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copper annual report 2003 codelco chile Codelco’s mission is to develop, in a responsible and flexible manner, its full capacity for mining and related business, to maximize its long- term economic value and its contribution to the national treasury.

5 CODELCO

index

LetterCarta from thedel chairman presidente of the del board directorio 7

LetterCarta from the del president presidente and chief ejecutivo executive officer 8

The boardDirectorio of directors 10

SeniorAdministración officers superior 11

HighlightsAntecedentes relevantes 13

DivisionsDivisiones 14

CorporatePerfil profile corporativo 16

HistoryHistoria 18

AssetGestión management de activos 25

HumanDesarrollo development humano 35

SustainabilitySustentabilidad 43

FinancialResultados and economic económico-financieros results 51

SubsidiariesFiliales and y coligadasjoint ventures 56

FinancialEstados statements financieros 75 6 CODELCO

company of excellence In the eyes of the country and the world, Codelco has consolidated its reputation as a company of excellence, which benefits all Chilean men and women. 2003 was a year in which our national copper corporation, Codelco, continued to 7 consolidate its reputation in Chile and around the world as a company of excellence, which benefits all Chilean men and women.

The steps it has taken in as part of its plan to add value and increase income before

taxes during the 2000-2006 period are significant; they have been recognized by the CODELCO most prestigious international financial and mining institutions and at this point very few would dare to question the seriousness of this project.

The government has emphasized its deepest conviction that the company must remain state-owned, allowing, where possible and suitable, for some projects to be developed as joint ventures with third parties. Thus, we will continue to work on projects that letter from the strengthen the Corporation. For Chile, it is better business for Codelco to remain in the hands of all Chilean men and women, generating funds for social policies, that is, better chairman of the board education, health care and quality of life. All this must occur in the framework of efficient management of the resources that the country has placed in our hands, as we have clearly demonstrated.

We know that the country supports us. Many surveys have shown that the vast majority of the population wants Codelco to remain publicly owned. Moreover, Codelco was recently chosen as the company that contributes the most to the country's social development.

Along with the solidity that Codelco has shown during this period (consolidation of the Codelco Norte Division, certification of all Divisions under the ISO 14001 standard, start- up of the Mejillones Port, bond issues at excellent rates, among many other examples), it is worth emphasizing the context in which we finished 2003 and the favorable prospects ahead for 2004.

This period has brought with it the long-awaited recovery in the copper price. Today the mining industry is enjoying boom times, but it is essential to keep in mind that Codelco's policy in terms of stockpiling has played an important role in the current copper price. This reduction in sales, during 2003, is associated with our enormous responsibility to the industry, the country and a vision of the business that fills us with pride.

The company has also had the courage to recognize these hardships and, as a result, Alfonso Dulanto Rencoret has reorganized, a process that has brought with it changes in some executives, changes Minister of Mining that, as in other opportunities, the company has understood.

My congratulations go to everyone in Codelco for your efforts to date. I call on you to continue to work, inspired by a positive spirit of cooperation for the country's sake. The government has firm hopes that depend on this company and, as a result, not only wishes for it to remain in the power of the State, but also to increase its value and, as a result, yield more to its owners, that is, all men and women of Chile. 8 CODELCO

letter from the president and chief executive officer

Upon looking at the results of efforts unfolded in 2003 by the women and men who day by day work with and for Codelco, I must emphasize the responsibility, commitment and effectiveness that have once again distinguished their performance.

2003 was a difficult year. For most of it, we faced an uncertain market and a price that was below our expectations. The results for the period and progress in each of our value creation strategy areas - asset management, human development and sustainability - show that, despite the hardships, we have continued to advance with a firm step in the implementation of our Joint Strategic Plan (Proyecto Común de Empresa). The market clearly understood this, voting for Codelco by loaning it US$500 million in ten-year bonds, with the best financial conditions provided to a South American firm in recent years.

Before tax income reached US$606 million, we boosted production by 2.8% and, on average, divisions' net cathode costs remained virtually the same, at about 56 cents per pound. The decision to build up strategic stock did not, in the long run, affect the surplus because the lower income from sales (of about US$100 million) was offset by its impact Juan Villarzú Rohde on the copper price, estimated to be at least three cents per pound, due to the reduced President and Chief supply that resulted from the decision to accumulate stock and production cuts decided Executive Officer upon by other producers. This does not take into account profits of US$200 million or more that the sale of this copper should bring in during 2004.

Although the results for the year exceeded our expectations, they did not leave us wholly satisfied. Due to stoppages and delays in developing and starting up several of our investment projects, we produced almost 80,000 fine tons of copper less than programmed. We could partly offset the impact of this lower production on net income thanks to important progress in reliability maintenance, the application of best practices and implementation of shared services.

In 2003 we invested around US$900 million. Faced with the problems we detected in managing our main project portfolio, we reacted diligently and improved our system for evaluating, monitoring and executing investments and business, incorporating best practices at the global level into these areas. In particular, we reinforced the pre- 9 CODELCO

We are working for the success of a Plan that we have built together, workers, supervisors and management. Together we have opened the way and made enormous progress toward its implementation. We know and admit to our weaknesses and strengths. We know what we have to do and we have the persistence and the willpower to do it. investment phase and placed all responsibility for basic engineering and managing commissions continued to move through their agendas, making it possible to agree on construction in our Corporate Headquarters. the alcohol and drug policy, advance significantly toward defining the competency and career development model and give birth to the Mining Village. Today, 11,500 families Optimizing the assets we manage is one of our main challenges. We spent an important are connected to each other, the company and the world. part of the year evaluating the potential for value creation associated with the significant increase in resources and reserves achieved in recent years. After a decade's worth of Providing solutions to the problems of workers with occupational illnesses, achieving systematic effort to explore for and turn these resources into reserves, today we have an occupational health management system, eliminating fatal and significantly reducing proven reserves of 120 million equivalent fine tons, using a price of 85 cents per pound. other accidents will be priority areas for 2004. We also have a Business and Development Plan (BDP) 2004, which includes developing projects and improving management to maximize the company's value over a 25-year I end these remarks by expressing my pride because in 2003 we fulfilled our commitment horizon. This Plan assumes peak investments of US$1.2 billion per year and will bring to achieve ISO 14001 certification in all Corporation facilities, thus making a great leap production to 2.2 million fine tons of copper starting in 2008. If there were no budgetary forward in terms of sustainability. restraints, Codelco could produce more than 3 million fine tons of copper per year, starting in 2012. In contrast to the way it started, 2003 ended in an atmosphere of optimism and promising signs for copper and therefore Codelco. We are preparing to make the most of these Aside from good reserves, maximizing Codelco's value requires facilities, equipment conditions. and a first-class human team, committed to the company's Joint Strategic Plan. During the year we made progress toward consolidating the competency model, the management We are working for the success of a Project that we have built together, workers, development program and, in general, career development. Already, 984 workers have supervisors and management. Together we have opened the way and made enormous an individual development plan and by the end of 2004 this should reach one-third of progress toward its implementation. We know and admit to our weaknesses and strengths. Codelco's workers and supervisors, or about 5000 workers. We know what we have to do and we have the persistence and the willpower to do it.

Despite these and other important achievements, we must admit that during the year some moments of tension arose with our workers. Bargaining to determine the cost and type of housing to be offered to families benefited by the move from the Chuquicamata camp to Calama, to renew collective agreements in Andina and Codelco Norte, ease implementation of shared services, and overcome differences between contractors and their employees, especially in the El Teniente Division, generated difficulties between management and union leaders, which eventually led to solutions.

Faithful to the spirit of our Joint Strategic Plan, we resolved our differences, giving priority to dialogue and reaching agreements, even though the representative participatory bodies did not function as smoothly as we would have wished. However, the working 10 Alfonso Dulanto Rencoret President codelco board of directors Minister of Mining Industrial engineer, Pontifical Catholic University of Chile CODELCO

Nicolás Eyzaguirre Guzmán Patricio Meller Bock Director Director Minister of Finance Representative of His Excellency the President of Economist, University of Chile the Republic Civil Engineer, University of Chile

Jorge Navarrete Martínez Ricardo Ortega Perrier Director Director Representative of His Excellence the President of Representative of His Excellency the President of the Republic the Republic Economist, University of Chile Air Force Chief of Staff Air Force General Aeronautic Systems Engineer Air Force War Academy

René Valdenegro Oyaneder Director Representative, National Association of Copper Bismarck Robles Guzmán Supervisors Director Mechanical Engineer, Federico Santa María Representative of the Copper Workers Federation Technical University Chemical Engineer, Catholic University of the North senior management 11 CODELCO

Juan Villarzú Rohde Juan Eduardo Herrera Correa Waldo Fortin Cabezas Julio Cifuentes Vargas President and Chief Executive Senior Vice-President of Strategy Chief of Legal Affairs General Manager Officer and Management Control Lawyer Salvador Division Economist Economist Mining Engineer Fernando Moure Rojas Francisco Tomic Errázuriz Roberto Souper Rodríguez Senior Vice-President of Shared Germán Morales Gaarn Senior Vice-President of Human Senior Vice-President of Sales Services General Manager Development and Finances Economist Chartered Accountant Andina Division Economist Mining Engineer Isabel Marshall Lagarrigue Antonio Nawrath Venegas Juan Enrique Morales Jaramillo Senior Vice-President of Auditor Rubén Alvarado Vigar Senior Vice-President of Mining Operational Excellence, Bachelor of Commerce General Manager Resources and Development Promotion and Sustainability El Teniente Division Mining engineer Economist and Sociologist Nelson Pizarro Contador Chemical Engineer Senior Vice-President Codelco Norte Division Civil Mining Engineer

13 highlights CODELCO

> INCOME BEFORE TAX AND THE COPPER PRICE > COMPANY PERSONNEL AND PRODUCTIVITY

Million US$ ¢/lb Number of workers MFT/workers

1,000 100 19,000 100

800 80 18,000 90

600 60 17,000 80 400 40

16,000 70 200 20

0 0 15,000 60 1999 2000 2001 2002 2003 1999 2000 2001 2002 2003

Income before tax Copper price Personnel Productivity

> FINANCIAL PERFORMANCE (US$ MILLION)

1999 2000 2001 2002 2003

SalesVentas 2,944 3,610 3,588 3,490 3,782 IncomeExcedentes before antes tax de impuesto 572 753 412 369 606 ContributionsPagos al Fisco to the Treasury 269 702 370 326 688 TotalActivo assets total 5,817 5,819 6,120 6,733 8,092 TotalPasivo liabilities total 3,035 3,042 3,411 4,000 5,268 EquityPatrimonio 2,782 2,777 2,700 2,733 2,821 InvestmentInversiones 356 504 472 713 639

CopperProducción production de cobre (*) (*) ThousandsMiles de toneladas of fine tons finas 1,615 1,612 1,699 1,630 1,674

DirectEmpleo employment directo (as of December 31st) CompanyPersonal propiopersonnel 17,313 17,349 17,166 16,906 16,595 OperatingContratistas contractors de operación 9,346 10,786 13,773 14,140 17,614 InvestmentContratistas contractors de inversión 3,807 5,410 5,346 12,450 9,320

CopperPrecio del price cobre (¢/lb) (USc/lb) LMEBML gradecátodos A cathodesgrado A 71,4 82,3 71,6 70,6 80,7

(*)(*) IncludesIncluye la Codelco's participación share de of Codelco El Abra en El Abra. 14 divisions

Codelco has four mining and a metal-mechanic Division,

CODELCO for a total of five Divisions, located between Chile's Second to Sixth Regions.

Codelco Norte Division Located in the country's Second Region, the Codelco Norte Division was created on 1 August 2002, by merging the Chuquicamata and Radomiro Tomic Divisions.

Chuquicamata, the world's largest open pit mine, began operations in 1910. It is located 250 km north-east of Antofagasta, 1600 km north of Santiago.

Radomiro Tomic started up in 1997 and is located in Chile's El Loa province, 45 km from the city of Calama.

In 2003, Codelco Norte produced 907,169 metric fine tons of copper, at a cash cost of 38.9 ¢/lb. As of 31 December, the Division employed 8,116 workers.

Salvador Division Located in Chile's Third Region, the Salvador Division started up in 1959 with a smelter and electrolyte refinery. mines are extracting sulfide ores at the moment. Their In 2003, El Teniente produced 339,440 fine tons of copper, In 1995, it added a hydro-metallurgical line capable of main products are copper and molybdenum concentrates. at a cash cost of 45.4 ¢/lb. As of 31 December, the Division producing 25,000 fine tons annually. had 4,813 workers. In 2003, Andina produced 235,834 fine tons of copper, at Today, the Division processes both sulfide and oxide ores, a cash cost of 47 ¢/lb. As of 31 December, the Division each with its own copper recovery plant. The main pro- employed 1,159 workers. Talleres Division ducts are electro-refined and electro-won cathodes, This division is located on Rancagua's south side, in the refinery slime, and molybdenum concentrate. Sixth Region, 80 km from Santiago. El Teniente Division In 2003, Salvador produced 85,105 metric fine tons of The world's largest underground copper mine, with almost In 2003, Codelco started to extend ownership of the copper, at a cash cost of 62.7 ¢/lb. As of 31 December, it 2400 km of underground galleries, El Teniente sits at 2,100 Foundry of División Talleres Rancagua, turning it into the employed 1,807 workers. meters above sea level, 44 km from Rancagua, in the Sixth Sociedad Fundición Talleres S.A. company. Through public Region. auction, 60% of the Sociedad Fundición Talleres SA's shares were sold off in December 2003. Andina Division This mine has been in operation since 1905. The method This division is located in the heart of the Andes mountain used is block caving, in which the force of gravity provides range in the Fifth Region's Los Andes province, 80 km substantial support to mining extraction. The main pro- north-east of Santiago. ducts are copper blister, fire refined products, electro- won cathodes and molybdenum concentrates. Andina has two mines, Río Blanco, which is an under- ground deposit, and Sur Sur, which is an open pit. Both

16 corporate profile

Chile's Corporación Nacional del Cobre, Codelco, is the Financial strength. At the close of the 2003 fiscal year, BUDGET

CODELCO world's main copper producer and one of the industry's the EBITDA had reached US$1.296 billion. Codelco's annual budget is approved through a joint most profitable firms. Its own assets are worth US$8.092 supreme Decree from the Mining and Finance Ministries. billion and its net worth stands at US$2.821 billion, Codelco's vision of the future seeks to consolidate its through December 2003. Its main commercial product position as the world's leading copper producer; remain is grade A copper cathodes. one of the world industry's most competitive, lowest cost SUPERVISION companies; and increase it contribution to the Chilean Codelco is supervised by the national General Comptro- The company carries out its operations through four government. ller's office through the Chilean Copper Commission. mining Divisions: Codelco Norte (consisting of the Chu- quicamata and Radomiro Tomic deposits), Salvador, The company is included in the Superintendent of Secu- Andina and El Teniente. Moreover, it holds a significant CREATION AND LEGAL FRAMEWORK rities and Insurance registry Nº 785, and is subject to share of major mining operations, such as El Abra, with Codelco is a state-owned company, created by Decree the securities market law, being required to provide the a 49% share, and other mining ventures that focus on Law 1,350 (1976) for mining, commercial and industrial Superintendent and the general public with the same geological exploration in Chile and abroad. purposes. The company is linked to the government information required of public limited company. through the Mining Ministry. It is governed by ordinary Codelco's profile as a major world producer provides it law, except where this is incompatible with the articles with five main competitive strengths within the interna- of said Decree. tional market:

Codelco controls almost 17% of the world's total base of copper reserves. Current reserves are projected to last more than 70 years of operations at current production levels.

Leading presence. Codelco is the world's main copper MANAGEMENT producer, at 1,674 thousands of metric fine tons of copper The company is supervised and directed by the Codelco in 2003, including its share of El Abra, which amounts to Board of Directors, which is formed by the following 15% of the western world's production. It is also one of persons: the world's top molybdenum producing company. The Minister of Mining, who chairs it; Cost efficiency. The company is one of the lowest cost The Minister of Finance; producers in the industry. In 2003, its cash costs reached Three Directors appointed by the President of Chile; 42.7 cents per pound. Two Directors appointed by the President of Chile, from nominations presented by the company's workers' and Copper reserves. Codelco controls almost 17% of the supervisors' unions. world's total copper reserves. The company's current reserves should last more than 70 years at current The President and CEO is appointed by the Board and is production levels. responsible for overseeing all company production, ad- ministrative and financial activities. Stable and geographically diverse customers. Codelco has developed long-term relationships with a stable and diverse client base. These include leading manufacturing companies worldwide. 17 CODELCO 18 history

Chile has a longstanding mining tradition. By the middle NATIONALIZATION

CODELCO of the 19th century, copper was one of Chile's main In 1971, through an amendment to Art. 10 of the Consti- exports. Early in the 20th, several American firms started tution, which refers to property rights, copper was natio- to invest in El Teniente, the world's largest underground nalized. A transitional section was added to this article, mine, and Chuquicamata, its largest open pit mine. establishing that in light of national interests and the State's inalienable right to exercise sovereignty by freely From 1925 to 1960, the Chilean government increased disposing of natural resources and wealth, the foreign its share of major copper mining. In 1951, the Washington firms, which constituted the industrial-scale mining Convention was signed, giving Chile the right to 20% of sector (gran minería del cobre) were nationalized and copper production to be sold however it preferred. thus came under the full and exclusive rule of the nation, including the Andina mining company. Four years later, in 1955, the Senate passed legislation on copper production, in the form of several tax laws Through this constitutional amendment, unanimously whose purpose was to guarantee a minimum income to approved by Congress, all the goods of foreign firms the Chilean government and stimulate further investment producing copper in Chile became the property of the by large mining firms. country. The State took immediate material possession of existing facilities. On 1 April 1976, the Corporación On 5 May 1955, the Copper Department was created, as Nacional del Cobre de Chile, Codelco Chile, was created a state agency responsible for supervising and partici- by Decree Law Nº 1,350. The company brought together pating in the international copper market. Among other the existing deposits within a single mining, industrial faculties, this Department authorized copper exports and commercial company, with legal status and its own and the imports necessary for producing companies to equity, of indefinite duration, linked to the government function. through the Mining Ministry.

The main purpose of this administrative transformation CHILENIZATION was to continue to run the nationalized deposits, facilities, In 1966, Law Nº 16,425 was passed, authorizing the works and related services. creation of joint public-private copper producing com- panies. In these mixed companies, the Chilean govern- ment had to have at least a 25% ownership share of the deposits held by foreign firms.

In 1967, El Teniente, Chuquicamata and Salvador became mixed firms. In every case, Codelco assumed a 51% share. The Braden Copper Company held onto 49% of El Teniente; while the Anaconda Copper Company held onto 49% of Chuquicamata and Salvador.

In the case of Andina and Exótica, the conditions for converting to mixed companies were different. In 1967, Codelco took over 25% of Andina, with the remaining 75% going to Cerro Corporation. In Exótica's case, Co- delco held 25% and Anaconda 75%. codelco´s joint strategic plan Results from 2003 and progress toward achieving each of the major objectives within our value creation strategy - asset management, human development, and sustainability - reveal that we are making solid progress in the implementation of our Joint Strategic Plan. Human development

Value creation

Asset Sustainability management

leadership in management 23

Codelco, the world's largest copper producer, uses a ma- HUMAN DEVELOPMENT

nagement model that has turned it into a modern, efficient A central pillar for achieving the goals and objectives CODELCO company, in which workers, management and the owner included in the Plan is the need for a highly skilled are united behind a common goal of doubling the company's workforce committed to meeting the challenges that value. Codelco will have to face.

The Strategic Alliance, formed in 1994, has translated into For Codelco's workers, the Plan promises stability and the identification of common interests, vision, values and better employment in the framework of a competitive management style. These are shared by all those making company. up the company, leading to the application of best practices in management. The company's greatest capital is in its personnel, who are the key to past and future successes. Thus, Codelco In 2000, these efforts led to the creation of the com- must take special care of its workers, through training pany's Joint Strategic Plan, which constitutes the navi- programs, career development policies, improvements gation chart and business strategy for 2000-2006. The to their quality of life and the signing of employability purpose of this Plan is to project the Corporation into protocols. the future, with more growth and modernization.

Codelco is the best business and offers the most value for Chile. Every day the company works to ensure its continuity and produce a better future for its owners, all Chileans.

The commitment is to maintain and increase Codelco's current position as a world class company and to maximize SUSTAINABILITY its ability to generate value for the country, through the Codelco is aware that it is one of the pillars of Chile's sustainable exploitation of its mining resources and by growth and development. In this light, Codelco is committed maximizing its workers' skills. to ensuring the internal and external sustainability of its business, so that many generations of Chileans will be To succeed in our goal of doubling the company's value able to enjoy its contribution to the country. and boosting net income, the Plan simultaneously focuses efforts on three strategic, interdependent levers: asset Our commitment is to take care of the economic, social management, human development, and sustainability. and environmental spheres in which the company is active. To do so, policies have been adopted that involve working to ensure the sustainability of the copper market, active ASSET MANAGEMENT involvement in the communities surrounding company To double Codelco's worth we must optimize mining re- facilities, process improvements, and respect for the envi- source operations and the use of facilities and equipment. ronment.

Codelco has implemented programs to improve production Codelco is a firm that looks after its business value, protects management and investment plans that will make it possible its surroundings and grows in a sustainable fashion. Above to preserve and increase its economic value. all, it works to produce a better future for all Chileans. 24 CODELCO

commitment

development value creation 25 CODELCO

asset management

One of our main challenges is to EXPLORATORY AND BUSINESS AND DEVELOPMENT PLANS In 2003, the company introduced important changes to its management tools and medium- and long-term planning optimize the use of mining assets, systems. facilities and equipment belonging Based on the enormous potential economic value that the company has in mining and other resources, every Division to the Corporation. and the company as a whole developed exploratory plans. These covered the set of possible development scenarios that, with different levels of risks and minimum restrictions, would allow us to realize the greatest possible value on the company's resources.

Once these scenarios were identified, business and development plans were prepared for the fraction of value revealed by exploratory plans to offer the most certainty that Codelco could successfully commit to capturing.

This process, which will end in March 2004, is opening up new and interesting alternatives for growth, particularly in the Codelco Norte, Andina and El Teniente Divisions. In the case of Salvador's development plan, this aims to ensure that Division's viability and competitive position in the medium term.

