Celfin Capital Andean Investor Day London –New York
June 2011 This information material may include certain forward‐looking statements and projections provided by CAP S.A. (the “Company“) with respect to the financial condition, results of operations, cash flows, plans, objectives, future performance, and business of the Company. Any such statements and projections reflect various estimates and assumptions by the Company concerning anticipated results and are based on the Company’s expectations and beliefs concerning future events and, therefore, involve risks and uncertainties. Such statements and projections are neither predictions nor guarantees of future events or circumstances, which may never occur, and actual results may differ materially from those contemplated (expressed or implied) by such forward‐ looking statements and projections. No representations or warranties are made by the Company or any of its affiliates as to the accuracy of any such statements or projections. Whether or not any such forward looking‐statements or projections are in fact achieved will depend upon future events, some of which are not within the control of the Company. Accordingly, the recipient of this material should not place undue reliance on such statements. Any such statements and projections speak only as of the date on which they are made, and the Company does not undertake any obligation, and expressly disclaims any obligation, to update or revise any such statements or projections as a result of new information, future events, or otherwise
2 Agenda
Company overview Global environment Business plan Financial highlights Investment considerations
3 Vertically integrated ferrous metal company o Exports iron ore products, mainly to Asia o Produces steel for the domestic market o Processes value‐adde d steel solutions in Chlhile, Peru and Argentina o The above allows for a balanced and profitable business portfolio o 2010 Consolidated Revenues, EBITDA and Net Income of US$ 2 billion, US$ 740 million and US$ 304 million respectively
Mining Steel Steel Processing
4 Corporate structure
Mitsubishi Pension Invercap Other Corporation Funds 19,3% 9,4% 31,3% 40,0%
47,32%
52,68%
75,0%
99,9% 25,0% Compañía Minera Compañía Siderúrgica Novacero del Pacífico Huachipato
50,93% 50,93%
11,03% 11,03% Cintac Intasa
Iron Ore Mining Steel Production Steel Processing
5 Source: CAP, May 26 2011 Iron ore mining
Los Colorados mine Iron ore mining operations
Punta Totoralillo Port
Cerro Negro Norte
There are currently three different and Copiapó idindepen den t areas of operation in the Magnetite Plant north of Chile, located around the cities of La Serena, Vallenar and Copiapó:
Los Colorados Cities Guacolda II Port
Vallenar Pellets Plant Mines El Algarrobo
Processing Plants
Ports Cristales
El Tofo
El Romeral La Serena Guayacán Port 7 Shipments and markets
Shipments Markets 2010
12.030 12.000 18%1,8% 03%0,3% 10.145 10.213 7,6% 15%1,5% 10.000 2,8% 8.377 14,8% 7.674 61,6% 8.000 7.251 MT
.
hh 6.000 T 9,6% 4.000
2.000 2.289 1Q 11 0 China Chile Japan Malaysia USA Indonesia Korea Perú 2006 2007 2008 2009 2010 2011E
Share of Seaborne market
Seaborne Trade 2005 2006 2007 2008 2009 2010 2011f
CMP Market Share (%) 1,11% 1,04% 1,07% 0,86% 1,11% 0,98% 1,10%
Source: Goldman Sachs, Credit Research 2010
8 Resources and reserves of magnetite ore
Mine / Deposit Total Mineral Resources (1) Reserves (2) MTM Grade (% Fe) MTM Grade (% Fe) Existing operations Los Colorados (under expansion) + District 437 45,0% 256 43,6% El Romeral 282 33,9% 86 39,7% El Algarrobo 143 41,3% 47 47,8% Hierro Atacama I ‐ Candelaria (3) 302 10,0% ‐‐ ‐‐ Projects under construction Cerro Negro Norte 457 34,6% 177 39,0% Reserves for future development Pleito Cristales / Tofo District 587,4 28,4% Under study El Laco 734 49,2% 376 56,7% El Algarrobo ‐ Alcaparra District 536 33,2% 118 35,5% Total 3.478 35,80% 1.060
