ICSG Meeting Lisbon, September 2006 CONTENTS

“Current and Future 1. Chilean industry: current situation Situation of the Copper Industry in ” 2. The future of Chilean copper production 3. Challenges for Chilean copper industry

Research and Policy Planning Division Chilean Copper Commission

Milestones in copper production Overview of the Chilean copper industry State owned vs. private Cu production Chilean copper industry in 2005: 1990 75% 2005 32% 45% ! of Chilean exports. 5000

13,9% ! of Chile’s nominal GDP. 4000 35,6% ! of world mine copper production (30,5% of 68% copper in concentrates, 58,7% of SxEw). 3000 25%

000' tons Public Sector Private Sector 30,0% ! of world reserves of copper. 2000 Chilenization 8,6% ! of global exploration expenditure in base Nationalization metals (3,2% of global expenditure) 1000 24,7% ! of world refined production (EW+primary ER). 0 10,6% ! of world primary ER production. 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Source: Cochilco Source: Cochilco

Milestones in copper production Copper in Chile: large scale Concentrates vs. SxEw Cu production Mine size and Chilean participation in Cu production Rest of the World Chile 1990 2005 5000 4000 21% 33% 62% 8% 30% 4000 SxEw 3000

3000 2000 000' t 000' t 2000 Concentrate 1000 1000 0 0 Small Medium Large 0-140 140-400 >400

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Mine Size (Annual Production 2005)

Source: Cochilco Source: Brook Hunt

1 Copper : large scale Copper smelting in Chile 2005 copper mine production by site 2005 primary smelter production Peru El Salvador- Scandinavia Altonorte Los SxEw Concentrates Potrerillos Bronces Norte Australia Norte Escondida Michilla El Soldado Korean Rep. 26% M.Blancos- Candelaria Kazakhstan Chagres El Abra Sta. Los 30% 20,4% Barbara Bronces 7% 13% Canada 13,4% Chile Collahuasi División 24,1% 15% Andina 9% India Ventanas Manto 24,1% 9% (Cerro Verde 6% Blanco) 10% 12% United States 13,8% 6% 8% Escondida( Lomas Oxidos) 11,3% Bayas Chuquica Poland Los H.Videla Lira Quebrada Cerro mata Pelambres El Teniente- Blanca Colorado El Tesoro Zaldiv ar Collahuasi El Teniente Russian Fed. Japan China Caletones ~1,59 MT ~3,74 MT ~11,6 MT ~1,56 MT

Source: Cochilco Source: Cochilco

Copper refinery in Chile 2005 primary refinery production Chilean copper mine costs Average cash costs 2005 (composite) Peru Scandinav ia Germany Ventanas El Teniente- Caletones(RAF) Kazakhstan

Australia Korean Rep.

29,3% India 10,6% Chile Canada 46,5% 16,5% Poland 10,5% El Salvador- United States Potrerillos Chuquicamata Russian Fed. Japan China ~11,6 MT ~1,24 MT

Source: Cochilco Source: Brook Hunt

Milestones: exploration Main discoveries since 1981 & current Cu reserves CONTENTS

20 Escondida Gaby Opache Lomas Bayas Spence 1. Chilean copper industry: current situation Tesoro Antucoya 15 Collahuasi Genoveva 2. The future of Chilean copper production

i Galenosa

10 Mansa Mina Tok Quetena 3. Challenges for Chilean copper industry Vicky La Fortuna

Candelaria Relincho Damiana

5 Vizcachitas Mt Cu (Current reserves)

0 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Source: Cochilco, Brook Hunt.

2 Concentrates production forecasts Future Chilean production on a glimpse Base case + new projects Chilean copper industry from 2006-2012: Cerro Casale 4,800 Andacollo Los Bronces Sulphides Expansion Alejandro Hales 4,600 Esperanza Andina 8.800 MUS$ ! Total CODELCO investment. Expansion 4,400 4.600 MUS$ ! Total private investment. Los Pelambres 1,55 M tpy ! Additional copper mine production. 4,200 Expansion Teniente 3,7% ! Annual growth in copper production. 4,000 Development

0,69 M tpy ! Additional smelter production. 3,800 0,37 M tpy ! Additional refinery production. 3,600