INVESTMENT AND PROJECTS In the course of 2003, Codelco implemented a 400-project investment portfolio worth US$639 million. The following table provides details by objective.

> Investments 2003 (US$ million)

Development projects 501 Research and studies 28 Equipment replacement and facility upkeep 26 Exploration 22 Environment, occupational safety and wellbeing 62

Total 639 26 This next section describes the main investment projects installing and upgrading the belt transportation system This expansion will make it possible to bring annual in 2003, by Division. to the transfer point (MTS), and building an MTS bypass production of fine copper to about 450,000 tons by 2004. to reduce stoppages in the production line due to chan- Codelco Norte Division ges in the current belt system. Total investment for this set of projects is US$620 Projects underway during this period include optimizing million, with real accumulated spending to date re-

CODELCO concentrator plants, boosting smelter competitiveness, Relevant advances achieved in 2003 included completion aching US$553 million, of which US$220 million was applying technological changes to electrolyte refining, of the building that will house the crushers and the work spent in 2003. and moving the crushing system in the Chuquicamata on the M-1 tunnel, and a start on Line Nº 1 implementation. mine. Another TDP project, to expand processing capacity, Total investment in this project will reach US$82 million, involves an investment of US$303 million, of which In the second half of 2003, we started implementation with US$68 million spent in 2003. US$274 million has been spent to date, US$93 million of a program to optimize concentrator plants. This in 2003. This project is divided into two main phases: project involves a set of improvements to boost the the first involves expanding the semi-autogenous mill complex's overall treatment capacity to 182,000 tons Salvador Division from 24 to 65 ktpd (thousands of tons per day); and a of ore per day, as well as a general increase in copper An important project underway involves the technologi- second phase, expanding the convention mill from 54 (1.5%) and molybdenum (4.67%) recovery. cal changes to and expansion of the Potrerillos smelter, to 65 ktpd. which will increase its technical and economic efficiency, Total investment will reach US$76 million, of which to meet the targets set by the decontamination plan In 2003 the first phase was implemented, while the US$55 million was spent in 2003. and current environmental standards. This initiative second phase is scheduled to start up in September includes replacing the reverberatory furnace with a 2005. The project to improve smelter competitiveness will Teniente converter and building new associated facilities. reduce sulfur and arsenic emissions to meet current Other significant projects included in the TDP are: environmental standards. It will also improve the com- This technological change will make it possible to gra- Norte Andesita, Pipa Norte and Diablo Regimiento petitiveness of the smelter business in the long term dually increase copper concentrate processing capacity reserves, and expanded transport capacity along the through several projects, among them improvements to 680,000 tons per year. The most significant achieve- Teniente 8 railway. These projects involve a total to the flash furnace, changes to associated plants, and ment of this project during this fiscal year was imple- authorized investment of US$234 million, with investment in sulfuric acid plants that will increase mentation of the main equipment. real expenditure to date reaching US$122 million, efficiency from 96.8% to 98.0%. including US$92 million in 2003. Production should The total investment will reach US$119 million, with start up in 2004. Total investment is estimated at US$127 million, with US$28 million invested In 2003. implementation scheduled for 2004. Another significant TDP investment project involves expanding smelter capacity, with investment estimated The project for introducing technological changes into Andina Division at US$63 million, of which US$28 million was spent in the electrolytic refinery will transform current electro- The main project underway is to optimize the Mine- 2003. Implementation is estimated for August 2004. refining processes at Refinery N° 2 to permanent ca- Plant, which will boost processing capacity to 72,000 thodes. Starting in the first half of 2005, this change tons of ore per day. This has taken the form of building will boost the final capacity to 855,000 tons per year a new ore feeder shaft, installing a new pre-crushing and significantly cut costs. During this past fiscal year, plant, and expanding associated facilities. The project we completed the detail engineering, built the shipping involves an investment of US$30 million, of which US$5 yard and started construction of the machinery room. million was spent in 2003.

Total investment for this project is US$143 million, of which US$98 million was spent in 2003. El Teniente Division Significant investment activity focused on implementing The project to move the E-4 crushing station to Banco the Teniente Development Plan, TDP, which is the ge- M-1 will replace current facilities outside the mine with neric name for a set of mining, plant, infrastructure, an interior crushing plant. Work budgeted for includes technological and management projects that will boost upgrading the equipment to be moved; building a tunnel mine capacity to 130,000 tons of ore and 1,440,000 tons to link Banco M-1 to Tunnel K-1 and a transfer cave; of concentrate per year at the Caletones smelter.

28 Gaby Project resources rising by 100%; the subsidiary, Codelco Do The purpose of this project is to exploit and process Brasil, consolidated and an interesting portfolio of oxide copper resources from this deposit, located in exploration prospects in that country was confirmed. the Second Region, 120 km south of Calama and 203 km east of Antofagasta. Codelco's new business model made it possible to

CODELCO renew and strengthen exploration activities in areas Based on project morphology, an open pit operation around current operating divisions. The main results is considered, with ore processed through heaplea- for this fiscal year included identifying new prospects ching piles and an SX/EW plant to produce high quality near the Andina and El Teniente mines. cathodes. The technology proposed is commonly used for this kind of process and widely applied within the Similarly, around the Codelco Norte and Salvador Divi- company. sions, efforts focused on advanced exploration projects and the search for possible new resources. During this fiscal year the conceptual engineering was completed. It determined an annual production capacity As a result of important progress in the management of 150,000 tons of copper cathodes. The estimated of geological knowledge and applying new technologies, start-up date is 2007. we resumed basic exploration programs in the country, which correspond to the early stages in which goals Relevant achievements and approvals during the year are defined and a new exploration cycle begins. included the conceptual engineering and approval of water rights from the Dirección General de Aguas The exploration strategy focused on discovering high (Chile's water rights bureau). copper grade resources that will increase exploration asset yields by improving the quality of Codelco's re- Total investment is estimated at US$527 million, of source base. which US$1.8 million was spent in 2003. The period was marked by effective action in terms of drilling. 145,000 meters were drilled in Chile, Mexico MINING EXPLORATION and Brazil, with an important part going to outline the In this area, Codelco made significant progress in 2003. resources in the Toki Cluster. For the first time, a Joint Venture with third parties made a discovery, based on Law N° 19,137; results from advanced exploration (with regular mesh boring every 200 x 200 meters) in the Toki Cluster, located in the Second Region, consolidated, with the inferred

> Investment and drilling

20,000 200,000 Quetena Gaby 16,000 160,000

12,000 120,000 Toki Opache Vicky

Genoveva meters 8,000 80,000

Thousands of dollars 4,000 40,000

0 0

1995 1996 1997 1998 1999 2000 2001 2002 2003

Investment Drilling Codelco discoveries 29 Mexico > Exploration Joint Ventures In 2003, the Pecobre company, which is a Joint Venture Projects in Chile Partner Type between Codelco and Industrias Peñoles, expanded its original region of exploration in the State of Sonora to Purén Mantos de Oro (Canada) Gold the rest of Mexico, giving it access to other metalloge-

Sierra Mariposa Place Dome (Canada) Copper CODELCO netic domains in that country, which include new areas Paloma Newmont (USA) Copper of interest. Vallenar Cementos Bío Bío (Chile) Copper

In four years of exploration, the company has drilled Projects abroad 72,000 meters of drilling. Estado de Sonora Peñoles (Mexico) Copper Gradaus* Barrick (Brazil) Copper/gold In the past fiscal year, the limits of the leachable Los Rondonia* Santa Elina (Brazil) Copper/gold Humos ore body were defined, revealing some 271 million tons of ore with a 0.31% copper grade, which were eva- * Being closed. luated economically and their sale recommended. Chile To ensure the sustainability of newly discovered mining In Chile, results from advanced exploration of the Toki resources, exploration for water revealed 99 liters/second Also during the year an agreement was signed with the Cluster consolidated, with a major increase in primary of new water resources in the Laguna Seca district, just 15 Phelps Dodge company providing access to explore sulfide resources in the Toki deposit and the outline of the km from the Gaby deposit. 100,000 hectares in the Cananea-La Caridad strip, Quetena ore body, discovered in 2002. substantially improving positions in the main copper 2003 also saw the first significant discovery resulting from porphyry district in Sonora. The resources inferred from the Toki Cluster amount to Joint Ventures with third parties, under Law N° 19,137. about 17 million metric fine tons of copper. Toki contributes Codelco and the mining firm, Mantos de Oro, discovered a 11.2 million tons and Quetena 3.8 million tons, with the new silver and gold deposit, called Purén Norte, in the Brazil remaining coming from Opache and Genoveva. heart of the Andes mountains in the third Region. These In this country, the subsidiary Codelco Do Brasil con- resources should be treated in our partner's industrial solidated, contributing a valuable portfolio of exploration With these copper porphyry deposits, the company is facilities located nearby at the La Coipa mine. To do so, prospects, located in the priority districts of Carajas, leading exploration in Chile with the only significantly sized progress is being made in activities necessary to complete Caraiba and Arco Norte. deposits discovered in the past five years. the feasibility study by late 2004. A Joint Venture with the Santa Elina firm in the Rondonia project and the Gradaus project, in association with Barrick, ended, after drilling results from each were negative.

> Codelco Norte A prospect located in the Carajas district, which was Division drilled in late December 2003, revealed some interesting intersections with economic grades that suggest the presence of an ore body.

Peru In 2003, information analysis continued and opportuni- ties for exploration business were identified. Finally, the decision was made not to pursue these activities.

> Cluster Toki

TECHNOLOGICAL INNOVATION AND RESEARCH Copper's technological roadmap Codelco views technology as essential to its competiti- Through a company initiative, AMIRA International (an veness, through internal organization, alliances with industry association which manages collaborative re- other mining companies, and the full use of the Mining search for members in the global minerals industry) and Metallurgy Research Institute (IM2). prepared a multi-firm project in which Codelco partici- pates, along with the world's main copper mining com- During 2003, the company budgeted US$14 million for panies: Anglo American, BHP-Billiton, Phelps Dodge, technological innovation and research. Antofagasta Minerals, Mount Isa Mines, WMC and RTZ. The purpose of the project is to develop in a long-term During this period, activities in this area focused on context a technological map of the copper extracting developing company technology for underground mi- industry, including social and economic aspects and ning, as well as alliances and agreements to exploit market requirements. technological products and equipment. Work in this area also dealt with an extensive portfolio of projects that aim to innovate all along copper's productive chain Agreements and alliances and the organizational support structure. In line with the company policy on research and inno- vation, Codelco promotes alliances for technological innovation and research with universities, private com- Underground mining technological program panies and research institutes, to expand technological Important progress was made toward developing con- supply and share risks and benefits of the results. tinuous mining. The concept of preconditioning the ore, to ensure the success of block caving and achieve a Moreover, these alliances make it possible to make the granulometry that would make it possible to manage most of existing knowledge, skills and developments materials efficiently and automatically, was the subject within the market, focusing technological research of studies, designs and experiments. efforts on those areas in which the market does not offer an integral response. Preconditioning using blasting was evaluated using an industrial test developed in the Andina Division. The In 2003, the company established new relations and test made it possible to conclude that 80% of the pre- continued the work defined through cooperative agree- conditioned material was smaller than 75 cm, compared ments, information exchanges or exploration of common to 140 cm for material produced through natural caving. interests, with the following firms and institutions:

Preconditioning technology was included in production International Caving Study, ICS II. Consortium formed designs and plans for the Andina Division and its trans- by nine mining companies to research and develop fer to other company deposits is being studied. knowledge about the phenomenology and operation of block caving operations. The potential impact of continuous mining on company business led to strong encouragement of activities to Hybrid Blasting Stress Model, HBSM. Consortium for- validate and consolidate the technologies thus deve- med by mining companies (Codelco, Rio Tinto, De Beers, loped. With this objective in mind, an ad hoc organi- Debswana Diamond Co., Placer Dome, Sandvik); explo- zation was created, with the resources necessary to sive manufacturers (Dino Nobel, African Explosives ensure its industrial application throughout the com- Ltd.); an engineering firm (Itasca), and an academic pany by 2007. institution (JKMRC), to develop basic knowledge about the phenomenology of explosive detonation and to model its effect on rock.

INPG Enterprise SA. A contract to research and identify factors (including microstructural properties related to the ductility of copper products and established rupture mechanisms and relate them to winning process varia- bles (cathodes, wire). 32 Instituto de Investigación en Minería y Metalurgía, IM2 underground mining, pyrometallurgical processes and Implementation took place as programmed and the (Mining and Metallurgy Research Institute, IM2) concentration. In this field, a ten-year licensing agree- stationary state of the bioleaching process was reached To better confront the challenges of innovation and ment was signed for on-belt grade sensor technology, early. To date, the results obtained show close to design improve its company position, Codelco created the with the Scantech company. values, and validation of the different unit operations is Mining and Metallurgy Research Institute, IM2, in 1998, being worked on with a technological rather than pro- CODELCO as a Codelco subsidiary. duction-oriented objective in mind. Alliance Copper Ltd. Today, IM2 has a staff of 25 specialists with excellent The purpose of this company, formed by Codelco and academic qualifications and industry experience, and BHP-Billiton, is to seek out metallurgical mining busi- BioSigma SA centers in Rancagua, Calama and Santiago. Its innovative ness opportunities by developing and using bioleaching The purpose of this company, formed in June 2002 by efforts have steadily grown, with about 30% of the technology on concentrates. Codelco (66.66%) and the Japanese firm, Nippon Mining company's total activities focusing on technological & Metals Co. Ltd. (33.33%), is to develop biotechnologies innovation and research. In 2003, the company completed implementation of a commercially applicable in mining, using progress in prototype plant project, whose purpose is to demons- genomic, proteomic and bioinformatics knowledge at In 2003, IM2 and the Divisions developed a portfolio of trate at a commercial level the technical, economic and the world scale. 125 projects, of which 86 are now being implemented. environmental feasibility of the metallurgical process Project focuses break down as follows: 22% for the ore of bioleaching concentrates, using thermophilic micro- These advances contribute to generating new ways of treatment area, particularly the selective arsenic floating organisms, integrated into the treatment of a rich so- benefiting ores that are applicable to resources with project; 18% in hydrometallurgy, particularly the impurity lution (PLS) generated in existing facilities using solvent declining grades, including primary sulfides and uncon- abatement and solutions engineering project; 17% in extraction and electro-winning (SX-EW) at the Codelco ventional treatment of impurities, as part of environ- pyrometallurgy, particularly the continuous conversion Norte Division. mentally sustainable development. Further advances project; and 12% in developing continuous underground will take the form of a solid base of intellectual property mining projects, particularly the preconditioned rock The prototype plant was designed for an average treat- followed by commercialization. face project. ment capacity of 67,000 tons per year of copper sulfide concentrate, to produce about 20,000 tons of copper In 2003, the company implemented research contracts In the area of intellectual property, IM2 applied for cathodes per year. with several universities in Chile and Japan, in which eight patents in 2003. These aim to protect high impact about 40 senior researchers and their assistants are innovations developed by the company in the areas of involved. This forms part of the Programa en Biominería de la Iniciativa Genoma Chile (biomining program within the Chile genome initiative) supported by the Chilean government's technological innovation program, with resources from the Inter-American Development Bank, contributed by Corfo (FDI) and Conicyt (Fondef). These joint research projects have focused on studying known and new microorganisms involved in copper bioleaching processes.

In the second half of 2003, Biosigma started up its Biotechnology for Mining Reference Laboratory, creating leading technological infrastructure in biomining in Chile, along with an excellent human team.

The results obtained to date are promising and there are enormous expectations that this will have a major impact on the development of bioleaching technologies for low grade ores with high chalcopyrite content.

34 CODELCO

training

employability comparative advantages 35 CODELCO

human development

For Codelco, people are key to the THE MAIN ASSET IN THE COMPANY'S JOINT STRATEGIC PLAN Crucial to achieving the targets and objects set by the Company's Joint Strategic Plan (Proyecto Común de Empresa), efforts to increase company value is to have highly qualified, workers, professionals and executives, who are motivated and committed to efficient and competitiveness. They are a production processes. Codelco applies policies to strengthen human resources and make this area the main factor in the Plan's success. vital resource for ensuring Codelco's strategic development. Codelco views people as key to increasing company value and competitiveness. The availability of high quality human resources, able to cooperate to achieve shared objectives is an essential competitive advantage and a vital resource to ensure Codelco's strategic development.

To facilitate the existence of intra-company networks and cooperation standards, create work teams, increase efficiency and quality, improve information and knowledge flows associated with all processes, Codelco has implemented training programs, career development policies, improvements to the quality of workers' lives, professionals and technicians, and protocols that link job security to productivity.

The set of resources mobilized by these initiatives ensures that Codelco is prepared to successfully deal with its commitment to double its business value and ensure its leadership within the world copper industry.

As a result, company workers, executives and professionals face a double challenge: contributing all their skills now to meet Plan commitments and, at the same time, to prepare to contribute more and better skills to meet future requirements. Thus, Codelco staff must constantly upgrade to renew their skills, favor their mobility within the organization, and improve their employability potential.

TRAINING AND DEVELOPMENT 17 to develop executives' skills in orienting and guiding Programs to certify labor skills 37 One of the main variables included in the very foundation their work teams; and nine to strengthen their commu- Another aspect of training involved implementing pro- of Plan human development are training and develop- nications skills. grams to certify labor skills that respond to the com- ment plans. pany's operating and management needs, as well as The workshops involved complementary activities to overcoming gaps in skills identified in new investment

facilitate development. This way, 90 executives had at projects in Codelco's different business areas. In 2003, CODELCO A pillar of management least eight individual coaching sessions; and 134 exe- this task posted significant progress, particularly in Codelco promotes human development policies and cutives had six group coaching sessions. the El Teniente Division. initiatives, including those directly related to operating needs and business management. The company applies The year closed with a new skills evaluation of 230 The agreement signed with Chile's national training a range of programs to prepare staff to maintain or executives and potential candidates, which revealed and employment service (Servicio Nacional de Capaci- increase production and thus contribute to meeting the progress to date and will contribute to focusing activities tación y Empleo, Sence) was particularly important, as company's goals. to be carried out in 2004. it included Codelco in the digital literacy program being promoted by the government. In 2003, two particularly efficient programs were applied: training oriented to projects to increase concentrator Corporate human development programs plant processing capacity at the company's different In 1996, company-wide human development programs Personal skills development program Divisions; and training workers to operate new techno- began, with participants especially selected from all One of the objectives of Codelco's human development logies, such as the electric copper concentrate smelter the Divisions and the Head Office. To date, three different policy is to improve the personal skills of workers, furnace at the Codelco Norte Division. kinds of company-wide programs have been applied: professionals and executives. In 2003, some related one focusing on Codelco executives and upper manage- programs included: In terms of 2003 skill improvement programs, the ma- ment; another for the professional segment; and a third nagement development program, corporate human de- for workers' training. To date, almost 1600 people have Primary and secondary upgrading. Aiming to correct velopment programs, training programs aiming to certify attended these programs. shortfalls in workers' formal education, these programs labor skills and programs to improve personal skills saw about 400 people graduate during the year. were particularly noteworthy. Company-wide human development programs have become a genuine business school within Codelco, Family programs. Codelco has developed programs thanks both to the skills they promote and the issues open to and directed at the spouses and children of Management development program they deal with, many of them of strategic importance workers and contractors in spheres such as personal The ambitious targets laid out in the Plan of doubling to the company. These programs have helped to conso- development, developing entrepreneurial abilities and the company's value to strengthen its world leadership lidate a business management model within Codelco managing personal finance. make it necessary for Codelco to have a management and deepen the Strategic Alliance process. body capable of mobilizing workers and professionals Ongoing technological training. These programs focus as a whole to fulfill these objectives and tasks. In 2003, Codelco implemented corporate development on training workers in basic technological subjects, programs that aim to develop business management not necessarily related to their current trade, which In this context, the company applied the first stage of skills among professionals and contribute to labor allows them to expand their labor horizons and options. its management development program in 2003. This develop among workers. Altogether, 309 people parti- stage focused on reducing gaps identified during the cipated. Codelco invested a total of US$7.9 million in training 2002 evaluation among 230 executives and potential programs in 2003. This funded 7,833 courses, with a candidates, according to the executive excellence model These programs are a tool at the service of Codelco's total of 90,345 participants, representing 1,268,484 defined by upper management. new business strategy, contained in the company's Joint person hours of training. Strategic Plan. Moreover, they reinforce the development It also included a series of workshops to strengthen of the skills necessary to implement the new manage- the skills required within Codelco's executive excellence ment model with participation, which characterizes model, and the necessary know-how and skills to sus- Codelco. This kind of program, comparable to the virtual tain it. universities in the world's great corporations, represents a landmark in the development of the company's human In 2003, several workshops were held, particularly 17 capital, to ensure its competitiveness and leadership that aimed to reinforce high performance teams; another within the industry. LABOR RELATIONS Another fundamental element in the company's Joint Strategic Plan is to ensure relationships between ma- nagement and all employees, workers and union orga- nizations are cooperative and helpful. This is expressed in the Strategic Alliance that has led and made possible the company's successes to date and to come.

QUALITY OF LIFE

Virtual community The creation of the Aldea Minera (Mining Village) virtual community is one of the company's flagship projects, which aims directly at improving workers' quality of life.

Through this initiative, the company and its unions connected more than 11,500 workers in 28 cities throug- hout the country to the Internet using a broad band connection.

Aldea Minera offers a range of services, including cul- tural, educational, restaurant and sporting information, e-mail addresses and different opportunities for virtual interaction, which seek to provide a participatory space for users, as well as being a friendly and contextualized doorway to the Internet.

This project is a significant contribution from Codelco and its workers to the government's target of substan- tially reducing Chile's digital divide, boosting country competitiveness, improving education and offering more opportunities for development to Chileans. It is estimated that this initiative accounted for 14.5% of total connec- tions in Chile in 2003.

Alcohol, drugs and tobacco policy In 2003, a tripartite technical team prepared a draft corporate policy on alcohol, drugs and tobacco, with assistance and advice from specialized bodies, such as the Ministry of Health, the national council for drug control (Consejo Nacional de Control de Estupefacien- tes), the Pan-American Health Organization, PAHO, and the International Labor Organization, ILO.

The proposal was widely supported by workers at diffe- rent points in its preparation, through the institutional channels set out by the Plan. On 21 November 2003 the policy was approved.