Source: CAP o As a result of continued successful exploration campaigns, iron ore resources have increased progressively over the years; 2.352 million MT in 2007, reaching 3.478 million MT in 2010 o Current resources would allow for eventual production of over 40 million MT per year
(1) Those minerals measured on a geological ore content feasible of being mined. (2) Those geological resources that are feasible of being mined economically. 9 (3) CMP has the contractual right to process the tailing dump and fresh tailings of Candelaria copper mine. Steel production
Blast Furnace at CSH Steel production
Market Share o The leader in Chile’s steel market 70% 65% Earthquake 58% 66% 62% o 1.45 million ton s of aauannualliqui d steel 60% 50% 55% 50% 55% 37% production capacity 40% 47% 30% 30% Strong long term commercial relations 20% o 10% with customers in Chile 0% 2007 2008 2009 2010 1T 2011 o Vertical integration in iron and limestone Target Market Total Market provides an advantageineconomic Shipments and Prices cycles 4.000 1.116,9 1.200,0 3.500 1.000,0 o Long products: Rebar, wire rod and 3.000 835,0 798,7 800,0 grinding bars; Flat steel: HRC, CRC and 2.500 714,2 698,8 MT zincalum 2.000 626,8 600,0 Th. 1.500 1.219 US$/Ton 1.119 1.213 1.161 400,0 922 1.000 671 200,0 500
0 0,0 2006 2007 2008 2009 2010 2011E 11 Deliveries Prices Steel production o The earthquake of February 27, 2010, severely damaged our steel mill, causing a 3 months detention o Greater damage in primary production area: pier, coke plant, blast furnaces and steel shop o Production restarted within June , 2010 o In 2011 plant operating at full capacity (around 100 Th. tons of finished product per month) o Integrated steel producers’ margins facing a strong challenge due to increase in raw materials costs and electricity
12 Steel processing Steel processing
o Creates value‐added solutions for the construction, industry and infrastructure sectors in Chile, Peru and Argentina o Chile is Latinamerica’s most advanced user of steel in construction o Seeks to promote steel consumption
Shipments and Prices
1.300,0 1.400 1.245,4 1.250,0 1.200 1.200,0 1.000 1.198,9 1.150,0
1.093,6 Ton
MT 800
/
1.040,8 1.100,0 $ h. 1.058,6 SS TT 600 1.050,0 U 407 350 341 400 274 297 1.000,0 200 950,0 0 900,0 2007 2008 2009 2010 2011E
Deliveries Price
14 EBITDA (1) by business unit
97% 100% CMP CSH SPG 92%
80% 77%
60% 54% 52% 47% 50% 42% 38% 40% 40% 36%
18% 20% 13% 12% 8% 8% 5% 6% 7% ‐3% 1% 0% 2005 2006 2007 2008 2009 2010 1Q 2011 ‐20%
US$ million 2005 2006 2007 2008 2009 2010 1Q 2011
EBITDA 255 247 336 534 128 740 223
(1) EBITDA: Gross Margin – S&AE + Depreciation + Dividends received in cash. 15 Agenda
Company overview Global environment Business plan Financial highlights Investment considerations
16 Seaborne iron ore supply and demand balance
Seaborne supply and demand balance New projects
MMT
100
50
0 2009 2010 2011f 2012f 2013f 2014f 2015f 2016f ‐50
‐100
‐150
‐200
‐250
‐300
‐350 Deficit
Source: Macquarie Research, May 2011 Source: Macquarie Research, 2010
o Target implementation date of new projects highly unpredictable o Iron ore supplies will remain tight for the next several years
17 Seaborne iron ore supply and demand balance
Increase in production capacity New projects
506 MTM 304 234 169 125
26 MTM 2008 2009 2010
o New projects generally require high infrastructure cost and extended construction periods o Environmental permits ever more demanding o Average project Capex has quadrupled since 2006 o Asaresultoverhalfofprojectstargetedbylargeproducersfor2008‐2010 have been delayed. Those more recently announced should follow similar fate
18 Source: Macquarie Research, March 2011 Strong increase in Capex observed for new projects
Source: JP Morgan Research , May 2011 o It is getting more expensive to add new capacity, even for the big 3
19 Iron ore price evolution
Iron ore grades of Chinese producers v/s Iron ore spot prices