3,400 2005 2006 2007 2008 2009 2010 2011 2012 Source: Cochilco Source: Cochilco

SxEw production forecasts Smelter production forecasts Base case + new projects Base case + new projects

Fortuna de Cobre Regalito Antucolla Altonorte H. Videla Lira Chuquicamata El Abra 2500 Spence Expansion Expansion Expansion Frankestein 2150 Mantos de Gaby la Luna 2000 1950 H. Videla Lira Ventanas Escondida Sulphides 1500 Chagres 1750 Potrerillos

1000 Altonorte 1550 Caletones 500 1350

Chuquicamata 0 1150 2005 2006 2007 2008 2009 2010 2011 2012 2005 2006 2007 2008 2009 2010 2011 2012 Source: Cochilco Source: Cochilco

Refinery production forecasts Overview of main new projects Base case + new projects Concentrates expansion & new mine projects Chuquicamata Potrerillos Project Owner Investment Reserves Grade Start Capacity 1800 Expansion Expansion MUS$ Mt % Year 000’ t 1600 Teniente Codelco 634+ - - 2005 175 1400 (Expansion) Los Pelambres Antofagasta Potrerillos 182 - - 2008 100 1200 (Expansion) Minerals Caletones Andina 1000 Codelco 226 - - 2008 80 (Expansion Phase I) 800 Ventanas Andacollo Sulphides Aur Resources 350 421 0,42 2009 71 Los Bronces Anglo 600 800 - - 2010 175 (Expansion) American 400 Antofagasta Chuquicamata Esperanza 600 295 0,66 2010 120 200 Minerals Alejandro Hales Codelco 340 614 1,08 2011 200 0 Cerro Casale Bema Gold 1.650 1.035 0,26 2012 125 2005 2006 2007 2008 2009 2010 2011 2012 Source: Cochilco Source: Cochilco

3 Overview of main new projects Overview of main new projects SxEw expansion & new mine projects Smelter & refinery expansions

Project Owner Investment Reserves Grade Start Capacity MUS$ Mt % Year 000’ t Escondida S. leach. BHPB 870 1100 0,52 2006 180 Project Owner Investment Current Production. Change in Production. Mantos de la Luna Lipesed 55 41 1,39 2006 24 MUS$ 000’ t Cu 000’ t Cu Spence BHPB 990 400 1,0 2007 200 SMELTERS Gaby Codelco 874 541 0,44 2008 150 Altonorte Xstrata 58 290 110 Frankestein Continental 70 34 - 2008 42 H. Videla Lira Enami 28,3 94 15 Fortuna de Cobre Xstrata 335 470 0,31 2009 75 Chuquicamata Codelco - 375 445 El Abra S. leach. Phelps Dodge 350 800 0,53 2010 150 REFINERIES Regalito Pan Pacific 660 628 0,43 2011 80 Chuquicamata Codelco - 580 270 Andina SxEw Codelco 193 20 0,2 2012 42 Potrerillos - 138 75 Antofagasta Antucolla 100 300 0,45 2012 40 Minerals

Source: Cochilco Source: Cochilco

Main projects in the long term Main projects in the long term Expansion projects & new mines Exploration projects

PROJECT OWNER METAL STAGE Project Owner Investment Reserves Grade Start Capacity CLUSTER TOKI Codelco Copper Evaluation MUS$ Mt % Year 000’ t CHIMBORAZO BHP Billiton Copper Evaluation Chuquicamata Codelco ~900 1254 0,79 2014 ~375 RELINCHO Lumina Copper Corp. Copper & Moly Exploration Underground VIZCACHITA Lumina Copper Corp. Copper & Moly Exploration Andina Codelco ~2100 - - - ~170 CONCORDIA Breakwater Resources Copper, Lead & Zinc Exploration Expansion II Phase WEST WALL Falconbridge Copper Exploration El Morro Xstrata ~1200 479 0,64 2013 ~100 SIERRA GORDA Quadra Mining Copper Exploration

Source: Cochilco Source: Cochilco

Challenges for Chilean copper mining CONTENTS Water & mining in Chile 4,5% ! Water use by the mining industry in Chile. 70% ! Water use in mining regions by the mining 1. Chilean copper industry: current situation industry. 2. The future of Chilean copper production 2,7 ! Index of water price in mining regions ( = 1). 3. Challenges for Chilean copper industry 1,0 m3/t ! Concentration water use / ton of mineral. 1. Water 0,3 m3/t ! Hydrometallurgy water use / ton of mineral. 2. Energy • ¿How to develop sustainable mining in one of 3. Mining cluster the driest places on earth?