40 Its purpose is to outline a clear course of action in terms agreement with the unions, which made it possible to of preventing drug, alcohol and tobacco use on the job, complete bargaining with no additional costs or losses as well as treatment and rehabilitation for those with to Codelco's results. problems who wish to recover. In the case of the Chuquicamata work center, most

CODELCO The policy establishes a framework of principles, stra- unionized workers accepted management's offer, which tegies, procedures and rules for developing divisional avoided a situation such as Andina's. plans to promote and prevent; ensure early detection, treatment and rehabilitation; and provide follow-up and Collective bargaining with supervisors at the Salvador evaluation in this area. and El Teniente Divisions went ahead normally, with more innovation achieved in terms of wages and benefits. Support for this policy is a fundamental landmark in the progress of the Joint Strategic Plan, because it reflects the combined will to deal with problems whose negative Employability protocol, personnel management and effects influence the quality of life as a whole, people's attitudinal change safety and that of their surroundings, and the company's The employability protocol, agreed upon by management, mission in terms of production. workers and supervisors, generated an attitudinal change in personnel management and mobility, based on the concept "Codelco, one single company." Union development In 2003, a third version of Codelco's labor management This effort focused on using the company's internal diploma program took place. human resources in a context of labor stability with competitiveness, taking advantage of the synergies and This activity, which has been carried out with the Univer- opportunities generated by the company's different sity of Santiago for the past three years, brought together Divisions. 27 participants this time, most of them union leaders from Divisions and workers in labor relations and human Based on this agreement, the following personnel solu- development. tion processes stood out in 2003:

The program sought to develop labor management abi- Codelco Norte. Agreement was reached to implement lities and skills, as well as providing knowledge about technological changes in the refinery. At the same time, the most modern management philosophies and techni- a reconversion process affected 93 refinery and pile ques used by organizations to achieve excellence workers, who were transferred to Mina Sur's northern extension.

Collective bargaining Salvador. Reconversions and relocations took place to In the spirit of the Plan, the company was involved in the the Andina, El Teniente, and Codelco Norte Divisions, collective bargaining processes typical of any firm. In reducing personnel by 10%. 2003, Codelco had six rounds of collective bargaining in the Andina, Codelco Norte, Salvador and El Teniente Andina. Andina received reconverted personnel from Divisions. other divisions, placing at the company's disposal more than 90 vacancies for workers, who assumed their new During these processes, it advanced toward agreements functions thanks to a focused training program. The to simplify wage structures and make them more visible, reconversion of Talleres (metal-mechanical) workers to associate remuneration with business results, and review mine and development operators should be noted. some social benefits.

While there was some conflict, after 11 days of legal strike in the Andina Division, management reached an El Teniente. El Teniente received personnel from other Labor productivity 41 divisions, mainly Talleres and Salvador. The task of doubling the company's worth and positioning Codelco as an undisputed world leader implies that Talleres. 230 workers in this Division received a solution, every worker, professional and executive must generate through lay-off plans, reconversion or relocation within the conditions necessary to steadily improve productivity.

the company, making it possible to sell off some of this CODELCO Division's assets The productivity benchmark reflects copper production for the period over the number of personnel.

HUMAN RESOURCE MANAGEMENT The average number of employees in 2003 was 16,678 people, down from 16,967 in 2002. Accident rates In this light, and excluding the percentage of El Abra's In this sphere, the company focused particularly on the copper production from the calculation, Codelco's own care and safety of people working in and cooperating productivity reached 93.7 tons per worker in 2003, up with the company. This was apparent in many campaigns from 89.6 tons per worker the previous year. throughout the company.

As a result of these initiatives, in 2003 the company's SHARED SERVICES accident frequency rates improved over the previous Another pillar of human development policy included in period. In fact, the accident frequency rate for the com- the company's Joint Strategic Plan is a special focus on pany's own employees was 4.0 in 2003, down from 4.4 in implementing Shared Services that bring Codelco in line 2002. with a growing trend among world-class corporations.

In terms of the seriousness of accidents affecting Codel- This poses the challenge of making the most of econo- co's own employees, this index rose from 470 in 2002 to mies of scale that can be obtained by centralizing ma- 871 in 2003. nagement of supply, accounting and comptroller servi- ces, information and telecommunications technology. > Accident rates In 2003, Codelco moved strongly ahead on this new 1,000 5 management model whose function-objective is to create more value for the company. Shared Services outdid the 800 4 target for the year, to reach a contribution to VAN of about US$360 million, the result of an annual saving 600 3 equivalent to US$36 million in contracts during the period. This amount does not include the enormous 400 2 Frequency Seriousness value that should be captured by Shared Services clients, as a result of better service, a strong customer-centered 200 1 approach, and the development of a business culture.

0 0 2002 2003

Seriousness index Frequency rate

Absenteeism and overtime Labor performance standards held steady during this fiscal year. Absentee rates rose slightly from 5.90 in 2002 to 5.98 in 2003, while overtime went from 4.5 in 2002 to 5.1 in 2003. 42 CODELCO

social responsibility

community

environmental management 43 CODELCO

sustainability

Codelco's commitment to sustai- CORPORATE SUSTAINABLE DEVELOPMENT POLICY In June 2003, Codelco established its corporate policy for sustainable development, which provides the referential nable development and social res- framework for Codelco's contribution to sustainable mining. ponsibility is an integral part of its The policy introduces into management the preventive principle, which aims to control environmental aspects and risks Joint Strategic Plan, as one of its associated with every sphere of its activity, in mining copper and its by-products. essencial pillars for maximizing It also renders explicit and formalizes the company's commitment to business values and ethics, as well as enshrining the company's value by 2006. its respect for and commitment to protecting fundamental human rights and the dignity of all those working on its operations.

It establishes a broad conceptual context, adds strategic direction and strengthens a series of specific policies, guidelines and rules in effect regarding sustainability, among them the corporate policy on environmental management, occupational health and safety, division environmental policies, guidelines associated with the "Codelco good neighbor" policy, among others.

Adopting a policy in this sphere is based on the company's conviction that it is necessary to make Codelco's contribution to and support for sustainable development explicit to all stakeholders, including communities, consumers, financial institutions and investors. 44 In the company's sustainable development policy, Codelco and community relations, from the perspective of pre- • Promoting these commitments among all those involved commits itself to: vention and ongoing improvement. in its operations, that is cooperating instances (suppliers and contractors), workers, customers, and members of • Developing and maintaining ethical and responsible • Ensuring the long-term sustainability of its business the nearby communities. business practices. and the yield on capital invested based on the continuous

CODELCO development of demand and mining, human and tech- • Respecting and protecting basic human rights, enshri- nological resources. ISO 14001 ned in the United Nations Universal Declaration of In 2003, Codelco met its commitment to achieve ISO 14001 Human Rights, and the dignity of all those who work • Stimulating, together with the rest of the industry, the certification for all its Divisions, operations and Headquar- on its operations. development and environmentally responsible use of ters, thereby successfully completing the largest certifi- products generated throughout their life cycle, from cation process carried out in Chile. • Adding sustainable development criteria within the extraction, through processing, use, recycling, to final company's decision-making process, including aspects disposal. Certification indicates that Codelco has a structure for such as labor protection, responsibility for environmen- controlling the environmental impact of its activities, pro- tal and social impacts within its operations' spheres of • Contributing to the development of solid scientific infor- ducts or services, and that it maintains an effective mana- influence. mation to influence in establishing rules for the use of gement system for continually improving its performance. copper and its effects on the environment and human • Contributing to, generating conditions favorable to, health, which do not unnecessarily limit its market access. Codelco's environmental management systems, based stimulating and reinforcing development in the commu- on ISO-14001, systematize more than a decade's worth nities around its operations. • Implementing and maintaining communications and of efforts to reduce emissions into the atmosphere, information mechanisms on its performance and effects suitably handle solid and liquid wastes, evaluate the • Implementing and maintaining effective and efficient in terms of sustainability, committing itself moreover to environmental impact of its projects, maximize the management systems in the areas of the environment, issue verifiable reports on this subject. efficient use of resources, and provide reliable informa- general safety, occupational health and safety, quality, tion on the company's successes and challenges. The commitment to ongoing improvements to its envi- The Andina Division's investment projects went primarily 47 ronmental management systems will make it possible to tailings dams and associated works. In addition, a for Codelco to advance to levels of excellence in order project for the integrated management of concentrator to remain a leading firm in the mining industry and spills was also implemented. ensure copper continues to be a sustainable material

for future use. CODELCO OCCUPATIONAL SAFETY The company began to implement an occupational OCCUPATIONAL SAFETY AND ENVIRONMENTAL health and safety management system, based on the INVESTMENTS OHSAS -18001 technical specification, as part of its Codelco's strategy for improving its environmental commitment to obtain certification by 2005. performance has been strongly supported by invest- ment. In 2003, Codelco invested US$57.3 million in the With this in mind, in 2003 a company-wide occupational environment and occupational safety. health and safety task force was formed, to implement the system and create an occupational health and safety This investment went to several projects that produced plan for the short and medium term. significant results in terms of reducing smelter emis- sions, ensuring more efficient energy and water use, In 2003, the company also created an occupational health and responsible management of solid and liquid was- bureau, which must work to ensure ongoing improve- tes. ments in the company's working conditions.

One of the most significant achievements of this period was the completion of activities necessary to comply SOCIAL RESPONSIBILITY with the Caletones Decontamination Plan. The challenge of Codelco's sustainable development as an essential part of its business strategy involves the The Caletones Decontamination Plan, begun in 1998 world market accepting copper as a sustainable metal and involving a total investment of US$270 million, and community acceptance of its operations. consists of capturing the smelter's gas emissions, mainly by building two gas cleaning plants. Today, For Codelco, social responsibility includes environmen- more than 92% of the sulfur dioxide, particulate matter tal, safety, occupational health, quality of life and good and arsenic previously discharged into the atmosphere. relations with the community, through actions that improve quality of life. The project also involves transporting the sulfuric acid resulting from this gas treatment to the port of San Codelco has institutionalized its good neighbor policy, Antonio, for an investment of about US$12 million. making it one of the pillars of company social responsibility.

In Codelco Norte, the environmental investment made The company seeks to strengthen its relationships with in 2003 went to projects involving improvements to the surrounding communities, through actions that smelter competitiveness to comply with the Chuqui- integrate the principles of social responsibility and camata Decontamination Plan and to handling solid sustainable development and create a participatory wastes. culture among these communities, focusing on their development priorities. In Salvador, part of the investment made this year went to the project for the integrated management of liquid industrial wastes and residual waters.

The most significant actions in 2003, with regard to Andina Division The Young Managers Team is an apprenticeship program 47 Codelco's good neighbor policy, include the following: • In 2003, the Division developed a community reinforce- for young professionals in member companies, to gene- ment plan, which involved action to create green space rate skills in the area of sustainable development. Codelco Norte Division with the Municipality of Los Andes; a cooperation agree- • The Division continued with the Agricultural Program. ment with the Liceo Polivalente C-82 (secondary school) The Accountability & Reporting project focused on pre-

In 2003, agricultural advice and related training pro- in Til Til; an agreement to extend the interactive museum, senting a structure and a methodology for best practices CODELCO jects were implemented, along with training in tourism Museo Interactivo Mirador; a traveling exposition; and and case studies; establishing a work plan to coordinate and administration, sales of crafts, tree and exotic the creation of an archaeological site museum in Huec- efforts associated with the Global Reporting Initiative, tree production, among others. hún. GRI; and proposing the guidelines for lining up internal practices of company responsibility with existing external • As part of the strategic alliance for cooperation bet- El Teniente Division standards, codes and structures, such as the United ween the Municipality of Calama and the Division, • Implementation of the Los Cobres de Loncha ecological Nations World Pact. the project for integrating New Calama continued. In project, located in the Metropolitan Region and including 2003, this project focused on the areas citizens' se- the Carén dam, made important progress. In 2003, the curity, improving quality of life, social and cultural Joint Initiative Group, which brings together Codelco, PROMOTING AND DEFENDING COPPER development of the municipality, among others. 12 public and community institutions, signed a pioneering agreement to work for the sustainable development of International Copper Association, ICA • As part of the agreement to ensure the sustainability the Alhue village. To do so, a rural tourism program was In 2003, Codelco reaffirmed its convictions that promoting of the Calama oasis, forestations projects were im- started, which will become the basis for the area's and defending copper markets plays an essential role in plemented in the city, along with cleaning up the Loa sustainable development. the company's sustainability. River, studying the irrigation network, and making the most of consumptive water rights. • In 2003, several activities took place to distribute infor- mation about the heritage status of the former mining

The challenge of sustainable development requires that the world market accepts copper as a sustainable metal and the surrounding communities accept its operations.

• The Radomiro Tomic ecological center was active camp, Sewell, as part of its application to UNESCO for As an expression of this commitment, President and CEO in the areas of forest cultivation and environmental recognition as a world heritage site. Juan Villarzú completed his first year as Chairman of the education. International Copper Association, ICA. As such he led • As part of the environmental agreement with the national the implementation of the strategic plan that aims to Salvador Division forestry corporation, Conaf, Sixth Region, in 2003 a position copper as a material of the future, essential to • A series of activities took place to support develop- website (www.convenioeltenienteconaf.cl) was created health, technology and people's quality of life. ment, protect the environment and contribute to the and an environmental information center opened in tourism-related development of Chañaral and Diego Cauquenes. ICA's Strategic Plan aims to boost copper demand by at de Almagro. least 800,000 tons over and above natural growth through 2006. The process has focused its campaigns on six • In terms of supporting development, the Division INTERNATIONAL LEVEL initiatives key to the copper industry in the following provided professional assistance in preparing and areas: construction, cables and wires, technology, the evaluating projects financed by competitive govern- World Business Council for Sustainable Development, environment, energy efficiency, and China, as this is the mental funds and cooperated with a plan for the WBSCD market with the world's most demand for copper. development of tourism in Chañaral. Codelco belongs to the World Business Council for Sus- This process was carried out with fundamental support tainable Development (WBCSD), which brings together for the initiatives involving evaluation and measurements, • In the environmental sphere, the agreement for fo- 170 international companies united by their shared com- market intelligence and communications, which made it resting tailing sand to mitigate the effects of pollution mitment to sustainable development. possible to effectively focus implementation of the ICA's in Chañaral Bay and stop sand dunes' continued to strategic guidelines at the global level. advance. In 2003, Codelco participated actively in two WBCSD pro- jects, the Young Managers Team and the Accountability & Reporting project. 50 At the same time, Codelco paid special attention to restructuring the Latin American Copper Council (Con- sejo Latinoamericano del Cobre, LAC). Through the presidency of this body, a new regional director was hired and the statutes of the region's Procobres modi-

CODELCO fied to bring them into line with those set by the ICA worldwide.

With the favorable implementation of the strategic plan, as described, it is hoped that in the near future new technologies associated with copper use, energy standards associated with environmental concern, and copper consumption will come into effect. Also impor- tant is co-financing from new actors, which will make it possible to significantly influence future copper demand.

International Molybdenum Association, IMOA Given molybdenum's importance as Codelco's second main product, in 2003 the company actively participated in the International Molybdenum Association.

Through this association and along with some of the industry's most important players, Codelco outlined the different activities that would defend molybdenum from growing regulatory demands and promote it as a material of the future at the global level, especially in the areas of health care, the environment, and markets.

50 CODELCO

strategic stock

efficiency

responsible supply 51 CODELCO

financial and economic results

In 2003, Codelco's income rose by In 2003, the company's income before taxes reached US$606 million, up 64% over US$369 million in 2002.

64% and production by 2.8% over Income refers to revenues before income taxes, extraordinary items, minority interest and Law Nº 13,196, which 2002. Its contribution to the national applies a 10% tax on foreign currency returns from the sale of copper and byproducts abroad.

Treasury reached US$688 million. The US$237 million rise in income before taxes in 2003 over 2002 reflects primarily the following factors:

The higher copper price was the main positive factor affecting income before taxes. The average copper price on the London Metal Exchange reached 80.7 cents per pound in 2003, up 10.1 cents over the price the previous year. The higher price accounted for a US$342 million rise in income due to sales of our own copper. However, this higher price was down by US$61 million due to a 161,000 ton decline in sales.

Lower sales reflected the decision made by the company's Board of Directors in November 2002 to set aside 200,000 fine tons of copper from 2003 production to establish a stabilizing stock.

Among the adverse factors that had a strong impact on income were foreign exchange differences and corrections, the result of asset and liability balances in currencies other than the dollar, particularly pesos, held by the Corporation.

At the end of the 2002 fiscal year, the exchange rate stood at 718.61 pesos per dollar, which fell to 593.8 pesos per dollar by the end of December 2003. The peso revaluation required a greater exchange rate correction between the two fiscal years, negatively affecting 2003 income by US$74 million, US$107 million more than in 2002, when it had a positive effect of US$33 million. This situation occurred mainly due to obligations for severance pay for years of service that Codelco owes its workers. 52 Better results in related companies helped to offset COSTS the effect of foreign exchange differences. In 2003, Codelco's unit costs were as follows: total costs and expenditures, 73.5 cents per pound of copper; Earnings before interest, taxes, depreciation, and cathode cash cost, 65.4 ¢/lb; and cash cost, 42.7 ¢/lb. amortization, EBITDA, reached US$1.296 billion in 2003,

CODELCO up from US$1.039 billion in 2002. Average net cathode costs for divisions reached 55.9 cents per pound in 2003, similar to the 55.5 cents per pound posted in 2002.

> Income before taxes and copper price Higher costs and special company charges led to a general rise in Codelco's costs. Of these, the most important was differences in the exchange rate, up in 600 100 2003 over 2002, which pushed costs 3.2 cents higher; higher financial expenditures, reflecting more borrowing 500 90 to finance the investment plan, which contributed a 0.9 cent increase; while higher costs for retirement plans, 400 80 associated with productivity increase projects, amounted to 0.5 cents. In summary, these three exceptional 300 70 situations affected 2003 costs by 4.6 cents. US$ million cents/pound

200 60

100 50 2002 2003 > Unit costs (cents per pound)

Income before taxes 2002 2003 Copper price Total costs 65.6 73.5 Net cathode costs 60.3 65.4 Cash costs 40.9 42.7 Molybdenum production reached 23,173 tons, up 3,272 TREASURY CONTRIBUTION tons, or 16%. In 2003, Codelco's contribution to the national Treasury reached US$688 million, up from US$326 million the PRODUCTION The ore processed by Codelco's Divisions reached 196 previous year, which breaks down as follows: Copper production in 2003 reached 1,673,606 metric million dry metric tons up 192 million tons over the fine tons, up 43,550 mft over 2002. Production includes previous year. the 49% corresponding to Codelco's share in El Abra. All Codelco Divisions increased production, particularly The average ore grade was 0.91%, similar to 2002. For > Treasury contribution (US$ million) Salvador where it rose 10%. the five-year period, 1999-2003, it should be noted that the ore grade has declined 13%. 2002 2003

Income tax 80 339 Law No. 13,196 223 253 Dividends 50 > Production by Division (fine tons of copper) Other 23 46 Copper Molybdenum Total 326 688 2002 2003 2002 2003

Codelco Norte 893,862 907,169 12,878 16,432 The increase in this contribution reflects the better Salvador 72,819 80,105 1,258 1,172 results and compliance with contributions, in line with Andina 218,706 235,834 1,864 2,057 promises contained in Codelco's development plans. El Teniente 334,306 339,440 3,901 3,512 El Abra (% Codelco) 110,363 111,058

Total 1,630,056 1,673,606 19,901 23,173 SALES 53 > Main copper customers Total income from sales of copper, by products and other business reached US$3.782 billion in 2003, up Asia Europe North America US$292 million over US$3.490 billion the previous Kason Development Colata Continua Italiana Mueller Industries year. LG Cable Halcor Southwire

Pacific Electric Wire Kme Europa Metal CODELCO Sales of own copper reached 1,421,000 tons in 2003, Taihan Electric Wire Co Nexans 161,000 tons less than in 2002, when these reached Trafigura Umicore 1,582,000 tons. Associated income reached US$2.551 billion and US$2.415 billion, respectively. > Copper sales by product, 2003 FOREIGN EXCHANGE PARITIES AND INTEREST RATES Sales of third party copper reached US$619 million The company has defined policies to cover foreign during 2003, up from US$575 million in 2002. exchange parities and interest rates. Foreign exchange 83% hedging includes foreign exchange insurance, to cover Income from by products and other business reached future shifts in the Unidad de Fomento* /dollar ratio, US$612 million in 2003, up from US$500 million in 2002. while interest rates include contracts fixing interest rates on future obligations. Molybdenum, the main by product, generated sales of US$237 million, up US$86 million from US$151 As with the copper price, operations carried out do not million in 2002. 13% include those of a speculative nature.

4% INSURANCE Codelco has ongoing insurance to cover its assets and Refined copper Blister-anodes business interruptions, which covers mainly: Concentrates > Copper sales by region, 2003 Goods insured: all facilities used for the purposes of its main business in Chile. 47% Codelco's sales policy for non-refined output aims to ensure the best possible use of its facilities. The first Type of coverage: all risk of loss and material damage priority is to supply smelters with concentrates and combined with interrupted activities, with an initial loss refineries with anodes, and then determine the excess of US$500 million. available for sale.

11% FINANCING RISK FACTORS During 2003, Codelco approached the financial market 35% on two occasions. In the first half, it obtained a 7% Copper price syndicated credit from seven international banks worth US$300 million; during the second half, it issued Codelco's financial results are significantly influenced US$500 million in bonds on the international market. Asia South America by copper prices. To deal with these fluctuations, North America Europe Codelco makes every effort to remain one of the mining These results show investor's confidence in Codelco's industry's lowest cost producers. management and experience. Sales policy Codelco's refined copper sales policy has focused on Operations carried out do not include those of a expanding its direct relationships with makers or speculative nature. producers of semi-manufactured goods, thus reinforcing Codelco's presence in the main regional markets. Bond issue Strategic stock In 2003, Codelco issued US$500 million in ten-year Codelco's decision to set aside a strategic stock of bonds on the international market. Demand reached 200,000 tons of copper sought to brake the rise in over US$3.300 billion, with a 125 base point spread already high inventories on Metal Exchanges, given over US Treasury bonds, which represents the lowest their depressive effect on the market. spread obtained by a Latin American company in the past five years. Codelco committed itself to storing this material on its premises and not offering it on the market, as long as the accumulated inventories in the London, New York Syndicated loan and Shanghai Metal Exchanges remained at over The loan to Codelco matures in five years, with 800,000 fine tons of copper. As of 31 December 2003, amortization at the period's end and an annual margin this stood at 808,469 tons, down from 1,293,763 tons of Libor plus 0.45%. stored as of 31 December 2002.

