Corporacion Nacional del Cobre de Chile

Transcription

1 Corporacion Nacional del Cobre de ISSUER PROFILE Key Facts and Statistics 9M Sep 2017 Company overview TABLE OF CONTENTS Company overview Business description Management strategy Financial highlights Capital structure and debt maturity Company management Ownership structure Subsidiaries Sector/industry peer group Related websites and information sources Moody s related research Corporacion Nacional del Cobre de (Codelco) is a an producer of copper and copper byproducts. Its key products include refined copper (in the form of cathodes), copper concentrates, blister and anode copper, and byproducts such as molybdenum, anode slime and sulphuric acid. Through an associate company, Codelco also manufactures wire rods in Germany. Codelco is the world s largest producer of copper (production in the LTM ended September 2017, totaled 1.8 million metric tonnes 1; global share, 9%) and the secondlargest producer of molybdenum (29,000 metric fine tonnes [mft]; 13%). As of 31 December 2016, it held reserves of 48.2 million mft of ore and 7% of global proven and probable reserves of copper. In the 12 months ended 30 Sep 2017 (LTM Sep 2017), the company reported revenue of $13.2 billion. Codelco was established in 1976, following the nationalization of copper mining deposits in. The company is wholly owned by the Government of. Contacts Whitney Leavens Associate Analyst whitney.leavens@moodys.com Barbara Mattos, CFA VPSr Credit Officer barbara.mattos@moodys.com CLIENT SERVICES Americas Asia Pacific Japan EMEA Source: Company reports (consolidated financial statements Sep 2017 and Dec 2016, recent developments presentation Mar 2016, annual report Dec 2011), Moody s research, Moody s Financial Metrics Business description Codelco was established in 1976 as a result of the 1971 amendment to the an constitution that allowed for the nationalization of the country s mining industry. Until 1951, the an copper sector had been dominated by American companies, which developed and operated mines, including El Teniente (operating since 1905), Chuquicamata (1915) and Salvador (1926). However, in 1951, pursuant to the Washington Agreement, gained control over 20% of the country s copper production. In 1955, a series of new laws that affected the an copper industry were passed, which were intended to guarantee minimum revenue for the state. As a result, on May 5, 1955, the Copper Department (which later became Copper Corporation) was formed to oversee the national mining industry and to participate in international copper markets. In 1966, the Copper anisation Law was passed, which led to the creation of joint ventures between the an government and foreign mining companies. The new legislature set a minimum interest of 25% for the government in these joint ventures. In 1967, the El Teniente, Chuquicamata and Salvador mines became joint ventures, with the government taking a 51% stake in each. The government also acquired 25% holdings in the Exótica and Andina mines.