Source: Cochilco

4 Challenges for Chilean copper mining Challenges for Chilean copper mining Water & mining in Chile Water & mining in Chile

Mining sector response: Mining sector response: Water legislation • Water Code considers more Water legislation • In new technology, like supervision by the authority (DGA), desalinization plants. An Investment regarding the constitution and Investment example is Escondida´s recent tender processes of the water investments, with a rate of 525 lt/s Efficiency rights Efficiency for the Escondida Low Grade Sulphides project. (170Km from • Regulates increasing competition plant to mine, 3000m difference) between mining an other economic sectors for water resources. • Exploration to find new water resources. For example Pampa • Other institutions concerned with Puno by Codelco. water management.

Source: Cochilco Source: Cochilco

Challenges for Chilean copper mining Water & mining in Chile CONTENTS Mining sector response: Water legislation • Best practices for the efficient use 1. Chilean copper industry: current situation Investment of water resources (Public-Private Initiatives) leads to: 2. The future of Chilean copper production Efficiency •Better management systems of water resource. 3. Challenges for Chilean copper industry

• Measurement & efficiency 1. Water indicators. 2. Energy • Increased rates of re-circulation & other concrete measures. 3. Mining cluster

Source: Cochilco

Challenges for Chilean copper mining Challenges for Chilean copper mining Energy & mining in Chile Energy & mining in Chile

28 US$/MWh ! SING* marginal cost of energy 2005 Mining sector response: 81% ! increase in marginal cost 2003-2005 ! Energy policy is an issue that goes beyond the mining 2,90 MWh/t ! Electricity use / ton of SxEw cathode sector and affects the country as a whole. 3,05 MWh/t ! Electricity use / ton of ER cathode ! The most important aspect is reliability of supply, 58% ! Natural Gas in SING system. which is being analyzed at the highest level to achieve appropriate diversification of energy sources. 85% ! Mining energy use of SING ! The northern regions have adapted to problems with natural gas supply by converting to other energy sources. • ¿How to secure energy supply for mining & other sectors? ! Even though prices have gone up in recent years, they are still below historical levels (the effect of natural gas). • * SING grid provides electricity to the northern regions.

Source: Cochilco Source: Cochilco

5 Challenges for Chilean copper mining CONTENTS Development of a mining cluster 140 MUS$ ! Annual expenditure in engineering 2002-2005 550 MUS$ ! Annual expenditure in construction 2002-2005 1. Chilean copper industry: current situation 1.255 MUS$ ! Expenditure in goods and supplies for mining. 2. The future of Chilean copper production 1.590 MUS$ ! Expenditure in services for mining. 370 ! Number of supplier companies to mining 3. Challenges for Chilean copper industry

1. Water • ¿How to develop an economic cluster around 2. Energy mining & achieve sustainable development in 3. Mining cluster the mining regions?

Source: Cochilco

Challenges for Chilean copper mining Final remarks Development of a mining cluster • Water, energy & the development of a mining cluster are Mining sector response just some of the challenges faced by this complex and Public-private initiatives to increase transparency, competitiveness competitive industry. Other issues are arising: and foster innovation: 1. Challenges for the further development of mature mines, ! Programs with local suppliers to mining (Minexport: association mines at high altitude & complex environments. to facilitate exports of goods, services & supplies to the mining industry; Suppliers development plan, a program to develop local 2. Promotion of exploration investment. suppliers in the Antofagasta Region; a registry of approved suppliers 3. Closure of mines & site rehabilitation. by AIA, for transparency & less transaction costs). ! Information about business opportunities for the mining 4. Other environmental issues. suppliers sector published periodically by Cochilco. • The mining industry remains competitive by anticipating these ! Research institutions: (Cicitem, a mining sector research challenges & coordinating its actions. institution related to Antofagasta & Northern Catholic Universities, with public & private financing.) Source: Cochilco

ICSG Meeting Lisbon, September 2006

“Current and Future Situation of the Copper Industry in Chile”

Research and Policy Planning Division Chilean Copper Commission

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