This operation reaffirmed Codelco's excellent standing This initiative, combined with production cuts from in international financial markets, as it once again other companies, had a favorable impact on exchange obtained the best conditions for a Latin American inventories, which declined 38%. company for similar loans by amount and maturity. This way the company contributes to setting favorable credit This decline in inventories increased as the world conditions for other Chilean companies. economy picked up, triggering a price recovery that far exceeded the most optimistic predictions. The effect Aside from the quality of the participating banks, the of the higher price was even apparent in the 2003 most outstanding feature of this operation was the results. Codelco and the industry saw higher than spread of 0.45% per annum. This reflects the risk expected revenues through sales and profits. premium that capital lenders require from the borrower. This clearly confirmed Codelco's excellent reputation The experience of recent years has shown that a in the international banking market. responsible supply policy is the best alternative for ensuring the industry's stable development. In essence, this means offering the market copper production to Ratings satisfy consumers' real needs and investing only in On the Chilean market, Codelco's risk rating is AAA, projects that guarantee suitable profitability to according to Fitch-Rate and Feller-Rate, the top rating shareholders for the entire life of the investment, even possible for a Chilean issuer. during low price periods.

Codelco's international risk rating has remained at A2 (Moody's) and A- (Standard & Poor's). Codelco's rating is two levels higher than that of the Chilean Republic, according to Moody's, and the best in Latin America.

For Standard & Poor's, the risk rating is tied to analysts' evaluation of Chile's country risk. Both classifications place Codelco among the world's top rated mining firms. The main bases for this rating include its solid business position in the world copper market and its good operating performance. Codelco generates a good cash flow; it is one of the world's most efficient copper producers; and it has the largest known reserves.

40 CODELCO

subsidiaries and joint ventures Sociedad Contractual Minera El Abra / Agua de La Falda S.A. / Compañía Contractual Minera Los Andes, CCMLA / Electroandina S.A. / Elaboradora de Cobre Chilena Limitada / Minera Pecobre S.A. de C.V. / CMS Chile S.A. / Asociación Garantizadora de Pensiones / Complejo Portuario Mejillones S.A. / Geotérmica del Norte S.A./ Inversiones Mejillones S.A. / Inversiones Tocopilla Ltda. / Compañía Minera Picacho SCM / Isapre Chuquicamata Ltda. / Isapre Río Blanco Ltda. / Isapre San Lorenzo Ltda. / Codelco Group USA Inc. / Chile Copper Limited / Codelco Kupferhandel GmbH / Instituto de Innovación en Minería y Metalurgia S.A. / Biosigma S.A. / Santiago de Río Grande S.A.C. / Codelco International Limited / Ejecutora Proyecto Hospital del Cobre - Calama S.A. / Sociedad Contractual Minera Purén / Fundición Talleres S.A. SOCIEDAD CONTRACTUAL MINERA EL ABRA Executives: Miguel Munizaga Badilla, President and General AGUA DE LA FALDA S.A. 57 31 December 2003 Manager 31 December 2003 David Miranda, General Manager of Operations Douglas Comer, Manager of Administration Legal Status Mariano Neira Sáenz, Comptroller Legal Status

The company was created through a certified document on Agua de la Falda SA. (the company) was set up using a CODELCO 28 June 1994, duly witnessed by the Santiago notary, Mr. Codelco's share of capital and changes during the fiscal year certified document dated 25 July 1996, as a private limited Víctor Manuel Correa Valenzuela. Codelco's share is 49%, which has not changed since the company, whose shareholders are the Corporación Nacional company was set up. del Cobre de Chile (Codelco) with 49% and Minera Homes- The company's legal name is "Sociedad Contractual Minera take Chile SA with 51%. El Abra"1. Commercial relations with Codelco Company name: Agua de la Falda SA The main business in common involves El Abra selling Co- RUT: 96.801.450-1 The Sociedad Contractual Minera El Abra is a contractual delco its cathodes, with the annual amount established in a Address: Barrio Industrial, sitio 58, Alto Peñuelas, mining company established under the regulations included sales agreement, which specifies that 49% of production not Coquimbo in articles two hundred one and thereafter in the Republic committed to third parties through contract goes to Codelco of Chile's Mining Code. and this amount cannot be less than 30,000 metric tons. Capital subscribed and paid in Capital subscribed and paid in by Codelco: US$17,052,000 Capital subscribed and paid in Moreover, Codelco sells El Abra sulfuric acid, with both price The Capital subscribed and paid in amounts to and amounts established through annual negotiations. Purpose US$647,059,000 divided into 100,000 shares. The sharehol- The purpose of the company is to prospect, explore for and ders are "Cyprus El Abra Corporation", with 51,000 shares, Contracts with Codelco exploit mining properties containing gold, other precious and the "Corporación Nacional del Cobre de Chile", with The copper sales agreement is covered by a "Marketing and other metals, and their sale, in any form. 49,000 shares. Agreement", signed on 15 June 1995, between Sociedad Contractual Minera El Abra and Codelco Services Ltd. This Board of Directors Purpose agreement expires on 1 January 2012 and can be automati- Series A Members: Nicolás Saric Rendic (*) The purpose of this company is to prospect for, explore and cally renewed on an annual basis. Edmundo Tulcanaza Navarro (*) exploit the ore deposit known as El Abra, located in the Contracts for the sale of sulfuric acid exist, which expire in Second Region of Antofagasta, in its full extension, along 2006. Alternate Series A Board Members: Rene Muga Escobar (*) with others adjoining or nearby; extracting, and processing Francisco Camus Infanta (*) the ore obtained from exploiting the properties that make Investment as a percentage of total head office up this ore body and surrounding areas; and transporting 2003 Investment in jointly held firm US$88.564 million Series B Board Members: Sergio Chávez Jofre and selling products and byproducts from processing ores 2002 Investment in jointly held firm US$52.431 million Raymond W. Threlkeld and other activities involved in exploiting the deposit. To Total investment as a percentage of head office assets David L. Deisley comply with this objective, the company can build and 1.0945%, 2003. operate production and processing plants and facilities, Alternate Series B Board Members: Kevin Atkinson Tear claim mining ownership or acquire it, as well as carry out Alejandro Labbe Saffa all kinds of operations related to same. The company can 1 This paragraph and the following one quote the first and second Articles Brett M. Sherlock carry out any actions and celebrate any contracts and con- from the First Section of this company's statutes. ventions that directly or indirectly contribute to meeting 2 The third Article of the First Section of the incorporation papers. Executives this objective2. General Manager: Felipe Núñez Cordero

Board of Directors Codelco's share of capital and changes during the fiscal Directors: year Harry M. Conger, President of the Board of Directors Codelco's share, 49%.

Members: Commercial relations with Codelco Timothy Snider, Cyprus El Abra Corporation There were no non-contract sales or purchases of goods Jorge Riquelme, Cyprus El Abra Corporation and services outside of contracts, between the company Juan Eduardo Herrera, Codelco (*) and Codelco. Juan Enrique Morales, Codelco (*)

(*) Codelco executive or board member. 58 Contracts with Codelco COMPAÑÍA CONTRACTUAL MINERA LOS ANDES, CCMLA ELECTROANDINA S.A. The company maintains a contract with Codelco for the 31 December 2003 31 December 2003 following services: • Fresh water supply. • Industrial water supply. Legal Status Legal Status

CODELCO • Electric power supply. Company name: Compañía Contractual Minera Los Andes ELECTROANDINA SA • Rental contract. (CCMLA) RUT: 96.731.500-1 • Telecommunications service contract. RUT: 78.860.780-6 Public limited company • Provision of laboratory analysis services. Company created 16 May 1996 Repertory N°273 Capital subscribed and paid in Investment as a percentage of the head company: Notary M. Gloria Acharán Toledo Capital subscribed and paid in by Codelco 70,291,170,536 2003 Investment in jointly held firm US$4.557 million pesos 2002 Investment in jointly held firm US$5.987 million Capital subscribed and paid in Investment as a percentage of head office assets 0.056%, Capital subscribed and paid in by Codelco 15,215,354 shares Purpose 2003. (99.97%), worth 8,080,290,023 pesos, corrected monetarily To generate and transmit electric energy and provide through 31/12/2003 and Minera Picacho 5,100 shares (0.03%), port services involving industrial maintenance of trans- worth 2,723,184 pesos, corrected monetarily through mission systems, as well as consulting and industrial 31/12/2003. training services. The company is the main electrical power generator in the SING, representing about 30% of Purpose its power generation. Its activities began in 1915 along Geological or other explorations whose purpose is to discover with the activities of the Chuquicamata mine. and reconnoiter ore deposits in the country or abroad. Ex- In 1995, Codelco created the Electroandina company (ex- ploration activities temporarily suspended. Central Termoelectrica Tocopilla SA) based on its Tocopilla Division and it sold a controlling interest to the Belgian Board of Directors electric firm, Tractebel, at international auction in 1996. Waldo Fortin Cabezas, President (*) Mario Espinoza Durán (*) Board of Directors Alex Acosta Maluenda (*) Jan Flachet Francisco Camus Infanta (*) Manlio Alessi Remedi Nicolás Saric Rendic (*) Henk Bataille Patrick Obyn General Manager Gabriel Marcuz Nicolás Saric Rendic (*) Manuel Colcombet Jacqueline Saintard Vera Codelco's share of capital and changes during the fiscal year Jorge Navarrete Martínez (*) Codelco's share is 99.97%; there were no changes in its Marcelo Mobarec Asfura (*) equity in 2003. Reinaldo Sapag Chain Ricardo Campano Gándara (*) Commercial relations with Codelco There were no commercial relations. General Manager Willem Van Twembeke Contracts with Codelco There were no contracts that played a substantial role in Codelco's share of capital and changes during the fiscal Codelco's operations. year 34.8%. No change. Investment as a percentage of total head office assets 2003 Investment in subsidiary US$0. Commercial relations with Codelco 2002 Investment in subsidiary US$0. The following commercial relations exist between Elec- Investment as a percentage of head office assets troandina SA and Codelco: 0%, 2003.

(*) Codelco executive or board member. 1. Contract for electric power supply, Codelco Norte ELABORADORA DE COBRE CHILENA LIMITADA Investment as a percentage of head office assets 59 Division 31 December 2003 2003 Investment in subsidiary, US$0 2. Contract for electric power supply, Sociedad Contrac- 2002 Investment in subsidiary, US$0 tual Minera El Abra Investment as a percentage of head office assets 3. Contract for electric power supply, Alliance Copper Legal Status 0.0%, 2003

Limited (ACL) Company name: Elaboradora de Cobre Chilena Limitada CODELCO 4. Contract for natural gas supply between DISTRINOR RUT: 79.681.920-0 SA (A subsidiary of Electroandina SA) and Codelco Company created: 18 December 1995 Norte Division. Notary: María Gloria Acharán Toledo 5. Contract for "Service Contract for Providing Reception, Inscription fs. 20,932 N° 10,784 in Santiago's commercial Storage and Loading of Sulfuric Acid," between Elec- registry (Registro del Comercio de Santiago), 1995 troandina and Codelco Chile. 6. Contract for "Sale of Bituminous Coal" between Elec- Capital subscribed and paid in troandina and Codelco Norte. Capital subscribed and paid in as of 31 December 2003 was 687,711,520 pesos. Contracts with Codelco The contracts for electric supply of the Codelco Norte Divi- Purpose sion and the jointly owned companies Minera El Abra and Originally set up in 1995 by Codelco and Madeco SA as a ACL represent a significant part of operating costs for each. limited liability company whose purpose was to study and The first two were signed in 1995 in normal market condi- develop projects and investment in producing and selling tions; they expire in 2009 and 2017, respectively. The second manufactured and semi-manufactured non-ferrous metals, two were auctioned with the participation of third parties. whether directly or in association with third parties.

Other contracts don't play a major role in Codelco's opera- Through a certified document signed 17 April 1998, the tions or its results. company changed its share structure, with Madeco SA withdrawing and Codelco-Chile taking a 99% interest in the Investment as a percentage of the head company firm, and Minera Picacho holding 1%. 2003 Investment in jointly held firm US$89.407 million 2002 Investment in jointly held firm US$41.133 million Board of Directors Investment as a percentage of head office assets 1.1%, 2003 Mario Espinoza Durán, Director (*) Carlos Urzúa Ramírez, Director (*) Luis Blanco Beckett, Director (*)

General Manager Jose Antonio Álvarez López

Codelco's share of capital and changes during the fiscal year Codelco's share is 99%. The Compañía Minera Picacho SCM holds 1%. Changes in 2003: There were no changes in share during the year.

Commercial relations with Codelco None.

Contracts with Codelco There were no contracts that played a substantial role in Codelco's operations.

(*) Codelco executive or board member. 60 MINERA PECOBRE S.A. of C.V. Contracts with Codelco CMS CHILE S.A. 31 December 2003 Codelco has a contract in effect with Pecobre that in 2003 31 December 2003 brought billing worth US$1,008,867 for exploration services corresponding to the projects Cobre de Sonora and Los Legal Status Humos: in December 2002 for US$81,580; Los Humos and Legal Status

CODELCO Created on 21 June 1999 in Mexico City, DF, under the Tecolote in January-April 2003, for US$77,180; and Cobre Sistemas y Equipos Mineros SA is a private limited company name Minera Peñodelco, SA de C.V., as per minute de Sonora, Franja Cananea and Otras Franjas in January - set up using a certified document dated 29 July 1992. 275,615, volume 10,293, before Notary No. 10 of the DF, November 2003, for US$850,107. Tomás Lozano Molina. Modified on 7 October 1999, to Capital subscribed and paid in include the Corporación Nacional del Cobre de Chile. On Investment as a percentage of head office total The capital of CMS Chile is US$7,870,000 and consists of 25 January 2000, an extraordinary meeting of sharehol- 2003 Investment in jointly held firm US$902 million 69,000 shares, which were fully subscribed and paid in ders decided to change the company's name to MINERA 2002 Investment in jointly held firm US$559 million by Codelco (68,931 shares) and Bernardo Infante Philippi PECOBRE, SA de C.V. Investment as a percentage of head office assets 0.01%, (69 shares). 2003 These shares have no nominal value. Capital subscribed and paid in (in Mexican pesos) Fixed capital 100,000 Purpose Variable capital 199,277,400 The purpose of this company is to manufacture, sell and Registered capital 199,377,400 distribute in Chile and abroad, machinery equipment and replacement parts; furthermore, through its subsidiary, Purpose CMS Tecnología SA it provides maintenance and repair To explore for, develop and run copper deposits in the State services. of Sonora, Mexico Board of Directors Board of Directors Alex Acosta Maluenda, President Board of Directors (*) Jaime Lomelín Guillen, President Luis Blanco Beckett, Director (*) Octavio Alvídrez Cano Waldo Fortín Cabezas, Director (*) Mario Arreguín Frade Mario Espinoza Durán, Director (*) Juan Enrique Morales Jaramillo (*) Hernán Sepúlveda Astorga, Secretario (*) Alex Acosta Maluenda (*) General Manager Codelco's share of capital and changes during the fiscal Víctor Olate Martínez year Codelco's share, 49% Codelco's share of capital and changes during the fiscal In 2003, Codelco contributed US$2.637.670, that is, year 28,754,200 Mexican pesos. Codelco Chile owns 100% of CMS Chile SA and there has been no change in this share. Commercial relations with Codelco Codelco provides Minera Pecobre with a range of services Commercial relations with Codelco in the field of explorations, mainly by assigning expert The company had no commercial activity in 2003 and is not professionals highly skilled in exploring for ore deposits expected to have any in the future. who, with Pecobre's projects in Mexico, carry out the necessary activities involved in geological, geochemical Contracts with Codelco and geophysical explorations, as well as applying other The company had no commercial activity in 2003. specialized techniques required to define the potential interest of ore deposits in the regions under exploration. Investment as a percentage of the head office total In 2003, Codelco assigned exploration professionals to the 2003, 2002 and 2001 Investment in subsidiary US$0 Cobre Sonora, Los Humos, Tecolote, Franja Cananea and Investment as a percentage of head office assets Otras Franjas projects. 0.0% 2003

(*) Codelco executive or board member. ASOCIACIÓN GARANTIZADORA DE PENSIONES COMPLEJO PORTUARIO MEJILLONES S.A. Contracts with Codelco 61 31 December 2003 31 December 2003 • Codelco guarantee contract: this is a guarantee signed by Codelco, the Complejo Portuario Mejillones SA (the port complex) and the Compañía Portuaria Mejillones SA Legal Status Legal Status (the port company), in which Codelco guarantees the

The Asociación Garantizadora of Pensiones is a private Complejo Portuario Mejillones SA Compañía Portuaria Mejillones SA payment of any and CODELCO corporation that serves as a non-profit social benefits- Private limited company all sums that CPM owes the port company as part of the mutual; it was legally constituted by Decree N° 1625, 18 contract to build port facilities and provide port services June 1927, to guarantee, by replacing associated companies, Capital subscribed and paid in by Codelco in Terminal 1, Mejillones (a BOT contract), signed by both, the payment of pensions under the occupational accident Capital subscribed: US$35,992,385 in the event that CPM fails to do so. law, Ley de Accidentes del Trabajo N° 4,055. Because it is Capital paid in: US$34,332,702 non-profit, it is exempted from income tax law regulations. • Contract for providing port services for shipping copper, Note: to calculate the capital subscribed and paid in, the dated 15 November 1999 (CTA contract): This contract Purpose exchange rate on the date of payment was used. governs the provision of port services (copper shipping Exclusively for the purpose of paying pensions under the and others) that the Compañía Portuaria Mejillones SA labor accidents law, Ley de Accidentes del Trabajo N° 4,055. Purpose provides to Codelco. CPM has also signed this contract, The purpose of this company is to project, build and run a in its supervisory role. Board of Directors port in Mejillones Bay, Second Region of Antofagasta. This is composed of the following people, appointed by the • Contract in which CPM rents offices to Codelco, in the majority affiliate, Codelco. CPM developed the project and won the building and Terminal 1 Administration building, October 2003. operation of Terminal 1 through a 30-year concession Board Members: contract granted to the Compañía Portuaria Mejillones Investment as a percentage of the head office total Carlos Urzúa R. (*) SA, a private consortium formed by Ultramar and Empresa 2003 Investment in subsidiary, US$25.812 million Jose Antonio Álvarez L. (*) Constructora Belfi. 2002 Investment in subsidiary, US$19.485 million Patricio Mac Niven S. (*) Investment as a percentage of head office assets Óscar Salgado W. (*) Directors 0.32%, 2003. Luis Blanco B. (*) President of the Board of Directors: Roberto Souper Rodríguez (*) Alternate Board Members: Vice-president: Jaime Gibson Aldunate María Elena Brahms Z. (*) Director: Nelson Pizarro Contador (*) Gloria Parada Z. (*) Director: Eugenio Lahera Parada Gustavo Sippa C. (*) Director: Iván Simunovic Petricio General Manager: Jorge Taboada Rodríguez Manager: Celso Núñez Salgado Codelco's share of capital and changes during the fiscal year Codelco's share of capital and changes during the fiscal As of 31 December 2003: 99.90% year Percentage share 96.688338%, which has not changed in Commercial relations with Codelco recent fiscal years. Codelco provides different kinds of services to CPM, which are charged to its cost center. These include: Commercial relations with Codelco This association has no commercial links with Codelco. Accounting • Transportation (air fares, commuting, etc.) Contracts with Codelco • Computer equipment, software, Internet access and This association has no commercial links with Codelco. e-mail • Office rental. Percentage of total head office investment 2003 Investment in subsidiary, US$695 million For its part, CPM rents Codelco offices in the Terminal 1 2002 Investment in subsidiary, US$625 million Administration Building. Investment as a percentage of head office assets 0.009%, 2003. (*) Codelco executive or board member. 62 GEOTERMICA DEL NORTE S.A. At the end of 2003, there were no commercial relations INVERSIONES MEJILLONES S.A. 31 December 2003 between both companies. 31 December 2003

Contracts with Codelco Legal Status At the end of 2003 there was one contract between both Legal Status

CODELCO Company name: Geotermica del Norte SA firms, establishing the possibility of Codelco carrying out Inversiones Mejillones SA RUT: 96.971.330-6 certain tasks, upon request from the subsidiary through Private limited company Company incorporation registry number (repertorio número) work orders, which may or may not be accepted. 13.010/2000 Capital subscribed and paid in Notary: Jose Musalem Saffie Investment as a percentage of the head office total 16,526,843, consisting of 18,671 shares Start up: 5 December 2001 2003 Investment in subsidiary, US$1.163 million 2002 Investment in subsidiary, US$0 Purpose Capital subscribed and paid in Investment as a percentage of head office assets To buy and sell for any reason shares, bonds and other Capital subscribed: 439,878,000 pesos 0,014%, 2003. instruments issued by the Empresa Electrica del Norte Capital paid in as of 31 December 2003, 2,121,881,640 pesos. Grande SA "EDELNOR", exercising all rights and fulfilling (Codelco's contribution) all obligations deriving from its quality as shareholder and holder of these securities, as per the law and company Purpose statutes and, in general, acquire, sell, invest in all kinds of According to Article 4 of its incorporation papers, the com- intangible property, such as shares, company bonds, depo- pany's purpose is to: sits, mutual fund quotas, share certificates, bills of credit, "1) Research, explore for and run geothermal deposits in securities, etc.; manage said investments and receive their the First, Second, and Third Regions of Chile; 2) Sell, in any yields; and participate in any other business or activity form, all products, byproducts, raw materials, manufactured directly or indirectly related, connected and/or complemen- or semi-manufactured products, derived directly or indirectly tary to the company's purpose. from the activities mentioned in the previous section, and 3) The company can also carry out other activities, directly Board of Directors or indirectly related to the above that optimize company Eric of Muynck organization. Manlio Alessi Remedi Henk Bataille Board of Directors Ricardo Campano Gándara (*) Daniel Fernández Koprick - President Jorge Navarrete Martínez (*) Ricardo Campano Gándara (*) Carlos Rubilar Ottone (*) General Manager Salvador Harambour Gines Henk Bataille Jose Luis Ramaciotti Frachia Codelco's share of capital and changes during the fiscal General Manager year Patricio Lee Recabarren Codelco's holds a 34.80% interest.