2 In 1971, the National Congress passed a law on the nationalization of copper assets in. Consequently, an mining deposits became wholly owned by the state. To manage the resources, stateowned general partnerships were created, which were managed by Copper Corporation. In 1976, Codelco was established, consolidating all the deposits managed by Copper Corporation including the Chuquicamata, Exótica, El Teniente, Salvador and Andina mines under one company. In 1997, Codelco commenced operations at the Radomiro Tomic mine, which was also the first deposit to be developed solely by the company. In January 2005, Codelco purchasedthe Ventanas Refinery Smelter complex, in s Fifth Region, a property owned by Empresa Nacional de Minería. In May 2008, Codelco s Gabriela Mistral Mine project began operations. In 2010, the company created the Ministro Hales division to develop and operate the Ministro Hales mine. The mine started operations during the first half of In addition to its wholly owned mines, the company produces copper through Sociedad Contractual Minera El Abra (49% stake) and is part of a joint venture with Mitsui & Co. Ltd that owns a 29.5% interest in Anglo American Sur and CODELCO owns, through this joint venture, 20% of Anglo American Sur. Codelco operates through the following eight operating segments: Chuquicamata; Radomiro Tomic; Ministro Hales; Salvador; Andina; El Teniente; Gabriela Mistral; and Ventanas. Chuquicamata: Accounting for 22.1%2 of the company s revenue in LTM Sep 2017, this segment comprises the operations of the Chuquicamata mine (an openpit mine located 1,650 kilometres [km] north of the an capital Santiago, at 2,870 metres above sea level). Its products include electrorefined and electrolytic copper cathodes, copper concentrate, molybdenum, anodic slimes and sulphuric acid. In LTM September 2017, this segment reported copper production of 278,010 mft and accounted for 16.3% of Codelco s production. In December 2014, the Codelco Board approved a plan to transform the Chuquicamata mine into an underground operation, with expected production of 367,000 mft of copper annually. Currently at its implementation stage, the project was 57% completed as of 30 September 2017, and is expected to start operations in Management expects the programme to extend the service life of the Chuquicamata mine by 40 years. Radomiro Tomic: Accounting for 15.6% of the company s revenue in LTM Sep 2017, this segment comprises the operations of the Radomiro Tomic mine (an openpit mine located 1,670 km from Santiago, at 3,000 metres above sea level in the Andes Mountains). Its products include electrorefined and electrolytic copper cathodes, copper concentrate and molybdenum. In LTM September 2017, this segment reported copper production of 310,000 mft, and accounted for 18.2% of Codelco s production. Meanwhile, the company has been developing its RT Sulphides Phase II project, which involves a new concentrator plant to process sulphide reserves from the Radomiro Tomic Mine. Currently, the project is being reassessed, as its profitability is not competitive when compared to the rest of the portfolio. This project is postponed until there is an economically viable alternative, and is expected to produce 354,000 mft of copper annually. Ministro Hales: Accounting for 13.9% of the company s revenue in LTM Sep 2017, this segment includes the operations of the Ministro Hales mine (an openpit mine located five km north of Calama, in the Second Region of Antofagasta). The mine commenced operations in the first half of Its main products include calcined copper and silver. In LTM September 2017, the mine produced 216,000 mft of copper, and accounted for 12.7% of the company s total production. Salvador: Accounting for 5.5% of the company s revenue in LTM Sep 2017, this segment includes the operations of the Salvador mine (an openpit and underground copper mine located 1,100 km north of Santiago in the Andes, at 2,600 metres above sea level). Its products include electrorefined and electrolytic copper cathodes, copper concentrate, molybdenum, sulphuric acid and anodic slimes. In LTM September 2017, the mine produced 61,000 mft of copper, and accounted for 3.6% of Codelco s total production. Furthermore, in June 2014, the company initiated a prefeasibility study for the Rajo Inca structural project, seeking to extend the life of the Salvador division by exploiting the remaining deposit resources through largescale openpit mining. The prefeasibility study for the structural project was approved in September 2017 as well as the budget to continue with the feasibility study. Andina: Accounting for 10.7% of the company s revenue in LTM Sep 2017, this segment includes the operations of the Andina mine (an underground and openpit mine located 80 km northeast of Santiago, at 3,700 4,200 metres above sea level). Its key product This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on for the most updated credit rating action information and rating history. 2 Corporacion Nacional del Cobre de : Key Facts and Statistics 9M Sep 2017

3 is copper concentrate. In LTM September 2017, the mine produced 216,000 mft of copper, and accounted for 12.7% of Codelco s total production. A key structural project is the mineplant transfer system. Currently, the company is studying a new alternative that requires less investment, optimizes water consumption through the reuse of water pumped from the tailings dam, and minimizes the impact on the environment to extend the life of the Andina Division for another 50 years. Construction of a new primary crushing station and ore transport system continues. El Teniente: Accounting for 22.7% of the company s revenue in LTM Sep 2017, this segment includes the operations of the El Teniente mine (an underground mine located 80 km south of Santiago, at 2,500 metres above sea level). Its key products include copper anodes, copper concentrate, molybdenum, sulphuric acid and anodic slimes. In LTM September 2017, the mine produced 468,000 mft of copper, representing 27.5% of the company s total output. Currently in its construction phase, Codelco s El Teniente New Mine Level project, in order to successfully overcome the project s various challenges, has been adjusted to better respond to the geomechanical conditions encountered in its implementation, incorporating the latest knowledge in mining project development. While it was originally set to be complete in 2020, it is now expected to be complete in It is forecast to add 2 billion metric tons of reserves, with an average copper grade of 0.86%, which are projected to last up to 50 years at current annual production rates. Gabriela Mistral: Accounting for 6.4% of the company s revenue in LTM Sep 2017, this segment includes the operations of the Gabriela Mistral mine (an openpit mine located 120 km southwest of Calama, at 2,660 metres above sea level). Its key product is electrolytic cathodes. In 2016, the mine produced 121,712 mft of copper, and accounted for 6.7% of Codelco s total production. Ventanas: Accounting for 3.1% of the company s revenue in LTM Sep 2017, this segment includes the operations of the Ventanas smelter and refinery. Its key products include copper cathodes, gold bars and silver grains. Source: Company reports (annual report Dec 2016, Dec 2015 and Dec 2011, consolidated financial statements Sep 2017, June 2016 and Dec 2016, Codelco update Apr 2015, investor presentation Oct 2017 and Mar 2015), Company data, Moody s research Exhibit 1 Exhibit 2 Revenue by segment Revenue by geography (in $ Million) (in $ Million) LTM Sep ,000 4,500 2,500 4, LTM Sep ,500 2,000 3,000 1,500 2,500 1,000 2, ,500 Note: Excluding revenue from subsidiaries, associates and head office Source: Company reports (consolidated financial statements Sep 2017 and Dec 2016) Ventanas Gabriela Mistral El Teniente Andina Salvador Ministro Hales Radomiro Tomic Chuquicamata 0 1, China Rest of Asia Europe Americas Other Source: Company reports (consolidated financial statements Sep 2017 and Dec 2016) Management strategy Codelco seeks to maintain its position as the world s largest copper producer and to continue to contribute to the development of, particularly through its current operations. The company has announced the following strategic objectives: Improve cost effectiveness and increase productivity: The company has a cost and productivity agenda aiming to increase productivity by 20% by 2020 while achieving cost savings of $2.2 billion over the period. By the end of 2017, $1.3 billion, almost 60% of the goal, is planned to materialize. The company aims to achieve the same through proactive maintenance, Lowcost sourcing management, operational excellence and asset and working capital management. 3 Corporacion Nacional del Cobre de : Key Facts and Statistics 9M Sep 2017

