances in its prefeasibility study. Andina Transfer Developing mass excavation, underground development and construction supporting facilities. 23

24 CORPORATE GOVERNANCE 24

25 Improvement of our Corporate Governance Conflict of interest management: Codelco today The opinion of Independent Expert on compliance with current legal framework, and possible gaps, opportunities and best practices in the field of conflict of interest at international level: Codelco meets legal requirements (established and applicable) in this area. Codelco has high standards with regard to the common practice in the industry. The regulations of the Corporation, in many ways, goes beyond mere compliance of the statutory, with more stringent provisions, particularly in relation to: Universe affected to regulations on potential conflict of interest; Powers of the line for approval of transactions with related parties; Registration and traceability systems developed by the Corporation, that exceed industry standards

26 General regulatory framework Formulation of a Policy document that specifies the areas of conflict of interest and general principles of the Corporation in this matter, including sanctions and prohibitions. In addition, development of a unique glossary of terms to facilitate clear understanding throughout the organization. Corporate Governance Code Charter of Values Code of Business Conduct Board regulations Corporative values and behavioral framework Definitions, Duties, Prohibitions Corporate policy on conflict of interest Glossary of terms Fields COMMERCIAL OPERATIONS CORPORATE RELATIONS AND ENVIRONMENT WITHIN THE ORGANIZATION Processes Elaboration of detail procedures regulated in specific documents, for each subject and relevant process Related party transactions Operations with subsidiaries and affiliates NCC 18* Lobby and lobbying Contributions and community investments Presents and gifts Recruitment and its regulation. Related people case Relations of subordination *: Codelco Corporate Standard

27 Further improvement of our Corporate Governance (I) General Regulatory Framework: Focus Issues Background aspects Guiding Principles Concept of conflict of interest. Related Party concept. Staffing. Law 18,575: statements of interests and patrimony. Gifts and presents. Lobby and Lobbying. Recruitment and selection. Role of the Audit Committee (CACE). Corporate world class standards. Standards of transparency, accountability and probity to the level of citizens' expectations. Complaint channels and deep investigation policies. Creating an organization / function of Compliance. 27

28 Further improvement of our Corporate Governance (II) Background aspects: Creating an organization / function of Compliance: o Periodic audits to the application of internal procedures. o Review of consistency / integrity / accuracy of the provided information. Prevention, detection and response to risks: Fraud and corruption. Breach of the competition laws. Failure to comply with international trade laws. Strong focus on prevention: Training and coaching: Identifying target staff. Ensuring mandatory and compliance of training. Maintaining updated records. Distributing periodic messages about risks and compliance. Risk map of fraud and corruption: Elaboration of risk matrix with user areas. Due Diligence of authorized commercial partners of Codelco, evaluating risks of corruption or fraud. Develop system for reporting and pre-approving donations, gifts and entertainment. Investigation and disciplinary actions: Working with Legal Department and General Audit Department on investigations. Participate in the Ethics or Discipline Committee. 28

29 EY III LATIN AMERICAN MINING & METALS TAX FORUM CODELCO S INVESTMENT PROGRAM: PROGRESS AND CHALLENGES Oscar Landerretche M. Chairman of the Board May 25 th, 2015