Codelco's share of capital and changes during the fiscal Commercial relations with Codelco year The company has no commercial relations with Codelco.

Codelco holds 50.1% of the company. Contracts with Codelco There were no changes in its share during the last period. There were no commercial contracts with Codelco in 2003.

Commercial relations with Codelco Investment as a percentage of the head office total 2003 Investment in jointly held firm US$45.441 million 2002 Investment in jointly held firm US$22.180 million Investment as a percentage of head office assets 0.56%, 2003 (*) Codelco executive or board member. INVERSIONES TOCOPILLA LTDA. COMPAÑÍA MINERA PICACHO SCM ISAPRE CHUQUICAMATA LTDA. 63 31 December 2003 31 December 2003 31 December 2003

Legal Status Legal Status Legal Status Inversiones Tocopilla Ltda. Company name: Compañía Minera Picacho SCM Company name: Isapre Chuquicamata Ltda. CODELCO Limited liability company. RUT: 78.712.170-5 RUT Nª 79.566.720-2 Company created: 26 September 1994 Limited liability company. Capital subscribed and paid in Registry N° 6552/94 Capital subscribed and paid in by Codelco reached Notary Andres Rubio Flores Capital subscribed and paid in 90,381,891,000 pesos, or 49% of capital. Capital subscribed by Codelco 754,951,809 pesos Capital subscribed and paid in Capital paid in by Codelco 754,951,809 pesos Purpose Capital subscribed and paid in by Codelco (9,999 shares) Capital subscribed by Fusat 9,943,641 pesos To purchase or sell, for any reason, shares, bonds and other and Santiago de Rio Grande SAC (1 share) totaling Capital paid in by Fusat 9,943,641 pesos securities issued by Electroandina SA, exercise all rights 771,746,878 pesos. and meet all obligations deriving from its quality as share- Purpose holder and holder of these securities, as per the law and Purpose Provision of health services and benefits, either directly or company statutes and, in general, purchase, sell and invest Originally set up in 1994 by Codelco and Sociedad Minera through financing them, as per the regulations contained shares and rights to companies, provided the object of same Mount ISA Chile SA, to carry out geological exploration in in DFL No. 3 published by the Ministry of Health. To meet is the electric power business in any of its forms; manage Codelco and Mount ISA properties. In 1997, Codelco purcha- this objective the company can act and enter into every such investment and receive the yields therefrom; and sed Mount ISA's share and expanded the company's activities kind of contract, including forming other companies and participate in any other business or activity directly or to allow it to apply for water exploration permits and obtain joining them. indirectly related, associated with and/or complementary water use rights, which has become its main activity in to the company's purpose. recent times. Board of Directors President of the Board of Directors Board of Directors Board of Directors Nelson Pizarro Contador (*) Eric of Muynck Mario Espinoza Durán, President (*) Manlio Alessi Remedi Nicolás Saric Rendic (*) Directors Henk Bataille Francisco Camus Infanta (*) Manuel Opazo Mórtola (*) Jorge Navarrete Martínez (*) Manuel Zeballos Mundaca (*) Ricardo Campano Gándara (*) General Manager Francisco Peragallo Carrasco (*) Nicolás Saric Rendic (*) Mario Cavada Morales (*) General Manager Juan Blanco Milla Manlio Alessi Remedi Codelco's share of capital and changes during the fiscal year Roberto Guerra Ugalde Directly and indirectly, Codelco holds 100% of company Hernán Polanco Salfate Codelco's share of capital and changes during the fiscal equity. Francisco Castillo Carvajal year Changes 2003: During this fiscal year, a share belonging to Guillermo Cáceres Chamorro 49% Bernardo Infante Philipi was transferred to Santiago del Rio Gualner Ávalos Ibarbe Grande SAC. Commercial relations with Codelco General Manager There are no commercial relations with Codelco Commercial relations with Codelco Mercedes Marotta Martinelli None. Contracts with Codelco Codelco's share of capital and changes during the fiscal There were no commercial contracts with Codelco in 2003. Contracts with Codelco year There were no contracts that substantially influenced Co- Codelco's share 98.30% Investment as a percentage of the head office total delco's operations. Fusat's share 1.7% 2003 Investment in jointly held firm US$155.016 million 2002 Investment in jointly held firm US$105.786 million Investment as a percentage of the head office total Investment as a percentage of head office assets 2003 Investment in subsidiary, US$97 million 1.92%, 2003 2002 Investment in subsidiary, US$88 million Investment as a percentage of head office assets (*) Codelco executive or board member. 0.0012%, 2003 64 Commercial relations with Codelco ISAPRE RÍO BLANCO LTDA. Contracts with Codelco Provision of health care through medical services to all 31 December 2003 Contract N° 4500137673, for providing health care to wor- Codelco workers affiliated with this private health insurance kers, former workers and their dependents. firm (Isapre), their family members, and all Codelco's non- Health care agreement as per Law N°16,744 working affiliates. The Isapre pays the amount of these Legal Status

CODELCO services monthly to Codelco. Company name: Isapre Río Blanco Limitada Investment as a percentage of the head office total RUT: 89.441.300-K 2003 Investment in subsidiary, US$456 million Contracts with Codelco Legal Status: limited liability company 2002 Investment in subsidiary, US$471 million Contract for health care services (01-06-82) Investment as a percentage of head office assets, 0.006%, Medical equipment and instrument rental contract Capital subscribed and paid in 2003 (01-06-98) Capital subscribed and paid in by Codelco: 536,721,219 pesos Service provision contract (01-06-98) Purpose Investment as a percentage of the head office total Private health care provider (Isapre) 2003 Investment in subsidiary, US$2.031 million 2002 Investment in subsidiary, US$1.619 million Board of Directors Investment as a percentage of head office assets 0.025%, Germán Morales Gaam, President (*) 2003 Leonardo Whittle Ferrer, Deputy President (*) Gonzalo Bravo Fuchslocher, General Manager Vilma Olave Garrido, Medical Director, Isapre Miguel Inzulza González , Manager, Río Blanco Clinic Juan Carlos Cabezas Beroiza, Manager, Administration and Finances, Río Blanco Clinic

Codelco's share of capital and changes during the fiscal year Codelco Chile Andina Division: 99.99% Isapre San Lorenzo Ltda: 0.01%

Commercial relations with Codelco The Andina Division has assigned responsibility to this Isapre for providing workers and ex-workers of the Andina Division covered by severance plans, and their registered dependents with health care benefits, including medical, pharmaceutical and dental benefits offered in the health care plans approved during collective bargaining and forming part of labor con- tracts, which are not financed by the workers' contribution established by law.

The Andina Division, as delegated manager of compulsory occupational health and safety insurance as established in Law N°16,744 and its amendments, has entrusted the Isapre Río Blanco with looking after occupational diseases, acci- dents on the job affecting workers, special examinations and pre-hiring examinations.

(*) Codelco executive or board member. ISAPRE SAN LORENZO LTDA. Contracts with Codelco CODELCO GROUP USA INC. 65 31 December 2003 Contract 2054, Health benefits agreement. 31 December 2003 Contract 2055, Agreement to cover differences not covered by the employer's health plan. Legal Status Contract 2056, Health benefits agreement (inter- Legal Status

Company name: Isapre San Lorenzo Ltda. consultations). Set up on 21 December 1992 as a corporation in the State CODELCO Legal Status: Limited liability company. of Delaware, as per Section 108 (c) of the General Corpo- Investment as a percentage of the head office total ration Law. Capital subscribed and paid in 2003 Investment in subsidiary, US$529 million Capital subscribed and paid in by Codelco: 9,995,000 pesos 2002 Investment in subsidiary, US$303 million Capital subscribed and paid in for 99.95% Investment as a percentage of head office assets 0.007%, Capital subscribed and paid in by Codelco Chile, 1,000 2003. shares, worth US$1,000. Purpose By itself or through third parties, provision and/or finan- Purpose cing of health care services and benefits, as established Any action or activity permitted under the State of De- by the Ministry of Health's DFL N° 3981. To meet this laware's General Corporation Law. objective, the company can act or sign any kind of contract and even form or dissolve companies or associations in Board of Directors order to fully comply. Roberto Souper (*) Juan Pablo Cortínez (*) Board of Directors Waldo Fortin (*) Hernán Sandoval Orellana, President Marcos Vergara Iturriaga, Director General Manager Alvaro Cobarrubias Risopatrón, Director Hugo Jordán Carlos López Riquelme, Director (*) Sergio Barraza Castillo, Director Investment as a percentage of the head office total Pablo Arteaga Rodríguez, Alternate director (*) 2003 Investment in subsidiary, US$953 million Enrique Solar Peralta, Alternate director (*) 2002 Investment in subsidiary, US$779 million Guillermo Donoso Cepeda, Alternate director Investment as a percentage of head office assets 0.012%, 2003 General Manager Luis Gustavo Cartes Acuña

Codelco's share of capital and changes during the fiscal year 99.95%

Note: There was no change in Codelco's capital share during the last fiscal year.

Commercial relations with Codelco These involve providing services and financing the health care services committed through agreements and collec- tive bargaining contracts that the Division current has or will eventually have with Salvador Division workers.

(*) Codelco executive or board member. 66 CHILE COPPER LTDA. CODELCO KÜPFERHANDEL GMBH INSTITUTO DE INNOVACIÓN EN MINERÍA Y METALURGIA S.A. 31 December 2003 31 December 2003 31 December 2003

Legal Status Legal Status Legal Status

CODELCO Limited liability company created in England, 29 March Limited liability company set up in Hamburg, 21 August Instituto de Innovación en Minería y Metalurgia SA 1971. 1981. Private limited company

Capital subscribed and paid in Capital subscribed and paid in Capital subscribed and paid in Capital paid in of £1,000, subscribed as 1,000 shares. Capital subscribed and paid in by Codelco Chile, EURO Capital subscribed and paid in by Codelco Chile: as of 3,000,000, as the sole shareholder. 31/12/03 was 1,654,336,166 pesos. Purpose Codelco's sales agent and representative in the United Purpose Purpose Kingdom and elsewhere in Europe, for copper and molyb- To import and export, market and transform metal in every The purpose of this company is to develop technological denum products in the UK, Spanish, Scandinavian and Tur- form, especially copper, and to conduct business involving research and mining processes. kish markets. equipment for the copper producing industry. Board of Directors Board of Directors Board of Directors Juan Enrique Morales Jaramillo (*) Roberto Souper R. (*) Juan Villarzú R. (*) Eugenio Thiers Lillo Juan Eduardo Herrera (*) Roberto Souper R. (*) Pedro Morales Cerda (*) Juan Pablo Cortínez (*) Juan Eduardo Herrera (*) Germán Morales G. (*) Mario Espinoza Durán (*) General Manager General Manager Gonzalo Cuadra Heribert Heitling Main Executives: Juan Carlos Salas Morales, Manager Investment as a percentage of the head office total Investment as a percentage of the head office total Agustín Sepúlveda Osorio, Deputy Manager of Finance and 2003 Investment in subsidiary, US$1.962 million 2003 Investment in subsidiary, US$25.632 million Business 2002 Investment in subsidiary, US$1.718 million 2002 Investment in subsidiary, US$20.189 million Investment as a percentage of head office assets Investment as a percentage of head office assets Codelco's share of capital and changes during the fiscal 0.024%, 2003 0.317%, 2003 year Codelco's share currently stands at 99.93%.

Commercial relations with Codelco Currently, the main commercial relations between IM2 and Codelco are defined by the Convenio of Investigación e Innovación Tecnológica (an agreement on technological innovation and research) dated 28 September 1998, through which IM2 provides services for preparing, di- recting, managing and executing technological innovation and research programs and projects. The main link in the future with Codelco Chile will reflect development of the portfolio of innovative projects and programs as dictated by Codelco's strategic priorities. IM2 has been redefining its strategy to bring it into line with the structure of technological business to position itself better to add value to Codelco Chile.

(*) Codelco executive or board member. Contracts with Codelco BIOSIGMA SA Contracts with Codelco 67 Contract defining the relationship with the subsidiary 31 December 2003 During the 2003 fiscal year, no agreements or contracts Technological research and innovation. Client were signed by Codelco and Biosigma SA other than pay- Technical documentation service. Supplier ment of part of the shares subscribed by Codelco, on 29 Computer rental service. Supplier Legal Status May 2003, for 706,720,000 pesos.

Company name: BIOSIGMA SA CODELCO Investment as a percentage of the head office total RUT: 96.991.180-9 Investment as a percentage of the head office total 2003 estimated investment in subsidiary, US$2.805 million Legal Status: private limited company. 2003 Investment in subsidiary, US$1.647 million 2002 investment in subsidiary, US$2.391 million 2002 Investment in subsidiary, US$907 million Investment as a percentage of head office assets Capital subscribed and paid in Investment as a percentage of head office assets 0.035%, 2003 Capital subscribed by Codelco: US$2,000,000 equivalent in 0.020%, 2003 Chilean currency Capital paid in by Codelco: 1,400,620,000 pesos. • 2002: $693,900,000 • 2003: $706,720,000

Purpose BIOSIGMA SA was set up by Codelco in association with the Nippon Mining and Metals Co., Ltd., of Japan, 31 May 2002. The purpose of the company is to develop processes and technology in the fields of genomics, proteomics and bioin- formatics for mining and in general the application of mi- croorganism-based systems, and other activities and busi- ness related to these areas.

The activities it currently carries out involve research and development in the fields of genomics, proteomics and bioinformatics for mining.

Board of Directors Juan Enrique Morales Jaramillo, Director (*) Pedro Antonio Morales Cerda, Director (*) Mario Espinoza Durán, Director (*) Shigeru Oi, Director Keiichi Goto, Director Luis Castelli Sandoval, Alternate director (*) Rene Muga Escobar, Alternate director (*) Gloria Parada Zamorano, Alternate director (*) Juan González González, Alternate director (*) Hideoki Yamamoto, Alternate director Haruo Sakurai, Alternate director

General Manager Ricardo Badilla Ohlbaum

Codelco's share of capital and changes during the fiscal year. Codelco's holdings account for 66.67% of subscribed and paid in shares.

(*) Codelco executive or board member. 68 SANTIAGO DE RÍO GRANDE SAC. CODELCO INTERNATIONAL LIMITED Commercial relations with Codelco 31 December 2003 31 December 2003 During this fiscal year, Codelco International Limited and its subsidiary Codelco Technologies Limited have been involved, through capitalization provided by Codelco Legal Status Legal Status Chile, in capital investment abroad to firms such as

CODELCO A private limited company, set up using a certified document Codelco International Limited is a company created in Ber- Codelco Brasil Mineracao Limitada, Alliance Copper Ltd dated 2 October 1998, notarized by Gloria Cortez Escaida. muda, a British protectorate, in 2000, as per the laws of and Quadrem International Holding Ltd. This type of Bermuda, specially the Companies Act 1981, section 62(2). commercial relationship will continue in the future, Capital subscribed and paid in Its main business is defined in the category of Mining Com- following decisions in this sense by Codelco's Board of The company's capital is worth 15,457,000 pesos and con- pany, according to its registry with the "Notice of Address Directors. sists of 15,000 shares, subscribed and paid in by Codelco of Register Office". (14,997 shares) and Minera Picacho (3 shares). Contracts with Codelco Capital subscribed and paid in There are no minutes or contracts between Codelco and Purpose Capital subscribed: US$52,522,000, Codelco International Limited that substantially affect To obtain water rights and explore for mining resources. Capital paid in: US$46,838,559 Codelco's operations or results.

Board of Directors Purpose Investment as a percentage of the head office total Juan Enrique Morales Jaramillo (*) The purpose of the company is to manage and control Co- 2003 Investment in subsidiary, US$28.482 million Silvio Guirardi Morales (*) delco's interests in several international projects. Through 2002 Investment in subsidiary, US$0 Pedro Cortez Navia (*) this company and its subsidiary Codelco Technologies Limi- Investment as a percentage of head office assets ted, Codelco has realized investments with Billiton in Alliance 0.352%, 2003 General Manager: Copper Limited, to use modern technology in mining opera- Mirta Solari Espinoza (*) tions. Also through Codelco International Limited, it has invested in Quadrem International Holdings Limited, a global Codelco's share of capital and changes during the fiscal company formed by the world's main mining firms to operate year. an electronic market in which companies can buy and operate Directly and indirectly, Codelco holds 100% of equity. goods and services.

Commercial relations with Codelco Codelco International Limited and Codelco Technologies Codelco proves a range of services to Santiago de Río Grande Limited have set up the company, Codelco Do Brasil Mine- SA, to carry out activities related to its main purpose. racao Limitada, based in Brazil, whose purpose is to develop exploration and operating projects, commercial activities Contracts with Codelco and market development. A mandate has been signed by Santiago de Río Grande SA and Codelco to explore, identify underground water resour- Board of Directors ces and obtain water rights. Mario Espinoza Durán, Director and President of the Board of Directors (*) In 2003, the company obtained rights to 542 l/sec. of Waldo Fortín Cabezas, Director and Vice-President of the underground waters. Board of Directors (*) Christopher G. Garrod, Company Representative resident Investment as a percentage of the head office total in Bermuda 2003 Investment in subsidiary, US$23 million 2002 Investment in subsidiary, US$7 million Codelco's share of capital and changes during the fiscal Investment as a percentage of head office assets year 0.0003%, 2003 Directly and indirectly, Codelco holds 100% of company equity.

(*) Codelco executive or board member. SOCIEDAD CONTRACTUAL MINERA PUREN Commercial relations with Codelco EJECUTORA PROYECTO HOSPITAL DEL COBRE-CALAMA S.A. 69 31 December 2003 There were no out of contract sales or purchases of goods 31 December 2003 and services between the company and Codelco.

Legal Status Contracts with Codelco Legal Status

Company name: Sociedad Contractual Minera Puren There are no contracts that substantially affect Codelco's Company name: Ejecutora Proyecto Hospital del Cobre- CODELCO RUT: 76.028.880-2 operations and results. Calama S.A. Company created: 23 September 2003 Private limited company Repertory N° 250/2003 Acc:Fs.185 Nº 207 Investment as a percentage of the head office total Notary Fernando Opazo Larraín 2003 Investment in jointly held firm US$74 million Capital subscribed and paid in Investment as a percentage of head office assets Codelco 149,985,000 pesos (99.9%) Capital subscribed and paid in 0.0009%, 2003 Isapre San Lorenzo 15,000 pesos (0.01%) The shareholders are Codelco, with 350 shares, and Com- pañía Minera Mantos de Oro, with 650. Purpose Capital subscribed and paid in total: US$2,692,308 a) To plan and build, by itself or through third parties, a Capital subscribed and paid in by Codelco: US$942,308 building to be used as a hospital in the city of Calama. b) To carry out all activities necessary to meet this purpose, Purpose including agreements and contracts as necessary. The purpose of the company is to explore, reconnoiter, c) To rent or subrent hospital premises; hire insurance and prospect, research, develop and operate mining deposits carry out maintenance, repairs and improvements to said to extract, produce and process ores, concentrates or premises. other products coming from minerals. For these purposes it can install and run plants to process and treat ores; Board of Directors claim and purchase mining rights of any kind; sell, trans- Carlos Rubilar Ottone, President (*) port, export and commercialize mining substances and Raúl Melendez Quiroga, Director (*) products. Francisco Coddou Pereda, Director (*) María Rosa Martínez Núñez, Director (*) Board of Directors Hector Cerda Ortiz, General Manager (*) Juan Carlos Alfaro González, President, Board of Directors Luis Pizarro Prieto, Director Codelco's share of capital and changes during the fiscal Cesar Muñoz Araya, Director year Francisco Camus, Director (*) Codelco holds 99.99% 184,341,191.04 pesos Nicolás Saric, Director (*) Isapre San Lorenzo 0.01% 18,435.96 pesos Jose Luis Illanes Bücher, Alternate director Juan Ochoa Matulic, Alternate director Commercial relations with Codelco Flavio Fuentes Olivares, Alternate director Framework agreement signed by: Carlos Huete Lira, Alternate director (*) • Codelco Luis Blanco Beckett, Alternate director (*) • Ejecutora Proyecto Hospital del Cobre-Calama SA and • Las Americas Administradora Fondos of Inversión SA General Manager Juan Carlos Alfaro González This provides the regulatory framework governing the relationship between these parties, for a 20-year period Codelco's share of capital and changes during the fiscal (until 31-03-2021). year Codelco holds 35% with 350 shares subscribed, of a total Contracts with Codelco. of 1000. • Sub-rental of the Hospital del Cobre, Dr. Salvador Allende G., until March 2021, as per framework agreement.

(*) Codelco executive or board member. 70 • Operating maintenance of the Hospital del Cobre, Dr. FUNDICIÓN TALLERES S.A. Codelco's share of capital and changes during the fiscal Salvador Allende G., carried out by the executing com- 31 December 2003 year pany until May 2002. To 31 December 2003 Codelco Chile held a 99.9% share • Computer information support service provided by the of Fundición Talleres SA, and after an auction process it Division to the executing company (contract SEHC-98-002, Legal Status sold 60% of the company to Compañía Electro Metalúrgica

CODELCO with CHC Consultoría Gestión SA), until 31 December Fundición Talleres SA is a limited company set up by certified SA (Elecmetal), which reduced its share to 40% as of 2003. document on 11 August 2003, notarized by Jose Musalem January 2004. • Accounting and billing service provided to the executing Saffie, Santiago. company by Codelco, until 31 March 2021. RUT: 99.532.410 - 5 Commercial relations with Codelco • Conceptual engineering for the expansion of the primary The company carried out business with several Codelco care center, provided by the executing company to the Capital subscribed and paid in divisions and CMS Tecnología SA in 2003. division, until February 2003. Capital subscribed by Codelco: US$15,736,586.44 equivalent in Chilean currency. Contracts with Codelco Investment as a percentage of the head office total Capital paid in by Codelco: US$14,022,896.25 1. Outsourcing service, management of information te- 2003 Investment in subsidiary, US$42 million chnology. 2002 Investment in subsidiary, US$31 million The company's total capital is equivalent to US$15,736,601.95 2. Corporate auction 2002 elements of scrap steel Investment as a percentage of head office assets 2003: and consists of 998,064 shares, of which 998,063 shares castings GAB DIMO 037/2002 offer CFU-081-02, mill 0.0005% have been subscribed by Codelco and one by Elaboradora replacement parts, second SAG plan, El Teniente de Cobre Limitada. Division, framework contract Nº 5500001977.