Source: JP Morgan Research, May 2011
20 Iron ore price projection
Iron Ore Spot Price Estimates (Pellet Feed US$/Ton)
Source: Macquarie Commodities Research, May 2011 o According to the market projections, iron ore prices will remain strong
21 Evolution of raw materials prices
Metallurgical Coal Iron Ore
350 225 211,49 Pellet (65% Fe) 300 200
250 175 150 151, 24 200 138,83 125 150 US$/Ton 100 100 US$/DMT 72,83 75 50 71,78 50 28,03 0 25 37,81 11 11 11 ‐ ‐ ‐ 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1Q10 2Q10 3Q10 4Q10 1Q11 Jun Apr 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 May Baltic Dry Index
14.000
12.000
10.000
8.000
6.000
4.000
2.000
0 05 06 07 08 09 10 11 04 05 06 07 08 09 10 04 05 06 07 08 09 10 11 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Jan Jan Jan Jan Jan Jan Jan Sep Sep Sep Sep Sep Sep Sep May May May May May May May May o Both metallurgical coal and iron ore show a sharp drop following the global economic crisis in 2008. Shortly after, steel raw materials prices began to recover but not associated shipping costs (Baltic Dry Index)
Source: CAP and The Baltic Exchange, May 2011 22 Steel production
World Steel Production (MTM) v/s World Steel Plants Capacity Utilization
o Current world steel production using approximately 80% of total installed capacity o Plant utilization outside China considerably lower
Source: Bloomberg and Santander Estimates, 2011 23 Evolution of steel price
24 Urbanization in progress
Source: Arcelor Mittal, Metal Bulletin o Growing urban population levels in developing countries will have an impact on levels of iron ore itdimported as well as stlteel prodtiduction and consumption
25 Crude steel consumption
(million tons)
Source: Arcelor Mittal, Metal Bulletin o Within the developing world, steel consumption is forecast to grow strongly bdbeyond 2014
26 Agenda
Company overview Global environment Business plan Financial highlights Investment considerations
27 Development program underway
Cerro Negro Norte (greenfield project) • Production: 4.0 million tonnes / Pellet feed •Capex: US$574.5 million • Production start‐up: 1Q 2013
Los Colorados (brownfield expansion) •Current production: 5.2 million tonnes / Pellets and pellet feed •Projected increase: 2.0 million tonnes / Pellet Feed • Capex: US$ 342 million •New production start‐up: 1Q 2013
28 Iron ore
Capex (US$ Million) Production (Million tons) 546 18 16,2 188 13, 8 4,0 300 12,0 12,0 4,0 2,5 3,0 2,3 2,1 2,2 2,6 128 358 6,2 6,5 32 7,2 7,9 8,2 172 9 3,5 3,5 23 1,9 1,7 2,0 2011 2012 2013 2011 2012 2013 2014 2015
Cerro Negro Norte Los Colorados El Romeral Los Colorados MHA I Cerro Negro Norte o Capex for 2010 – 2013: approximately US$900 million o Production capacity will increase from 12 million MT in 2010 to 18 million MT in 2015 o Development of a Desalination Plant (200 – 600 lts/s), to cover water needs of Cerro Negro Norte project and other mining operations in the zone, will be developed by a JV between CAP and Mitsubishi Corp. o Investment in exploration will continue to ensure further development and growth o Increase in production capacity will be financed mainly with internal cash generation
Seaborne Trade 2011f 2012f 2013f 2014f 2015f
CMP Market Share (%) 1,10% 1,04% 1,11% 1,21% 1,28% 29 Source: Macquarie Commodities Research, May 2011 Steel o After overcoming damages produced by the earthquake, CAP has recovered its historic level of market share o CAP’s long term development plan currently under consideration. Principal goal is to ensure supply of a growing Chilean market with tonnages of CAP’s own steel and/or alternatively imported material
30 Steel processing
o Steel processing operated at full capacity in Chile during 2010 – 2011 period, helping the country’ s recovery efforts following the earthquake o Growth focus in Chile, Peru, Argentina and Brazil
31 Agenda
Company overview Global environment Business plan Financial highlights Investment considerations