4 Efficient investment program: Between 2014 and the last twelve months ended September 2017, Codelco has implemented investments worth $13.5 billion. During 2016, the company optimized its project portfolio which led to rescheduling of investments. As a result Codelco has built a $18 billion investment plan for Ensure a profitable mining base: The company seeks to improve the profitability of its mining base by constructing various structural mining projects, including the Chuquicamata underground mine, and mineplant transfer system at Andina and the New Mine Level at El Teniente. Grow outside its current mining base: Codelco is conducting exploration worldwide to support and expand its mineral base. Maintain a strong balance sheet: Codelco's focus on efficiency, recent liability management and ongoing capitalization from the government have improved the company's capacity to direct cash flows toward high capital spending needs while maintaining adequate liquidity. Strengthen corporate governance and accountability: Setting high standards of transparency and integrity through careful review and formalizing policies and procedures to strengthen corporate governance, supported by Codelco's corporate governance law. Source: Company reports (annual report Dec 2016, Dec 2015 and Dec 2011, investor presentation ), Company data, Moody s research 4 Corporacion Nacional del Cobre de : Key Facts and Statistics 9M Sep 2017

5 Financial highlights Overview Company Type: Fiscal Year End: Auditor: Private December EY Ltda. Note: The financials presented below have been adjusted for Moody s analytic purposes. To see how adjustments have been made, please see Moody s Financial Metrics, a fundamental financial data and analytics platform that offers insight into the drivers of Moody s Corporate ratings. Exhibit 3 Selected adjusted financial data Corporacion Nacional del Cobre de (in $ Million) LTM as of Sep Dec16 31Dec15 31Dec14 INCOME STATEMENT Revenue/Sales 13,185 11,537 11,693 13,827 Gross Profit 5,677 4,155 3,874 5,778 EBITDA 3,876 2,572 1,971 4,133 EBIT 1, (175) 1,947 Interest Expense Net Income 336 (94) ,311 BALANCE SHEET Cash & Cash Equivalents 1, ,748 Current Assets 5,362 4,696 6,058 5,989 Net Property, Plant & Equipment (PP&E) 25,616 24,814 24,320 23,461 Total Assets 35,805 34,239 34,996 36,813 3,581 3,060 4,836 4,504 Total Debt 16,387 16,027 16,773 15,426 Total Liabilities 26,460 25,442 26,405 27,241 9,345 8,797 8,591 9,573 Funds from Operations (FFO) 2,606 2,196 1,959 2,694 Cash Flow from Operations (CFO) 3,091 1,354 2,847 3,163 Capital Expenditures (CAPEX) (2,974) (3,059) (4,254) (3,926) Cash from Investing Activities (3,195) (3,053) (4,284) (3,949) Current Liabilities Shareholders' Equity CASH FLOW Dividends (170) (661) Retained Cash Flow (RCF) 2,436 2,196 1,959 2, ,888 1,314 Share Repurchases Cash from Financing Activities LTM = Last 12 months Source: Moody s Financial Metrics 5 Corporacion Nacional del Cobre de : Key Facts and Statistics 9M Sep 2017