Purpose Investment as a percentage of the head office total The purpose of the company is to manufacture and sell scrap 2003 Investment in subsidiary, US$15.169 million. steel castings and in general carry out manufacturing and Investment as a percentage of head office assets commercial activities in the field of metallurgy and metal- 0.1875%, 2003. mechanics.

Board of Directors Mario Espinoza Durán, President (*) Alex Acosta Maluenda (*) Luis Blanco Beckett, (*) Waldo Fortin Cabezas, (*) Ricardo Campano Gándara, (*)

General Manager Carlos Salazar Rosas

(*) Codelco executive or board member. codelco chile NETWORK OF SUBSIDIARIES AND JOINT VENTURES 100% Codelco Asia (Singapore)

100% Codelco Group (USA) Codelco-USA Inc. (USA) Codelco Metals Inc. (USA) 73

98.3% Isapre Chuquicamata Ltda.

99.5% Isapre San Lorenzo Ltda.

99.9% Isapre Río Blanco Ltda. CODELCO

49% Agua de la Falda S.A

96.7% Asoc. Garant. de Pensiones

66.7% Biosigma S.A.

100% Elaboradora de Cobre Ch. Ltda. 21.7%

17.5% CMS Tecnología S.A.

100% CMS Chile S.A. 60.8%

100% Codelco International Limited 6% Quadrem

10%

100% 90% Codelco Do Brasil Min. Ltda.

Codelco Technologies L.

100% CCM Los Andes 2%

100% C. Portuario Mejillones S.A. 50% Alliance Copper Limited Codelco Chile 49% SCM El Abra

50.1% Geotérmica del Norte

99.9% IM2 S.A.

100% Inversiones Copperfield Ltda.

65.2% 49% Inversiones Tocopilla Ltda. 34.8% Inversiones Mejillones S.A

65.2% 49% Minera Pecobre S.A. de C.V. 34.8% Electroandina S.A

100% Santiago del Río Grande S.A.C.

100% Soc. Minera Picacho SCM

100% Metall Agentur Gmbh 35% Minera Purén SCM

40% Deutsche Giessdraht Gmbh 40% Fundición Talleres S.A.

20% 100% Codelco-Kupferhandel (Germany) Codelco Services 100% Chile Copper Ltd. (United Kingdom) 80%

financial statements

Consolidated balance sheets 78

Consolidated statements of income 80

Consolidated statements of cash flows 81

Reconciliation of net income to operating cash flows 82

Notes on consolidated financial statements 83

Financial analysis of the consolidated financial statements 99

Individual balance sheets 103

Statements of income 106

Statements of cash flow 107

Reconcialiation of net income to operating cash flows 108

Notes on individual financial statements 109

Financial analysis of the stand alone financial statements 127

Division statements of income 132

Consolidated divisional statements of income 137

Head office and subsidiary statements of income and expenditure 142 Chilean pesos $ Thousands of Chilean pesos Th$ Summarised financial statements of subsidiaries 145 US dollars US$ Thousands of US dollars ThUS$ Subsidiary statements of income 151 independent auditor´s report 77 CODELCO

To the Chairman and Members of the Board of Directors of Corporación Nacional del Cobre de Chile

We have audited the accompanying consolidated balance sheet of Corporación Nacional del Cobre de Chile and subsidiaries as of December 31, 2003, and the related consolidated statements of income and cash flows for the year then ended. These financial statements (including the related notes) are the responsibility of the management of Corporación Nacional del Cobre de Chile. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements at December 31, 2003, of certain investees and subsidiaries. Those financial statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for such investees and subsidiaries, is based solely on the reports of such other auditors. The direct and indirect investment of the Company in such investees and the total assets reflected by the financial statements of such subsidiaries represent 5.6% of the total consolidated assets, and the year’s net equity in earnings of these investees and the total sales reflected by the financial statements of these subsidiaries represent a 12.1% of the total consolidated sales. The consolidated financial statements of Corporación Nacional del Cobre de Chile at December 31, 2002, were audited by other auditors whose report, dated February 28, 2003, expressed an unqualified opinion on those statements.

We conducted our audit in accordance with auditing standards generally accepted in Chile. Those standards require that we plan and perform the audit to obtain reasonable assurance about the financial statements are free of material instatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Company, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, based on our audit and the reports from other auditors, such consolidated financial statements at December 31, 2003, present fairly, in all material respects, the financial position of Corporación Nacional del Cobre de Chile and subsidiaries as of December 31, 2003, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in Chile.

The notes to the accompanying financial statements are a simplified version of those included in the consolidated financial statements of Corporación Nacional del Cobre de Chile and subsidiaries filed with the Superintendence of Securities and Insurance, upon which we have issued our report under that same date. Such financial statements contain additional information required by such Superintendence, which is not indispensable for their adequate interpretation.

The accompanying financial statements have been translated into English for the convenience of readers outside Chile.

Mario Muñoz V. February 6, 2004 78 consolidated balance sheets

At december 31, 2003 and 2002 (In thousands of U.S. Dollars - ThUS$) CODELCO 2003 2002

ASSETS

CURRENT Cash 15,784 12,019 Time deposits 44,044 141,214 Marketable securities 16 346 Trade receivables (net) 354,122 225,221 Notes receivable 1,612 2,622 Other receivables (net) 128,588 132,732 Due from related companies 746 21,693 Inventories (net) 879,108 494,579 Income taxes recoverable 359,615 182,834 Prepaid expenses 12,070 7,561 Deferred taxes 43,547 - Other current assets 11,811 768 Total current assets 1,851,063 1,221,589

PROPERTY, PLANT AND EQUIPMENT Land 30,463 29,496 Buildings and infrastructure 6,144,746 5,787,725 Machinery and equipment 5,391,056 5,307,229 Other plant and equipment 49,431 2,773 Technical appraisal revaluation 383,246 417,794 Accumulated depreciation (6,738,263) (6,640,467) Net property, plant and equipment 5,260,679 4,904,550

OTHER ASSETS Investments in related companies 411,519 238,449 Investments in other companies 3,484 2,905 Long-term receivables 132,088 63,635 Due from related companies 81,729 80,887 Intangibles 4,163 3,497 Accumulated amortization (1,035) (1,006) Other assets 348,110 218,459 Total other assets 980,058 606,826

TOTAL ASSETS 8,091,800 6,732,965

The accompanying notes are an integral part of these consolidated financial statements consolidated balance sheets 79

At december 31, 2003 and 2002 (In thousands of U.S. Dollars - ThU S$) CODELCO 2003 2002

LIABILITIES AND EQUITY

CURRENT LIABILITIES Banks and financial institutions - Short-term 466,169 208,927 Banks and financial institutions - Current portion of long-term debt 203,102 276,806 Banks and financial institutions - Current portion of bonds payable 15,507 8,253 Accounts payable 314,257 247,970 Short-term notes payable 1,181 703 Miscellaneous payables 15,579 18,148 Due to related companies 38,406 20,846 Accruals 198,390 175,301 Withholdings 70,462 46,885 Income taxes payable 353 366 Deferred income 2,462 1,271 Deferred taxes - 19,196 Other current liabilities 486 3,005 Total current liabilities 1,326,354 1,027,677

LONG TERM LIABILITIES Due to banks and financial institutions 700,000 600,000 Bonds payable 1,434,461 897,643 Long-term notes payable 87,399 46,787 Miscellaneous payables 49,734 - Accruals 630,588 535,162 Deferred taxes 1,035,036 887,372 Other long-term liabilities 4,774 5,691 Total long-term liabilities 3,941,992 2,972,655 MINORITY INTEREST 2.035 (432)

EQUITY Paid-in capital 1,524,423 1,524,423 Other reserves 1,302,491 1,237,019 Net income for the year 89,230 48,476 Profits distribution to the Chilean Treasury (94,725) (76,853) Total equity - net 2,821,419 2,733,065

TOTAL LIABILITIES AND EQUITY 8,091,800 6,732,965

The accompanying notes are an integral part of these consolidated financial statements 80 consolidated statements of income

For the years ended december 31, 2003 and 2002 (In thousands of U.S. Dollars - ThUS$) CODELCO 2003 2002

Sales 3,781,786 3,489,879

Cost of sales (2,781,209) (2,786,942)

Gross profit 1,000,577 702,937

Administrative and selling expenses (167,274) (159,676)

OPERATING INCOME 833,303 543,261

Interest income 8,738 9,473 Equity in income of related companies 66,407 4 Other income 101,442 110,116 Equity in losses of related companies (7,136) (48,712) Interest expense (105,842) (77,046) Other expenses (465,509) (441,565) Price-level restatement (240) 226 Foreign currency translation (73,508) 32,906

NON-OPERATING EXPENSES - NET (475,648) (414,598)

INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 357,655 128,663

Income taxes (269,331) (81,795)

INCOME BEFORE MINORITY INTEREST 88,324 46,868

MINORITY INTEREST 906 1,608

NET INCOME FOR THE YEAR 89,230 48,476

The accompanying notes are an integral part of these consolidated financial statements consolidated statements of cash flows 81

For the years ended december 31, 2003 and 2002 (In thousands of U.S. Dollars - ThUS$) CODELCO 2003 2002

CASH FLOWS FROM OPERATING ACTIVITIES Collections from customers 3,762,137 3,507,351 Financial income received 2,708 5,395 Dividends and other distributions - 393 Other income collected 380,528 377,925 Payments to suppliers and employees (3,001,893) (2,555,339) Payment of interest (82,916) (70,570) Payment of income taxes (339,323) (80,887) Other expenses paid (260,776) (273,383) Payment of value added tax and other similar taxes (316,175) (321,993) Net cash provided by operating activities 144,290 588,892

CASH FLOWS FROM FINANCING ACTIVITIES Loans obtained 1,272,000 550,258 Bonds payable 500,000 597,643 Dividends paid (50,000) - Payment of loans (1,022,000) (660,000) Net cash provided by financing activities 700,000 487,901

CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales of property, plant and equipment 1,033 542 Proceeds from sales of permanent investments - 2,552 Proceeds from sales of other investments 3,728 - Other investments 56,909 29,329 Purchases of property, plant and equipment (894,997) (843,981) Investments in related companies (22,723) (62,579) Other investment disbursements (81,975) (85,740) Net cash used in investing activities (938,025) (959,877)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (93,735) 116,916

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 153,579 36,663

CASH AND CASH EQUIVALENTS AT END OF YEAR 59,844 153,579

The accompanying notes are an integral part of these consolidated financial statements 82 reconciliation of net income to net cash provided by operanting activities

For the years ended december 31, 2003 and 2002 (In thousands of U.S. Dollars - ThUS$)

CODELCO 2003 2002

Net income for the year 89,230 48,476 (Gain) loss on sale of assets (2,178) 11,356

Debits (credits) to income which do not represent cash flows: Depreciation 375,453 389,699 Amortization 87,680 106,051 Write-offs and provisions 233,505 51,266 Equity in income of related companies (66,407) (4) Equity in losses of related companies 7,136 48,712 Price-level restatement 240 (226) Foreign currency translation 73,508 (32,906) Other credits to income which do not represent cash flows (44,980) (33,921)

(Increase) decrease in assets which affect operating cash flows: Trade receivables (128,901) (20,253) Inventories (384,529) 14,693 Other assets (209,779) (21,017)

Increase (decrease) in liabilities which affect operating cash flows: Accounts payable associated with operating activities 81,756 (3,336) Interest payable 7,333 3,892 Income tax payable (13) 320 Value added tax and other similar taxes payable, net 26,142 27,698

Minority interest (906) (1,608)

NET CASH PROVIDED BY OPERATING ACTIVITIES 144,290 588,892

The accompanying notes are an integral part of these consolidated financial statements simplified notes to the consolidated financial statements 83

For the years ended december 31, 2003 and 2002 CODELCO Management considers that these explanatory notes offer sufficient information but less detailed than that contained in the explanatory notes that are an integral part of the consolidated financial statements and which were filed with the Superintendence of Securities and Insurance and which are available to the general public. Such information is also available in the Company's offices.

NOTE 01 - DESCRIPTION OF BUSINESS Corporación Nacional del Cobre de Chile ("Codelco" or the "Company") is registered under the Securities Registry No. 785 of the Superintendence of Securities and Insurance. The Company is subject to the regulation of the Superintendence.

The Company was formed as stipulated by Law Decree (D.L.) N°1,350 of 1976. Codelco is a state-owned mining, industrial and commercial company, which is a legal entity in itself and with its own equity. Codelco currently carries out its productive activities through its Codelco Norte, Salvador, Andina, El Teniente and Talleres Divisions. The Company also carries out similar activities in other mining deposits in association with third parties.

Codelco's financial activities are conducted following a budgeting system that is composed of an Operations Budget, an Investment Budget and a Debt Repayment Budget.

The Company's tax regime is established in D.L. Nos. 1,350 and 2,398.

NOTE 02 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a) Accounting periods These consolidated financial statements cover the years ended December 31, 2003 and 2002, respectively. b) Basis of preparation The consolidated financial statements have been prepared in accordance with generally accepted accounting principles pronounced by the Chilean Association of Accountants, and regulations of the Superintendence of Securities and Insurance.

Should there be any discrepancy between the above mentioned principles and regulations, the regulations of the Superintendence of Securities and Insurance will prevail over generally accepted accounting principles in Chile. c) Reporting currency In accordance with Article 26 of D.L. N° 1,350, the Company's accounting is kept in United States Dollars. d) Basis of consolidation In accordance with the regulations of the Superintendence of Securities and Insurance and Technical Bulletins issued by the Chilean Association of Accountants, the consolidated financial statements of the Company and its subsidiaries include the assets, liabilities, results of operations, and cash flows of the Company and its following subsidiaries:

Chile Copper Limited, Codelco Group USA Inc., Codelco International Limited, Codelco Küpferhandel Gmhb, Codelco Services Limited, Metall Agentur Gmbh, Codelco Metals Inc., Codelco Technologies Ltd., Codelco Do Brasil Mineracao, Compañía Minera Picacho (SCM), Compañía Contractual Minera Los Andes, Isapre Chuquicamata Limitada, Elaboradora de Cobre Chilena Limitada, Asociación Garantizadora de Pensiones, Isapre San Lorenzo Limitada, Isapre Rio Blanco Limitada, CMS - Chile Sistema y Equipos Mineros S.A., Ejecutora Proyecto Hospital del Cobre Calama S.A., Complejo Portuario Mejillones S.A., Instituto de Innovación en Minería y Metalurgia S.A., Santiago de Rio Grande S.A., CMS Tecnologia S.A. and Fundición Talleres S.A.. The interest that Codelco holds in the aforementioned companies fluctuates between 96% and 100%. Likewise, the interest held in Sociedad Geotérmica del Norte S.A. and Biosigma S.A. is 50.01% and 66.67%, respectively.

Unrealized gains and significant intercompany transactions between the consolidated entities have been eliminated upon consolidation, and the participation of minority investors has been recorded as minority interest in the consolidated financial statements. The consolidated financial statements take into account the elimination of balances, transactions and unrealized gains between consolidated companies, including foreign and local subsidiaries. 84 simplified notes to the consolidated financial statements

For the years ended december 31, 2003 and 2002 CODELCO Notwithstanding that the subsidiary Complejo Portuario Mejillones S.A. is in its development stage, it has been included in the consolidation.

Given that the Company does not have control of the management of Electroandina S.A. and Inversiones Mejillones S.A., and that, in accordance with generally accepted accounting principles in Chile, the conditions required to include these subsidiaries are not met, they have not been included in the consolidation.

Electroandina S.A. Codelco has a direct ownership interest in Electroandina S.A. of 34.8% and an indirect ownership interest through Inversiones Tocopilla Ltda., where Codelco has an ownership interest of 49% and its strategic partner Tractebel Andino S.A. has an interest of 51%. Inversiones Tocopilla Ltda. owns 65.2% of the shares of Electroandina S.A.

Inversiones Mejillones S.A. Codelco has a direct ownership interest in Inversiones Mejillones S.A. of 34.8% and an indirect ownership interest through Inversiones Tocopilla Ltda., where Codelco has a 49% interest and its strategic partner Tractebel Andino S.A. has an interest of 51%. Inversiones Tocopilla Ltda. owns 65.2% of the shares of Inversiones Mejillones S.A.

e) Constant currency restatement The financial statements of the Chilean subsidiaries, which keep their accounting records in Chilean pesos, have been price-level restated to recognize the effects of the variation in the currency's purchasing power during each year. In line with this, restatements for inflation have been determined using the figures reported by the Chilean Institute of Statistics. The variations reported by the aforementioned Institute for the years ended December 31, 2003 and 2002 were 1.0% and 3.0%, respectively.

f) Basis of conversion The Company's assets and liabilities in pesos, mainly composed of cash, accounts receivable, investments in companies in Chile, accounts payable and accruals, have been expressed in United States Dollars at the observed exchange rate at each year-end of Ch$593.80 per US Dollar as of December 31, 2003 (2002: Ch$718.61 per US Dollar).

UF-Denominated Assets and Liabilities At December 31, 2003 and 2002, assets and liabilities denominated in UF (an inflation index-linked unit used in Chile) have been translated using the US$/UF rates effective on the closing dates of the financial statements (2003: US$28.49444; 2002: US$23.30071).

The Company's income and expenses in Chilean pesos have been translated into US Dollars at the observed exchange rate on the date on which each transaction was recorded in the accounting records.

Exchange differences are debited or credited to income, in accordance with generally accepted accounting principles pronounced by the Chilean Association of Accountants and regulations of the Superintendence of Securities and Insurance.

The average exchange rate in the year ended December 31, 2003 was Ch$691.54 per US Dollar (2002: Ch$689.24 per US Dollar).

Chilean Subsidiaries Assets and liabilities and income statement accounts in pesos as of December 31, 2003 and 2002 have been translated into US Dollars at the exchange rates on those dates (2003: Ch$593.80 per US Dollar, 2002: Ch$718.61 per US Dollar).

Foreign subsidiaries As of December 31, 2003 and 2002, the financial statements of foreign subsidiaries have been translated from their respective foreign currencies into US Dollars using the exchange rates as of the respective year end published by the Central Bank of Chile. simplified notes to the consolidated financial statements 85

For the years ended december 31, 2003 and 2002 g) Time deposits CODELCO Time deposits are recorded at principal invested plus corresponding interest accrued at each year-end. h) Marketable securities Marketable securities include mutual fund units stated at market value and other instruments stated at the lower of cost or market value. i) Inventories Inventories are valued at cost, which does not exceed their net realizable value. Cost has been determined using the following methods:

- Finished products and products in process Following the full-cost method, finished products and products in process are valued at average production cost. Production costs include depreciation of property, plant and equipment and indirect expenses.

- Materials in warehouse Materials in warehouse are valued at acquisition cost.

The Company calculates an obsolescence provision considering the length of time in stock of slow turnover materials in warehouse.

- Materials in transit Materials in transit are valued at cost incurred through year-end. j) Allowance for doubtful accounts Management estimates the allowance for doubtful accounts based on its experience and analysis, along with the aging of the balances. k) Property, plant and equipment Property, plant and equipment are expressed in US Dollars and valued at historical cost as increased by technical appraisals performed by The American Appraisal Co. and recorded during 1982 to 1984, net of accumulated depreciation.

Construction in progress includes the amounts invested in property, plant and equipment under construction and in mining development projects. l) Depreciation Depreciation of property, plant and equipment is calculated using the straight-line method on the book values of property, plant and equipment, including the revaluation mentioned in Note 2(k) above, and the estimated useful lives of the assets. m) Exploration, mine development and mine operating costs

- Deposit exploration and drilling costs

Deposit exploration and drilling costs are incurred in the identification of mineral deposits and the determination of their possible commercial viability and are charged to income as incurred.

- Mine pre-operating and development costs Costs incurred during the development phase of projects up to the production phase are capitalized and amortized over future mineral production. These costs include extraction of waste material, constructing the mine's infrastructure and other work carried out prior to the production phase. 86 simplified notes to the consolidated financial statements

For the years ended december 31, 2003 and 2002 CODELCO - Costs of developing existing mines These costs are incurred for the purpose of maintaining the production volumes from deposits and are charged to income as incurred.

- Costs for delineating new deposit areas in exploitation and of mining operations These costs are recorded in property, plant and equipment and are amortized to income in the period in which the benefits are obtained.

n) Leased assets Property, plant and equipment recorded by the subsidiaries through financial leasing contracts are recorded as other plant and equipment. These assets have been valued at their current value applying the implicit interest rate in the contracts and are depreciated using the straight-line method based on the useful lives of the assets. The Company does not legally own these assets until it exercises the respective purchase option.

o) Investments in related companies Investments in domestic and foreign related companies, identified as permanent, are valued using the equity method in accordance with Technical Bulletins issued by the Chilean Association of Accountants. Equity method investments, which are accounted for in Chilean pesos and are controlled in that currency, are expressed in US Dollars at the year-end exchange rate. From January 1, 2002, differences which arise and are unrelated to the recognition of net income are recognized in Other reserves in Equity. For applying the equity method, investments in foreign subsidiaries are controlled in US Dollars.

Unrealized gains related to investments in related companies are credited to income in relation to the amortization of the transferred assets or mine production, as applicable.

p) Investments in other companies The item "Investments in other companies" represents the value of the shares the Company has been required to acquire for its operations. These are recorded at their acquisition amount, which does not exceed market value.

q) Intangibles Intangibles are recorded at the amount of the disbursements effectively made and are amortized in accordance with Technical Bulletin N° 55 issued by the Chilean Association of Accountants.

r) Income tax and deferred income taxes The Company provides for income taxes in accordance with current regulations, including the first category tax and an additional 40% tax applied to state- owned entities as specified by D.L. N° 2,398. Law N° 19,753 established a progressive increase in the first category tax rate to 16% for 2002, 16.5% for 2003 and 17% for 2004 and thereafter.