32 Financial highlights
Sales (US$ Million) EBITDA 1 (US$ Million)
2.200 1.000 1.972 1.994 898 2.000 900 1.800 1.583 800 740 16001.600 1.375 700 1.400 600 534 1.200 997 500 1.000 400 800 336 595 600 300 247 400 200 128 200 100 0 0 2006 2007 2008 2009 2010 1Q2011 2006 2007 2008 2009 2010 1Q2011 Gross Financial Debt / EBITDA Net Financial Debt / EBITDA
1.100 8,00 550 514 4,50 1.001 502 1.000 907 970 500 4,00 880 7,00 439 4,01 900 450 394 3,50 800 7,09 6,00 400 701 3,00 350 700 636 623 5,00 600 300 2,50
4,00 Million
Million
250 Times
500 Times 2,00 1,60 US$ US$ 3,00 200 400 2,57 1,31 1,50 300 1,85 150 0,94 1,65 2,00 1,00 100 200 1,35 20 1,00 100 50 0,50 1,08 0,73 0,03 0 0,00 0 0,00 2006 2007 2008 2009 2010 1Q 11 May‐11 2006 2007 2008 2009 2010 1Q 11 (1) EBITDA: Gross Margin – S&AE + Depreciation + Dividends received in cash, over the last twelve months 33 Financial evolution
(US$ million) 2006 2007 2008 2009 2010 1Q 11 Cash 242 184 379 393 981 1.062 Short Term Debt 97 81 111 84 219 338 Long Term Debt 539 543 769 823 781 632 Total Financial Debt 636 623 880 907 1.001 970 Net Financial Debt 394 439 501 514 20 ‐‐ Net Financial Debt / EBITDA 1,60x 1,31x 0,94x 4,01x 0,03x ‐‐
Equity (at book value) 732 884 1.039 1.238 2.686 2.738 CAPEX 119 309 161 142 207 67
34 Debt profile Latest transactions April • Refinancing of existing Syndicated Loan, US$ 200 million (5 yr) • Prepayment Series D Bond, US$ 170 million • Unwind Cross Currency Swaps, + US$ 33 million May • Prepayment Series E Bond, US$ 90 million • Unwind Cross Currency Swaps, + US$ 3 million
Debt amortization profile post transactions (May 2011)
250 Total Gross Debt US$ 701 million
25% 200
29% 150
47% Million
$ 100 US 50
Banks International Bonds Local Bonds 0
Banks Bonds 35 Agenda
Company overview Global environment Business plan Financial highlights Investment considerations
36 Leading Chilean stocks o CAP represents 5.9% of the IPSA(1) volume and its shares are one of the most traded in the Chilean market 2010 Average Daily Traded Volume (US$ million)
ADTV (*) ADTV (*) Companies 2010 2011 IPSA (US$ million) (US$ million) 3.994 143 LAN 15.8 19.0 7.5% 527 243 38 15 Cencosud 14.8 15.3 6.6% SQM 17.7 13.3 5.4% Brazil Mexico Chile Colombia Peru Argentina Falabella 9.7 12.4 4.5% Annual Traded Volume in Chile (US$ billion) La Polar 10.7 11.5 1.7% 62 60 Endesa 12.6 10.9 6.6% Copec 8.6 9.3 10.6% 44 46 39 Enersis 10.2 8.9 6.4% 28 CAP 999.9 727.2 59%5.9% 16 20 Vapores 4.9 5.0 1.7%
(*) ADTV: Average Daily Traded Volume
'05 '06 '07 '08 '09 '10 `10 YTD '11 YTD
(1) IPSA: Index of 40 most activily traded Chilean stocks 37 Source: Raw data Bloomberg, May 24 2011 Strong fundamentals o Substantial growth in iron ore o Further expansion to 30 – 40 million tons possible through development projects currently under considera tion o Steel strategy to further consolidate already predominant position in Chile o Challenges in steel production partly compensated with strong position in steel processing o CAP group is well placed to benefit from growth potential for steel processing in Latin‐ America o Strong financial position provides viability to growth objectives
38 Evolution of CAP’s comparables
300 Rio Tinto Vale Arcelor Posco Nippon CSN Gerdau Fortescue Usiminas CAP Ternium BHP IPSA Steel Index S&P One Steel 250
200
150
100
50 (Base 100)
0 Ene‐08 May‐08 Sep‐08 Ene‐09 May‐09 Sep‐09 Ene‐10 May‐10 Sep‐10 Ene‐11 May‐11 o CAP has always traded internationally at a premium to peer reference companies
Source: Raw data Bloomberg, May 24 2011 39 CAP compared with Chilean stocks
5.000
4.500
4.000
3.500
3.000 100
=
2.500 2001
il rr 2.000 Ap
1.500
1.000
500
0
ENDESA ANTARCHILE COLBÚN BCI FALABELLA ORO BLANCO LAN SOQUIMICH CALICHERA CAP CMPC VAPORES CCU CEMENTOS IPSA o CAP’s performance also at a premium versus other leading companies in Chile
40 Source: Raw data Bloomberg, May 24 2011 www.cap.cl