6 Exhibit 4 EBITDA Margin and EBITDA/Interest Expense (Adjusted) EBITDA Margin % EBITDA / Interest Expense 32% 9.6x 8.3x 28% 7.0x 24% 5.7x 20% 4.4x 16% 3.1x As of 30 Sep 2017 Source: Moody s Financial Metrics Exhibit 5 Debt/EBITDA and RCF/Debt (Adjusted) Debt / EBITDA RCF / Debt % 9.0x 16% 8.0x 15% 7.0x 14% 6.0x 13% 5.0x 12% 4.0x 3.0x 11% As of 30 Sep 2017 Source: Moody s Financial Metrics 6 Corporacion Nacional del Cobre de : Key Facts and Statistics 9M Sep 2017

7 Capital structure and debt maturity Note: The financials presented below have been adjusted for Moody s analytic purposes. To see how adjustments have been made, please see Moody s Financial Metrics, a fundamental financial data and analytics platform that offers insight into the drivers of Moody s Corporate ratings. Exhibit 6 Capital structure Corporacion Nacional del Cobre de (in Million) 30Sep17 31Dec16 31Dec15 31Dec Current Portion of LongTerm Debt , Total ShortTerm Debt , Equipment Trust Secured Debt SHORT TERM DEBT ShortTerm Debt LONGTERM DEBT Senior Debt 15,278 14,914 14,831 13,635 Subordinated Debt Mandatorily Redeemable Pref. Secur. Capitalized Leases Gross LongTerm Debt Less Current Maturities ,399 15,038 14,950 13,753 (882) (341) (1,162) (972) Net LongTerm Debt 14,517 14,698 13,788 12,781 Total Debt 15,400 15,040 14,954 13,756 Total Adjusted Debt 16,387 16,027 16,773 15,426 9,423 8,942 8,656 7,868 (36) (30) 34 1,794 SHAREHOLDERS' EQUITY Preferred Stock Common Stock & PaidIn Capital Retained Earnings Accumulated Other Comprehensive Income Total Equity 9,387 8,912 8,690 9,662 Total Adjusted Equity 9,345 8,797 8,591 9,573 30,456 28,911 29,635 31, Holding Company Debt/Total Debt (%) Secured Debt/Total Debt (%) Adjusted Book Capitalization Adjusted Market Capitalization Adjusted Debt/Adjusted Book Capital (%) Source: Moody s Financial Metrics 7 Corporacion Nacional del Cobre de : Key Facts and Statistics 9M Sep 2017

8 The only standard adjustment to Codelco's debt is for operating leases Exhibit 7 Components of debt 18, , ,387 Hybrid Securitisation Analyst Adj. Debt 0 15,400 14,000 $ Million 12,000 10,000 8,000 6,000 4,000 2,000 0 Unadj. Debt Pensions Lease Adj. As of 30 Sep 2017 Source: Moody s Financial Metrics Exhibit 8 Upcoming longterm debt maturities 6,000 4,930 5,000 $ millions 4,000 3,000 1,829 2,000 1,500 1,453 1,072 1,067 1, Cash & Equivalents Year As of September 2017 Source: Company data Company management Exhibit 9 Corporacion Nacional del Cobre de Company Management Current Title Previous Roles Nelson Pizarro Contador President and Chief Executive Officer SCM Minera Lumina Copper : Chief Executive Officer and General Manager; Codelco: Vice President, Codelco Norte Division Exhibit 10 Corporacion Nacional del Cobre de 8 Board of Directors Affiliation Óscar Landerretche Moreno Codelco: Chairman of the Board of Directors; Universidad de : Professor, Department of Economics; APEC Business Advisory Council: Member Corporacion Nacional del Cobre de : Key Facts and Statistics 9M Sep 2017