The Company recognizes the effects of deferred income taxes arising from temporary differences, which have a different treatment for book and tax purposes, in accordance with the Technical Bulletins issued by the Association of Accountants and the regulations of the Superintendence of Securities and Insurance.

s) Severance indemnities and other long-term benefits The Company has an agreement with its employees for payment of severance indemnities. It is the Company's policy to provide for the total accrued obligation at the shut-down method. simplified notes to the consolidated financial statements 87

For the years ended december 31, 2003 and 2002

The Company, following its cost-reduction programs by way of using modern technologies, has established personnel severance programs, with benefits that CODELCO encourage retirement, for which the necessary provisions are made when the employee commits to his/her retirement. t) Revenue recognition Revenue is recognized at the time of shipment or delivery in conformity with contractual agreements and is subject to variations in contents and/or the sales price at the transaction settlement date. A provision is made for estimated decreases in sales values on unsettled operations at the end of the period based on the information available as of the date the financial statements are prepared. Sales in Chile are recorded in accordance with Chilean regulations. - Hedging operations, which have to be approved by the Board of Directors, in metal futures markets are entered into in order to protect the Company from risks inherent to the fluctuation of the price of metals. This hedging policy has the purpose of protecting cash flows associated with sales operations and therefore these operations have been considered as hedging contracts for anticipated transactions. In accordance with the provisions of Technical Bulletin No. 57 issued by the Chilean Association of Accountants, the result of these hedging transactions is recorded at the date of settlement of the operations, as part of the proceeds from the sale of the products. In other words, the Company conducts these futures operations in order to adjust the sales contracts to the commercial policy. The settlement of these operations coincides with the accounting for corresponding transactions, and, therefore, when sales commitments are fulfilled, sales contracts' and future contracts' results are offset.

- Hedging policies for exchange rates and interest rates.

Exchange rate hedges include contracts, which mitigate the risk of fluctuations between the UF and the US$ exchange rate for UF denominated bonds payable.

Interest rate hedges include contracts at fixed interest rates for future obligations denominated in US Dollars.

The results of the exchange rate hedging contracts are recorded as of the date of maturity or settlement of the respective contracts, in conformity with Techinica1 Bulletin No. 57 issued by the Chilean Association of Accountants.

The results of the hedging contracts for interest rates for future liabilities are amortized over the term of those liabilities.

Operations carried out in futures markets are not of a speculative nature. v) Computer software Computer systems developed through the use of the Company's own human resources and materials are charged to results in the period in which they are incurred.

In accordance with Circular N° 981 dated June 28, 1990 of the Superintendence of Securities and Insurance, computer systems acquired by the Company are capitalized at acquisition cost plus all related costs, and are amortized over a period not exceeding four years. w) Research and development expenses Research and development expenses are charged to income as incurred. 88 simplified notes to the consolidated financial statements

For the years ended december 31, 2003 and 2002 x) Statement of cash flows CODELCO Cash and cash equivalents includes unrestricted cash and bank balances, time deposits and financial instruments, classified as short-term marketable securities, maturiting within 90 days, in accordance with Technical Bulletins issued by the Chilean Association of Accountants and the regulations of the Superintendence of Securities and Insurance.

The Company has recognized cash flows from operating, investing or financing activities as required by Technical Bulletins issued by the Chilean Association of Accountants and the regulations of the Superintendence of Securities and Insurance.

y) Bonds Bonds are presented at outstanding principal plus accrued interest at each year-end. The discount on bond issuance is capitalized as deferred expenses, included in Other under Other Assets, and is amortized using the straight-line method over the term of the bonds.

z) Environmental exit costs The Company has established a policy of accruing for future environmental exit costs, which mainly relate to the situation of tailing dams, which, subsequent to the end of their useful lives, continue to incur expenses. This policy allows for the allocation of environmental exit costs during their exploitation stage.

aa) Law N° 13,196 Law No. 13,196 requires the payment of a 10% contribution to the Chilean Government on the export value of copper production and related by-products. The amount involved is included in the item other expenses in the statements of income.

ab) Cost of sales The cost of sales includes direct and indirect costs and depreciation and amortization related to the production process.

ac) Bond issuance cost Bond issuance cost is charged to the year's results, as established in Circular N° 1,370 dated January 30, 1998 of the Superintendence of Securities and Insurance.

ad) Reclassifications For comparative purposes with the 2003 financial statements, certain 2002 figures have been reclassified.

NOTE 03 - CHANGES IN ACCOUNTING PRINCIPLES From January 1 to December 31, 2003, there were no changes in accounting policies and accounting criteria described in Note 2, with respect to the prior year.

NOTE 04 - TRANSACTIONS WITH RELATED COMPANIES Balances receivable from and payable to related companies are presented in the balance sheets.

The Company's policies for transactions with related companies are specifically defined by the Company's Board of Directors and regulated by the Company's management.

The Company, acting in accordance with current applicable regulations and within the normal scope of its business, carries out transactions with related entities or parties, under fair conditions, which are similar to those usually prevailing in the market when the transactions take place.

Accounts receivable from related companies are expressed in United States Dollars and subject to interest rates which do not exceed market rates.

The main transactions with related companies are with investees, for purchases of ThUS$318,108 (ThUS$288,188 in 2002) and sales of ThUS$42,336 (ThUS$175,477 in 2002) of products or services, at market prices. simplified notes to the consolidated financial statements 89

For the years ended december 31, 2003 and 2002

NOTE 05 - INVENTORIES CODELCO The breakdown of inventories is as follows (in thousands of US Dollars):

2003 2002

Finished products 560,126 210,680 Work in progress 164,535 171,396 Materials in warehouse and others 154,447 112,503

TOTAL 879,108 494,579

The value of inventories is presented net of the obsolescence allowance for materials in warehouse of ThUS$34,300 and ThUS$31,061 as of December 31, 2003 and 2002, respectively.

NOTE 06 - INCOME AND DEFERRED TAXES Income tax At December 31, 2003 and 2002, the provisions for first category income tax and that required by D.L. No. 2,398 amount to ThUS$124,281 and ThUS$3,291, respectively, and is shown net of estimated monthly payments of taxes and of other tax credits in income taxes recoverable in current assets.

In the subsidiaries, this income tax provision amounted to ThUS$663 in 2003 and ThUS$830 in 2002 and is shown in income tax payable net of estimated monthly tax payments and other tax credits.

Deferred tax In accordance with Law No. 19,753 and Technical Bulletin No. 71 issued by the Chilean Association of Accountants, the Company has recognized the effects of the increase in the tax rate of first category income tax. Deferred taxes calculated under the criteria in Note 2 (r) represent a net liability of ThUS$991,489 at December 31, 2003 consisting of assets of ThUS$315,633 and liabilities of ThUS$1,307,122 and ThUS$906,568 consisting of assets of ThUS$340,691 and liabilities of ThUS$1,247,259 at December 31, 2002.

At December 31, 2003, there are other debits to the account for ThUS$59,466.

NOTE 07 - PROPERTY, PLANT AND EQUIPMENT The composition of property, plant and equipment is as follows (in thousands of US Dollars): a) Property, plant and equipment:

2003 2002

Land and mining rights 30,463 29,496 Buildings and infrastructure 6,144,746 5.787,725 Machinery and equipment 5,391,056 5,307,229 Other plant and equipment 49,431 2,773 Technical appraisal 383,246 417,794

Total gross property, plant and equipment 11,998,942 11,545,017 90 simplified notes to the consolidated financial statements

For the years ended december 31, 2003 and 2002 CODELCO b) Accumulated depreciation

2003 2002

Buildings and infrastructure 3,227,354 3,321,252 Machinery and equipment 3,503,305 3,313,510 Other fixed assets 430 - Accumulated depreciation subsidiaries 7,174 5,705

Total accumulated depreciation 6,738,263 6,640,467

The assets acquired under financial leasing, which correspond to buildings, are included in other plant and equipment, and have the following characteristics:

Average annual interest rate : varies between 4.67% and 11.27% Amortization period : UF cluding purchase option : Between 188 and 291 months Principal : UF 1,777,723

NOTE 08 - INVESTMENTS IN RELATED COMPANIES

The detail of investments is as follows (in thousand of US Dollars):

Company Equity in net income (losses) related equity 2003 2002 2003 2002

MINERA PECOBRE S.A. de C.V. (2,240) (2,354) 902 559 ALLIANCE COPPER LIMITED (2,046) (706) 26,813 9,809 QUADREM INTERNATIONAL LIMITED (1,407) - 745 519 MINERA YABRICOYA SCM (12) 4 - 45 INVERSIONES TOCOPILLA LTDA. 19,114 (5,677) 155,016 105,786 SOCIEDAD CONTRACTUAL MINERA EL ABRA 15,844 (38,995) 88,564 52,431 ELECTROANDINA S.A. 10,625 (529) 89,407 41,133 AGUA DE LA FALDA S. A. (1,431) (151) 4,557 5,987 INVERSIONES MEJILLONES S.A. 20,824 (300) 45,441 22,180 SOCIEDAD CONTRACTUAL MINERA PUREN - - 74 -

TOTAL 59,271 (48,708) 411,519 238,449

These investments are presented net of unrealized gains of ThUS$256,863 in 2003 and ThUS$300,901 in 2002.

In general, the Company's foreign subsidiaries facilitate the commercial activity of the Company in distinct foreign markets.

The Company has not assumed any liabilities as hedging instruments to cover its foreign investments. simplified notes to the consolidated financial statements 91

For the years ended december 31, 2003 and 2002

Additional information: CODELCO

Agua de la Falda S.A. In 1996, Agua de la Falda S.A. was formed by Codelco (49%) and Minera Homestake (51%).

The company's business objective is the exploration and exploitation of gold and other ore deposits in Region III of Chile.

Minera Pecobre S.A. de C.V. Minera Pecobre S.A. de C.V. is a Mexican company with variable capital formed by the Mexican company Minas Peñoles S.A. de C.V. and Codelco, with share holdings of 51% and 49%, respectively.

The company's line of business is the exploration of copper and by-products in mining area concessions in the state of Sonora, Mexico. Through other mining companies, the company also explores, processes and disposes of ore found in the mining areas.

Inversiones Tocopilla Ltda. and Electroandina S.A. Inversiones Tocopilla Ltda. is a holding company in which Inversora Eléctrica Andina S.A. (a consortium of Powerfin S.A. of Belgium, Iberdrola S.A. of Spain and Enagas S.A. of Chile) has a 51% interest and Codelco 49%.

The principal business of Electroandina S.A., a publicly-traded company, is the generation, transmission and distribution of electric energy in Region II of Chile. Inversiones Tocopilla Ltda. holds 65.2% and Codelco holds 34.8%. The main assets of Electroandina S.A. were acquired from the Company's former Tocopilla Division.

Sociedad Contractual Minera El Abra Sociedad Contractual Minera El Abra was formed in 1994 by Codelco (49%) and Cyprus El Abra Company (51%), with Cyprus Amax Minerals Company as a guarantor, both linked to the Phelps Dodge mining consortium, to develop and exploit the El Abra deposit.

Codelco's investment in the project consisted of the contribution of a number of mining properties. The financing agreements for the project became effective June 15, 1995 and include the following obligations during the term of the agreements: a) A long-term trading agreement with Codelco Services Ltd. for a part of the production of El Abra. b) The commitment from the partners to maintain majority ownership of the property of Sociedad Contractual Minera El Abra. c) A pledge on the ownership rights of Sociedad Contractual Minera El Abra in favor of the lending institutions.

Inversiones Mejillones S.A. Inversiones Mejillones S.A. was formed on March 20, 2002, with direct ownership of 34.8% by Codelco and 65.2% by Inversiones Tocopilla Ltda.. Codelco owns 49% of the capital of Inversiones Tocopilla Ltda.

Inversiones Mejillones S.A., was formed with the objective of acquiring 82.34% of the shares of Empresa Eléctrica del Norte S.A. (Edelnor), rescheduling its financial obligations and coordinating the operations of Electroandina S.A. (of which Codelco and Inversiones Tocopilla Ltda. are partners) and Edelnor S.A.

Sociedad Contractual Minera Purén Sociedad contractual Minera Purén was formed on September 23, 2003 by Codelco and Compañía Minera Mantos de Oro, with shareholdings of 35% and 65%, respectively.

The Company's objective is the exploration, prospecting, research, developing and exploitation of mining projects. 92 simplified notes to the consolidated financial statements

For the years ended december 31, 2003 and 2002 CODELCO Additional information on unrealized gains

The Company has recorded unrealized gains on the contribution of mining properties, property, plant and equipment and ownership rights.

The most significant transactions are detailed as follows:

Sociedad Contractual Minera El Abra The Company contributed mining rights to Sociedad Contractual Minera El Abra in 1994. At December 31, 2003, a gain of ThUS$20,289 (ThUS$6,937 in 2002) was recognized.

Electroandina S.A. This is an unrealized gain on the contribution of fixed assets in 1996. The gain will be recognized over ten years through 2006. At December 31, 2003, a gain of ThUS$18,159 (ThUS$18,159 in 2002) was recognized.

Inversiones Tocopilla Ltda. This is an unrealized gain on the initial contribution of ownership rights in 1996. The gain will be recognized over ten years through 2006. At December 31, 2003, a gain of ThUS$6,531 (2002, ThUS$6,531) was recognized.

NOTE 09 - SHORT-TERM DEBT DUE TO BANKS AND FINANCIAL INSTITUTIONS The detail is the following (in thousands of US Dollars):

- Short-term obligations

Bank or financial institution TOTAL 2003 2002

San Paolo IMI SpA 45,033 25,116 Banco Bilbao Vizcaya 50,029 - The Bank of Tokio-Mitsubishi - 35,117 The Royal Bank of Canada 50,039 50,526 Toronto Dominion Bank - 35,000 ANZ Bank 45,013 - Dresdner Bank 30,027 - SCH Overseas Bank Inc. 100,052 - Banco Santander Santiago 30,014 - Banco de Chile 80,062 30,069 ABN AMRO Bank (Chile) - 30,189 Corpbanca - 175 Others 35,900 2,735

Total 466,169 208,927

Principal outstanding 465,900 207,826

Annual average interest rate 1.45% 1.99% Percentage of obligations in foreign currency (1) 100.00 100.00 (1) Obligations in US Dollars are consiredas foreing currency for the purposes of this disclosure simplified notes to the consolidated financial statements 93

For the years ended december 31, 2003 and 2002

- Current portion of long-term obligations CODELCO

Bank or financial institution Total 2003 2002

JP Morgan - The Chase Manhattan Bank 200,828 276,806 Citibank NA 167 - BNP PARIBAS 2,107 -

Total 203,102 276,806

Principal outstanding 200,000 275,000

Annual average interest rate 1.64% 1.70% Percentage of obligations in foreign currency (1) 100.00 100.00 (1) Obligations in US Dollars are consiredas foreing currency for the purposes of this disclosure

NOTE 10 - BANKS AND FINANCIAL INSTITUTIONS-LONG TERM These obligations accrue interest at variable rates based on Libor (in thousands of US Dollars):

Bank or financial institution 2003 2002 Years to maturity

JP Morgan - The Chase Manhattan Bank 100,000 300,000 2005 Citibank NA 300,000 300,000 2006 BNP PARIBAS 300,000 - 2008

Total 700,000 600,000

Annual average interest rate 1.66% 1.83% Percentage of obligations in foreign currency (1) 100.00 100.00 (1 Obligation in US Dollars are considered as foreign currency for the purposes of this disclosure

NOTE 11- SHORT AND LONG-TERM BONDS PAYABLE On May 4, 1999, the Company issued and placed bonds in the North American market, under Regulation 144-A, for a nominal amount of ThUS$300,000. These bonds mature in a single installment on May 1, 2009, at an interest rate of 7.375% per annum with interest paid semi-annually. At December 31, 2003 and 2002, the current liability for each year's accrued interest was ThUS$3,688 and ThUS$3,667, respectively.

On November 18, 2002, the Company issued and placed bonds in the domestic market, under the regulations of the Superintendence of Securities and Insurance. This bond was issued for nominal amount of UF 7,000,000, (at December 31, 2003 and 2002, equivalent to ThUS$199,461 and ThUS$162,643, respectively) of a single series denominated A Series, and is represented by 70,000 certificates of UF 100 each. These bonds are repayable in a single installment on September 1, 2012, at an interest rate of 4.0% per annum with interest paid semi-annually. At December 31, 2003 and 2002, the current liability for each year's accrued interest was ThUS$2,633 and ThUS$2,212, respectively. 94 simplified notes to the consolidated financial statements

For the years ended december 31, 2003 and 2002 CODELCO On November 30, 2002, the Company issued and placed bonds in the North American market, under Regulation 144-A, for a nominal amount of ThUS$435,000. These bonds mature in a single installment on November 30, 2012, at an interest rate of 6.375% per annum with interest paid semi-annually. At December 31, 2003 and 2002, the current liability for each year's accrued interest was ThUS$2,311 and ThUS$2,374, respectively.

On October 15, 2003, the Company issued and placed bonds in the North American market, under Regulation 144-A, for nominal amount of ThUS$500,000. These bonds are repayable in a single installment on October 15, 2013, at an interest rate of 5.5% per annum with interest paid semi-annually. At December 31, 2003, the current liability for accrued interest was ThUS$6,875.

NOTE 12 - ACCRUALS The composition of long-term accruals is as follows (in thousands of US Dollars):

Item 2003 2002

Staff severance indemnities 453,930 363,488 Payroll 35,313 28,312 Miscellaneous 2,091 - Environmental exit cost 72,331 71,728 Contingencies 28,106 68,351 Healthcare programs 38,817 3,283

Total 630,588 535,162

The changes in the accrual for severance indemnities is summarized as follows (in thousands of US Dollars):

Long-term Movements 2003 2002

Balance as of January 1 363,488 370,980 Provision for the year (including effects for variations in exchange rates) 120,780 4,357 Transfer to current (30,338) (11,849)

Total 453,930 363,488

NOTE 13 - EQUITY The Company was formed by D.L. No. 1,350 dated 1976, which establishes that all net income generated by the Company goes to the benefit of the Chilean Government after deducting amounts that, by a charge to net earnings for each year, must be maintained in Other Reserves as established in Article Six of D.L. N° 1,350, dated 1976, as well as included in propositions made by the Board of Directors to the Ministry of Mining and the Ministry of Finance. simplified notes to the consolidated financial statements 95

For the years ended december 31, 2003 and 2002

The composition of Other Reserves is as follows (in thousands of US Dollars): CODELCO

Detail Year Accumulated

Capitalization of net income (Exempt Decree Ministry of Mining and Treasury Department) 16,348 609,051 Cumulative translation adjustment – subsidiaries 49,124 33,772 Housing programs - 35,100 Technical appraisal revaluation reserve - D.L. N°3,648 - 624,568

Balance of other reserves as of December 31, 2003 65,472 1,302,491

Changes in equity are detailed as follows (in thousands of US Dollars):

2003 2002 Movements Paid-in Other Profits Net income Paid-in Other Profits Net income capital reserves distribution for the year capital reserves distribution for the year

Beginning balance - January 1, 2002 1,524,423 1,237,019 (76,853) 48,476 1,524,423 1,226,797 (76,853) 25,574 Recording of reserves and/or income in equity as required - 16,348 32,128 (48,476) - 25,574 - (25,574) Net changes in equity in subsidiaries and affiliated companies - 49,124 - - - (15,352) - - Profits distribution to the Chilean Treasury - - - 89,230 - - - 48,476 Net income for the year - - (50,000) - - - - -

Total 1,524,423 1,302,491 (94,725) 89,230 1,524,423 1,237,019 (76,853) 48,476

NOTE 14 - NON-OPERATING INCOME AND EXPENSES Non-operating income and expenses are detailed as follows (in thousands of US Dollars): a) Non-operating income: 2003 2002

Miscellaneous sales 5,186 5,031 Services 10,131 8,216 Realized gain on contributions to companies 44,980 43,625 Other 41,145 53,244

Total 101,442 110,116 96 simplified notes to the consolidated financial statements

For the years ended december 31, 2003 and 2002 CODELCO b) Non-operating expenses:

2003 2002

Export tax (Law N° 13,196) 248,807 240,071 Severance indemnities 14,770 20,783 Contingency accruals 12,000 12,000 Retirement plans 29,430 11,478 Other 160,502 157,233

Total 465,509 441,565

NOTE 15- PRICE-LEVEL RESTATEMENT As set forth in D.L. No. 1,350 of 1976, the Company records its operations in U.S. Dollars. Consequently, the price-level restatement figures come from the consolidation with its subsidiary companies. (2003: ThUS$240 debit; 2002: ThUS$226 credit).

NOTE 16 - FOREIGN CURRENCY TRANSLATION Assets and liabilities, traded in original currencies other than US Dollar, have been translated at the year-end exchange rate, resulting in a net credit to income of ThUS$49,085 for the asset accounts (2002: a charge of ThUS$9,822). A charge to income of ThUS$122,593 (2002: a credit of ThUS$42,728) has been made for the liability accounts.

NOTE 17 - DERIVATIVE CONTRACTS The Company holds contracts for pricing operations. Such contracts add up to 711 MTMF (thousands of metric tons of fine copper) (461 MTMF for sales contracts and 250 MTMF for production contracts), out of which -at the financial year-end- 580 MTMF are protected (330 MTMF for sales contracts and 250 MTMF for production contracts), and matures in June 2005, with a positive exposure of ThUS$13,561.

In addition, it has protection operations against exchange rate variations, which add up to ThUS$166,258, out of which ThUS$1,776 are due in January 2004 and ThUS$164,482 are due in November 2012; both present a positive exposure of ThUS$18,091.

Also, at December 31, 2003, the Company has contracts in place to fix the interest rate of US Dollars denominated debt obligations with banks and financial institutions for ThUS$300,000. A negative exposure of ThUS$8,923 has been determined for these contracts at December 31, 2003. Deferred payments under these contracts amounted to ThUS$46,945 in 2003 and ThUS$58,610 in 2002, which are presented in other under other assets and are amortized over, the term of the respective obligations, from January 2004 to September 2008.

NOTE 18 - COMMITMENTS AND CONTINGENCIES Lawsuits Codelco is involved in various pending legal actions initiated by, or against, the Company which are derived from the inherent nature of the industry in which the Company operates. In general, these lawsuits are from civil, tax, labor and mining actions, all of which are related to the Company's operating activities.

In the Company's management's and legal advisors' opinion, these lawsuits do not represent significant loss contingencies. In addition, with respect to all such lawsuits, the Company defends its rights and uses all instances and legal and proceeding resources available. simplified notes to the consolidated financial statements 97

For the years ended december 31, 2003 and 2002 CODELCO Other commitments

With regard to the shares resulting from the bidding process of the hydroelectric power plants Coya and Pangal, the Company has committed to the final signature of the sale contracts for such assets by April 2004.

The Corporation, following its cost-reduction programs by way of using modern technologies, has established personnel early severance programs, with benefits that encourage retirement, for which such obligation is recognized through provisions when the employee commits to his/her retirement.