9 Juan Enrique Morales Jaramillo Isidoro Palma Penco Blas Tomic Errázuriz Laura Albornoz Pollmann Dante Contreras Guajardo Raimundo Espinoza Concha Ghassan Dayoub Paul Schiodtz Obilinovich Codelco: Member of the Board of Directors; Universidad Adolfo Ibáñez: Director of the Innovation Centre Codelco: Member of the Board of Directors; Universidad Católica de : Member of the Corporate Governance Consultation Council; Inversiones y Asesorías Prime: Principal Partner and Executive Director Codelco: Member of the Board of Directors; Extensive experience in public and international Institutions, holding several executive and leadership positions Codelco: Member of the Board of Directors; Universidad de : Academic, Department of Private Law, Law Faculty Codelco: Member of the Board of DirectorsUniversidad de : Professor, Department of Economics; Centro de Estudios de Conflicto y Cohesión Social: Director of the Centre Codelco: Member of the Board of Directors; Federación de Trabajadores del Cobre: President of the Federation Codelco: Member of the Board of Directors Codelco: Member of the Board of Directors As of 11 Dec 2017 Source: Company report (annual report Dec 2016), Company data Ownership structure Codelco is wholly owned by the an government. Source: Company report (operational and financial results June 2017) Subsidiaries As of 31 December 2016, Codelco s principal subsidiaries were as follows: Exhibit 11 Corporacion Nacional del Cobre de 9 Subsidiary Country % Held Copper Limited Codelco do Brasil Mineracao Codelco Group Inc. Codelco International Limited Codelco Kupferhandel GmbH Codelco Metals Inc. Codelco Services Limited Codelco Shanghai Company Limited Codelco Technologies Ltd. Codelco USA Inc. Codelco Canada Ecometales Limited Exploraciones Mineras Andinas Ecuador EMSAEC SA Cobrex Prospeccao Mineral Compañía Contractual Minera los Andes Isapre Chuquicamata Ltda. Asociación Garantizadora de Pensiones Clinica San Lorenzo Limitada San Lorenzo Institución de Salud Previsional Ltda. Isapre Río Blanco Ltda. Sociedad Ejecutora Hospital del Cobre Calama SA Complejo Portuario Mejillones SA Ecosea Farming SA Codelco Tec SpA (formerly: Biosigma SA) Exploraciones Mineras Andinas SA Clinica Río Blanco SA England Brazil US Bermuda Germany US England China Bermuda US Canada Anglonormandars Ecuador Brazil Corporacion Nacional del Cobre de : Key Facts and Statistics 9M Sep 2017

10 Centro de Especialidades Médicas Río Blanco Ltda. Sociedad de Inversiones Copperfield SpA Innovaciones en Cobre SA Molyb Ltda. Inversiones Mineras Acrux SpA Inversiones Gacrux SpA Inversiones Mineras Nueva Acrux SpA Inversiones Mineras Los Leones SpA Inversiones Mineras Becrux SpA Centro de Especialidades Médicas San Lorenzo Ltda. Central Eléctrica Luz Minera SpA Centro de Servicios Médicos Porvenir Ltda. Inmobiliaria e Inversiones Rio Cipreces Ltda. Prestaciones de Servicios de la Salud Intersalud Ltda. Compañía Minera Picacho CK Metall Agentur Gmbh Germany Source: Company Report (annual report Dec 2016) Sector/industry peer group» BHP Billiton Limited» FreeportMcMoRan Inc.» Glencore International AG» Anglo American plc» First Quantum Minerals Ltd» Southern Copper» Minera Escondida Related websites and information sources For additional information, please see: The company s website» MOODY S has provided links or references to third party World Wide Websites or URLs ( Links or References ) solely for your convenience in locating related information and services. The websites reached through these Links or References have not necessarily been reviewed by MOODY S, and are maintained by a third party over which MOODY S exercises no control. Accordingly, MOODY S expressly disclaims any responsibility or liability for the content, the accuracy of the information, and/or quality of products or services provided by or advertised on any third party web site accessed via a Link or Reference. Moreover, a Link or Reference does not imply an endorsement of any third party, any website, or the products or services provided by any third party. 10 Corporacion Nacional del Cobre de : Key Facts and Statistics 9M Sep 2017

11 Moody s related research Issuer page on Moodys.com» Corporacion Nacional del Cobre de Credit opinion» Corporacion Nacional del Cobre de Issuer indepth» Presale report: Corporacion Nacional del Cobre de, July 2017» Codelco and Southern Copper Corporation: Peer Comparison Solid positions in copper market, but diverse growth strategies and financial profiles, July 2016 Issuer comment» Corporacion Nacional del Cobre de : No impact on ratings following s change in outlook to negative, August 2017 ( ) Rating action» Moody's affirms CODELCO's A3 ratings; changes outlook to stable from negative, October 2017 Rating methodology» Global Mining Industry, August 2014 (173807) To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of this report and that more recent reports may be available on the issuer s page. All research may not be available to all clients. 11 Corporacion Nacional del Cobre de : Key Facts and Statistics 9M Sep 2017

12 Endnotes 1 Total copper production includes the company s share of production in Minera El Abra (49%) and Anglo American Sur (20%). 2 Throughout this section, such percentages are calculated excluding Subsidiaries, Associates and Head Office 12 Corporacion Nacional del Cobre de : Key Facts and Statistics 9M Sep 2017

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14 14 Contacts CLIENT SERVICES Whitney Leavens Associate Analyst Americas Asia Pacific Japan EMEA Corporacion Nacional del Cobre de : Key Facts and Statistics 9M Sep 2017