The Company has no restrictions or covenants associated with obligations with banks and financial institutions or with the public.

The Company has obligations with Tesorería General de la República de Chile derivated by Law 18,634 in connection with deferred custom duties, of ThUS$99,916 in 2003 (ThUS$134,312 in 2002).

NOTE 19 - SURETIES OBTAINED FROM THIRD PARTIES The Company has received a number of guarantees that mainly cover obligations of suppliers and contractors related to various projects under development. Considering the large number of guarantees received as of December 31, 2003 and 2002 and the many suppliers and contractors involved, the amounts covered are presented by Division as follows (in thousands of US Dollars):

Division 2003 2002

Andina 7,013 5,182 Codelco Norte 97,864 132,090 Head Office 20,610 51,318 Salvador 9,371 25,442 El Teniente 69,235 70,677

Total 204,093 284,709

NOTE 20 - ASSETS AND LIABILITIES IN LOCAL AND FOREIGN CURRENCIES At December 31, 2003, the Company has assets transacted in local currency for ThUS$586,981 (2002: ThUS$377,120) and liabilities for ThUS$857,572 (2002: ThUS$674,874).

NOTE 21 - SANCTIONS Codelco, its Directors and Management have not been subject to sanctions applied by the Superintendence of Securities and Insurance or other administrative authorities.

NOTE 22 - ENVIRONMENT The practice of exploration and recognition of new resources, which are environmentally sustainable, has been a significant concern for the Company. Consequently, since 1998 the Company defined its environmental commitments, which are controlled through an environmental management system for explorations that has been improved over time to conform to the worldwide standard ISO 14001, which has assisted in geology, geochemical, geophysical and soundings work directed towards exploration of mineral resources both in Chile and abroad. At December 31, 2003, Codelco Norte, made up of the Chuquicamata and Radomiro Tomic, Andina, El Salvador and Teniente Divisions, had received ISO 14001 98 simplified notes to the consolidated financial statements

For the years ended december 31, 2003 and 2002 CODELCO certification. The Parent Company and exploration management also received ISO 14001 certification. Exploration management received the certification separately for the relevance and impact of its activities on the environment.

In accordance with this policy, in 2003 the Company has made investments, identifiable with the environmental theme, which amount to ThUS$39,015 (2002: ThUS$93,066).

NOTE 23 - SUBSEQUENT EVENTS On January 23, 2004, Codelco transferred 60% of Fundición Talleres S.A.'s shares to Compañía Electro Metalúrgica S.A., thus remaining as a minority shareholder with 40% of shares, without implying significant results for the Company.

On January 29, 2004, Codelco, Suez Tractebel S.A. and Tractebel Andino S.A. signed a an agreement that regulates certain aspects of the reorganization plan of their electrical assets in the Big North Interconnected System with the aim of materializing, during 2004, an overall partnership restructuring that involves Electroandina S.A., Edelnor S.A., Gasoducto Nor Andino S.A. and Gasoducto Nor Andino (Argentina) S.A., among other companies.

The agreement establishes the essential steps to be taken and the periods for each of them to be performed in order to materialize the proposed restructuring.

The Company's management has no knowledge of other significant events of a financial nature or any other nature, occurring between December 31, 2003 and the date of issuance of these financial statements which may affect them.

Juan Villarzú Rohde Francisco Tomic Errázuriz Chief Executive Officer Corporate Vice President of Human Development and Finance

Patricio Mac-Niven Silva Mario Allende Gallardo Corporate Manager Accounting Manager Of Shared Services financial analysis of the consolidated financial statements 99

For the years ended december 31, 2003 and 2002

The purpose of the following section is to analyze and to explain material fluctuations which occurred in the consolidated financial statements of the CODELCO Corporación Nacional del Cobre de Chile between the financial position as of December 31, 2003 and 2002 and between the statements of operations for the respective periods then ended. A summary of the information contained in such statements is shown below.

Summary of the financial ratios of the Company (all figures are expressed in thousands of United States dollars):

Balance Sheets 31.12.2003 31.12.2002 Variation Ratio Ratio %

Liquidity Current assets/Current liabilities 1.40 1.19 17% (Current assets plus Inventories plus Prepaid expenses)/Current liabilities 0.72 0.70 3%

Debt Total liabilities/Equity (times) 1.87 1.46 28% Current liabilities/Total liabilities 0.25 0.26 -2% Long-term liabilities/Total liabilities 0.75 0.74 1%

Activity Accounts receivable turnover 10.68 15.50 -31% Accounts receivable turnover in days 34 23 45% Inventory turnover 3.16 5.63 -44% Inventory turnover in days 114 64 78%

Profitability (income after taxes) Assets % 1.10 0.72 53% Equity % 3.16 1.77 78% Return on operational assets % (2) 1.16 0.75 56%

ThUS$ ThUS$

Current liabilities 5,268,346 4,000,332 Income before taxes and Law 13.196 607,368 370,343

Income statements 31.12.2003 31.12.2002 ThUS$ ThUS$

Sales 3,781,786 3,489,879 Costs of sales (2,781,209) (2,786,942) Gross margin 833,303 543,261 Non-operating expenses-net (including Law 13.196) (475,648) (414,598) Financial expenses (105,842) (77,046) Depreciation (375,453) (398,629) 100 financial analysis of the consolidated financial statements

CODELCO Income statements 31.12.2003 31.12.2002 ThUS$ ThUS$

Amortization (87,680) (97,121) R.A.I.I.E. 357,655 128,663 Law N° 13.196 (248,807) (240,072) Tax income (269,331) (81,795) R.A.I.I.D.A.I.E. (1) 926,630 701,459 Income after taxes 89,230 48,476

Equity Equity 2,821,419 2,733,065 Net fixed assets 5,260,679 4,904,550 Total assets 8,091,800 6,732,965

Income/Loss due to USD variation Not applicable Not applicable

31.12.2003 31.12.2002 MFT MFT

Volume of physical sales (own and third parties' copper) 1,787,448 1,945,870

(1) R.A.I.I.D.A.I.E.: Results before taxes, interests, depreciation, amortization and extraordinary items. (2) Operational assets includes total assets less investments in related and in other companies

Analysis of differences between book value and economic value Deposits owned by the Company are recognized at the value of US$1 each due to the copper nationalization process. Under these terms, the economic value of these deposits differs from the book value.

The above results in an understatement of the equity and assets in relation to its economic value.

Analysis of the market variations At December 31, 2003, the markets in which the Company sells its products have not undergone major changes.

Analysis of the balance sheets As of December 31, 2003, the current liquidity ratio shows an increase compared to the previous period due to the net increase of current assets (increase of trade receivables, inventories and taxes recoverable) over the net increase of current liabilities (increase of short-term and current portion of long-term debts with banks and financial institutions and accounts payables).

In 2003, current assets increased to ThUS$ 1,851,063 (ThUS$1,221,589 in 2002) and is mainly composed of inventories of ThUS$879,108 (48%), taxes recoverable of ThUS$359,615 (19%), trade receivables of ThUS$354,122 (19%), sundry debtors of ThUS$128,588 (7%) and the remainder relates to other current assets. financial analysis of the consolidated financial statements 101 CODELCO As of December 31, 2003, net fixed assets amounted to ThUS$5,260,679 (ThUS$4,904,550 in 2002) and is mainly composed by buildings and infrastructure for ThUS$6,144,746, machinery and equipment for ThUS$ 5,391,056, net of accumulated depreciation for ThUS$6,738,263; other accounts in this item make up the remaining difference.

Fixed assets (gross) increased by ThUS$453,925 between the years 2003 and 2002. The increase is mainly explained by purchases of buildings and infrastructure of ThUS$357,021. Depreciation and amortization for the year 2003 amounted to ThUS$463,133.

As of December 31, 2003, current liabilities amount to ThUS$1,326,354 (ThUS$1,027,677 in 2002) and is composed of bank loans for ThUS$669,271 (51%), accounts payable for ThUS$314,257 (24%), accruals for ThUS$198,390 (15%) and other sundry creditors.

As of December 31, 2003, long-term liabilities reached ThUS$3,941,992 (ThUS$2,972,655 in 2002) and is mainly composed of bank loans and bonds obligations for ThUS$2,134,461 (54%), deferred taxes for ThUS$1,035,036 (26%), accruals for ThUS$ 630,588 (16%) and notes payable for ThUS$87,399 (2%).

These above figures explain the ratios and variations shown in the previous pages.

As of December 31 2003, equity is ThUS$2,821,419 (ThUS$2,733,065 in 2002).

As of December 31 2003, the total debt of the Company amounts to ThUS$5,268,346 (ThUS$4,000,332 in 2002); this results in a debt ratio of 1.87 times (1.46 times in 2002). The increase is mainly explained by the increase of short-term and long-term debt with bank and financial institution and long- term bond obligations.

Analysis of the income statements The operating income at December 31, 2003 reached ThUS$833,303, which is 53.4% greater than the prior period (ThUS$543,261). Sales reached ThUS$3,781,786, which is 8.4% greater than year 2002, mainly due to the net effect of higher prices for cathodes of 14.3% quoted at LME and lower sales in metric tons of 10.3%.

The selling price of Codelco's mix for the year 2003 reached US$0.804 per pound (US$0.697 in 2002).

In November 2002, the Company's Board of Directors approved the assignment of 200,000 tons of fine copper production for 2003 for its strategic stock. Codelco decided to store such material at its facilities and not to offer it to the market, while the stock in London, New York and Shanghai Metal Exchange was over 800,000 tons of fine copper. The effect of this decision explains the increase in the inventori balance.

In 2003, the following fluctuations ocurred:

The total sales reached ThUS$3,781,786, of which ThUS$3,169,916 (83.8%) corresponds to sales of copper, including sales from subsidiaries for ThUS$433,551, and by-products and others (16.2%).

In 2003, the sales of Codelco's own and third parties' copper reached 1,647,139MFT (1,817,300 MFT in 2002) and the sales of its subsidiaries in UK and United States reached 146,344 MFT (128,570 MFT in 2002).

The cost of sales amounted to ThUS$2,781,209, of which ThUS$2,365,079 (85.04%) corresponds to cost of sales of copper, including the cost of sales from subsidiaries for ThCh$423,774, and by-products and others (14.96%). 102 financial analysis of the consolidated financial statements CODELCO Non-operating expenses - net amounted to ThUS$475,648 (ThUS$414,598 in 2002). In 2003, other expenses amounted to ThUS$465,509 (96%) and included ThUS$248,807 (53%) of Law N° 13,196, which includes the return on copper and by-products exports of 10%.

In 2003, the profits of Codelco (income before income tax, extraordinary items and Law Nº 13,196) reached ThUS$606,462 in comparison with ThUS$368,735 in 2002 due to an increase in operating income of ThUS$290,042.

As a consequence, the income before income taxes and extraordinary items amounted to ThUS$357,655 and net income for the year reached ThUS$89,230.

Analysis of the statement of cash flows The net cash flow from operating activities for the year ended as of December 31, 2003 was a positive flow of ThUS$144,290, however, 75.5% lower than the prior period (ThUS$588,892) as a result of an increase in payment to suppliers, personnel and income tax.

Also, the net cash flow from financing activities for the year ended as of December 31, 2003 was a positive flow of ThUS$700,000 in comparison with ThUS$487,901 in 2002. This is mainly due to the increase in banks and bonds obligations and decrease of the payments of bank obligations.

The net cash flow from investment activities was a negative flow of ThUS$938,025 in 2003 (ThUS$ 959,877 in 2002) in keeping with the trend of the prior year.

Taking into account the cash flows mentioned above for the years ended as of December 31, 2003 and 2002 plus the balance of cash and cash equivalents at the beginning of the years, the final cash and cash equivalents, in 2003, amounted to ThUS$59,844 which is lower than year 2002 (ThUS$153,579) due to operating and financing activities. independent auditor´s report 103 CODELCO

To the Chairman and Members of the Board of Directors of Corporación Nacional del Cobre de Chile

We have audited the accompanying balance sheet of Corporación Nacional del Cobre de Chile as of December 31, 2003, and the related statements of income and cash flows for the year then ended. These financial statements (including the related notes) are the responsibility of the management of Corporación Nacional del Cobre de Chile. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements at December 31, 2003, of certain investees and subsidiaries. Those financial statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for such investees and subsidiaries, is based solely on the reports of such other auditors. The direct and indirect investment of the Company in such investees and subsidiaries represents 5.4% of the total assets and the year's net equity in income on these companies represents 2.0% of the total sales. The financial statements of Corporación Nacional del Cobre de Chile for the year ended December 31, 2002 were audited by other auditors whose report, dated February 28, 2003, expressed an unqualified opinion on those statements.

We conducted our audit in accordance with auditing standards generally accepted in Chile. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Company, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

The abovementioned financial statements have been prepared to reflect the stand-alone financial position of Corporación Nacional del Cobre de Chile, based on the criteria described in Note 2, before consolidating the financial statements of the subsidiaries detailed in Note 8. Consequently, for an adequate interpretation, these stand-alone financial statements should be read and analyzed together with the consolidated financial statements of Corporación Nacional del Cobre de Chile and subsidiaries, which are required by accounting principles generally accepted in Chile.

In our opinion, based on our audit and the reports of other auditors, such financial statements at December 31, 2003, present fairly, in all material respects, the financial position of Corporación Nacional del Cobre de Chile as of December 31, 2003, and the results of its operations and its cash flows for the year then ended in conformity with the principles described in Note 2.

The notes to the accompanying financial statements are a simplified version of those included in the stand-alone financial statements of Corporación Nacional del Cobre de Chile filed with the Superintendence of Securities and Insurance, upon which we have issued our report under that same date. Such financial statements contain additional information required by such Superintendence, which is not indispensable for their adequate interpretation.

The accompanying financial statements have been translated into English for the convenience of readers outside Chile.

Mario Muñoz V. February 6, 2004 104 balance sheets

At december 31, 2003 and 2002 (In thousands of U.S. Dollars - ThUS$) CODELCO 2003 2002

ASSETS

CURRENT Cash 4,035 5,848 Time deposits 38,655 138,088 Marketable securities 1 1 Trade receivables (net) 334,884 212,052 Notes receivable 179 134 Other receivables (net) 125,072 128,257 Due from related companies 14,867 26,572 Inventories (net) 847,395 478,691 Income taxes recoverable 351,772 175,384 Prepaid expenses 11,139 7,108 Deferred taxes 43,075 - Other current assets 9,595 50 Total current assets 1,780,669 1,172,185

PROPERTY, PLANT AND EQUIPMENT Land 26,587 25,668 Buildings and infrastructure 6,026,437 5,724,464 Machinery and equipment 5,373,072 5,297,943 Other plant and equipment 49,354 - Technical appraisal revaluation 383,246 417,794 Accumulated depreciation (6,731,089) (6,634,762) Net property, plant and equipment 5,127,607 4,831,107

OTHER ASSETS Investments in related companies 491,459 276,734 Investments in other companies 405 335 Long-term receivables 132,084 63,929 Due from related companies 95,383 117,936 Intangibles 4,097 3,442 Accumulated amortization (969) (967) Other assets 346,204 216,780 Total other assets 1,068,663 678,189

TOTAL ASSETS 7,976,939 6,681,481

The accompanying notes are an integral part of these financial statements balance sheets 105

At december 31, 2003 and 2002 (In thousands of U.S. Dollars - ThUS$) CODELCO 2003 2002

LIABILITIES AND EQUITY

CURRENT LIABILITIES Banks and financial institutions - Short-term 466,169 208,669 Banks and financial institutions - Current portion of long-term debt 203,102 276,806 Banks and financial institutions - Current portion of bonds payable 15,507 8,253 Accounts payable 286,399 230,776 Miscellaneous payables 13,205 15,718 Due to related companies 50,068 23,197 Accruals 192,219 171,093 Withholdings 67,506 45,389 Deferred income 1,611 1,170 Deferred taxes - 19,451 Other current liabilities 465 2,867 Total current liabilities 1,296,251 1,003,389

LONG TERM LIABILITIES Due to banks and financial institutions 700,000 600,000 Bonds payable 1,434,461 897,643 Miscellaneous payables 49,734 - Accruals 635,083 554,371 Deferred taxes 1,035,509 887,327 Other long-term liabilities 4,482 5,686 Total long-term liabilities 3,859,269 2,945,027

EQUITY Paid-in capital 1,524,423 1,524,423 Other reserves 1,302,491 1,237,019 Net income for the year 89,230 48,476 Profits distribution to the Chilean Treasury (94,725) (76,853)

Total equity - net 2,821,419 2,733,065

TOTAL LIABILITIES AND EQUITY 7,976,939 6,681,481

The accompanying notes are an integral part of these financial statements 106 balance sheets

At december 31, 2003 and 2002 (In thousands of U.S. Dollars - ThUS$) CODELCO 2003 2002

Sales 3,348,235 3,121,022

Cost of sales (2,357,435) (2,416,764)

Gross profit 990,800 704,258

Administrative and selling expenses (153,350) (143,582)

OPERATING INCOME 837,450 560,676

Interest income 8,264 9,258 Equity in income of related companies 71,483 1,407 Other income 97,356 106,134 Equity in losses of related companies (13,156) (67,379) Interest expense (104,919) (76,152) Other expenses (461,266) (438,347) Foreign currency translation (76,579) 33,787

NON-OPERATING EXPENSES - NET (478,817) (431,292)

INCOME BEFORE INCOME TAXES 358,633 129,384

Income taxes (269,403) (80,908)

NET INCOME FOR THE YEAR 89,230 48,476

The accompanying notes are an integral part of these financial statements statements of cash flows 107

At december 31, 2003 and 2002 (In thousands of U.S. Dollars - ThUS$) CODELCO 2003 2002

CASH FLOWS FROM OPERATING ACTIVITIES Collections from customers 3,225,132 3,147,986 Financial income received 2,234 5,180 Dividends and other distributions - 393 Other income collected 373,740 371,862 Payments to suppliers and employees (2,462,333) (2,190,722) Payment of interest (81,993) (69,676) Payment of income taxes (339,395) (80,000) Other expenses paid (260,776) (273,383) Payment of value added tax and other similar taxes (311,918) (318,517) Net cash provided by operating activities 144,691 593,123

CASH FLOWS FROM FINANCING ACTIVITIES Loans obtained 1,272,000 550,000 Bonds payable 500,000 597,643 Dividends paid (50,000) - Payment of loans (1,022,000) (660,000) Net cash provided by financing activities 700,000 487,643

CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales of property, plant and equipment 1,033 542 Proceeds from sales of permanent investments - 2,552 Proceeds from sales of other investments 3,728 - Other investments 56,599 29,329 Purchases of property, plant and equipment (888,319) (831,234) Investments in related companies (35,698) (61,803) Loans to related companies (1,305) (17,198) Other investment disbursements (81,975) (85,740) Net cash used in investing activities (945,937) (963,552)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (101,246) 117,214

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 143,937 26,723

CASH AND CASH EQUIVALENTS AT END OF YEAR 42,691 143,937

The accompanying notes are an integral part of these financial statements 108 reconciliation of net income to net cash provided by operanting activities

For the years ended december 31, 2003 and 2002 (In thousands of U.S. Dollars - ThUS$) CODELCO 2003 2002

Net income for the year 89,230 48,476

(Gain) loss on sale of assets (2,178) 11,356

Debits (credits) to income which do not represent cash flows: Depreciation 373,812 388,323 Amortization 87,680 97,121 Write-offs and provisions 231,991 46,667 Equity in income of related companies (71,483) (1,407) Equity in losses of related companies 13,156 67,379 Foreign currency translation 76,579 (33,787) Other credits to income which do not represent cash flows (44,980) (44,058)

(Increase) decrease in assets which affect operating cash flows: Trade receivables (122,832) (10,761) Inventories (368,704) (3,549) Other assets (218,194) 10,483

Increase (decrease) in liabilities which affect operating cash flows: Accounts payable associated with operating activities 71,450 (16,853) Interest payable 7,333 3,892 Value added tax and other similar taxes payable, net 21,831 29,841

NET CASH PROVIDED BY OPERATING ACTIVITIES 144,691 593,123

The accompanying notes are an integral part of these financial statements simplified notes to the financial statements 109

For the years ended december 31, 2003 and 2002 CODELCO Management considers that these exploratory notes offer sufficient information, but less detailed than that contained in the explanatory notes that are an integral part of the consolidated financial statements filed with the Superintendence of Securities and Insurance and which are available to the general public. Such information also is available in the Company's offices.

NOTE 01 - DESCRIPTION OF BUSINESS Corporación Nacional del Cobre de Chile ("Codelco" or the "Company") is registered in Securities Registry No.785 of the Superintendence of Securities and Insurance. The Company is subject to the regulation of that Superintendence.

The Company was formed as stipulated by Law Decree (D.L.) No. 1,350 of 1976. Codelco is a state-owned mining, industrial and commercial company, which is a legal entity in itself and with its own equity. Codelco currently carries out its productive activities through its Codelco Norte, Sa1vador, Andina, El Teniente and Talleres Divisions. The Company also carries out similar activities in other mining deposits in association with third parties.

Codelco's financial activities are conducted following a budgeting system that is composed of an Operations Budget, an Investment Budget and a Debt Repayment Budget.

The Company's tax regime is established in D.L. No. 1,350 and 2,398.

NOTE 02 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a) Accounting periods These stand-alone financial statements cover the years ended December 31, 2003 and 2002. b) Basis of preparation The financial statements have been prepared in accordance with generally accepted accounting principles pronounced by the Chilean Association of Accountants, and regulations of the Superintendence of Securities and Insurance, except for investments in subsidiaries, which are recorded at the equity method in a single line of the balance sheet and, therefore, have not been consolidated on a line-by-line basis. This treatment does not modify the net income for the year or equity.

These financial statements have been issued only for a stand-alone analysis of the Company and, consequently, should be read together with the consolidated financial statements, which are required by generally accepted accounting principles in Chile.

Should there be any discrepancy between the above mentioned principles and regulations, the regulations of the Superintendence of Securities and Insurance will prevail over generally accepted accounting principles in Chile. c) Reporting currency In accordance with Article 26 of D.L. No. 1,350, the Company's accounting is kept in United States Dollars. d) Basis of conversion The Company's assets and liabilities in pesos, mainly composed of cash, accounts receivable, investments in companies in Chile, accounts payable and accruals, have been expressed in United States Dollars at the observed exchange rate at each year-end of Ch$593.80 per US Dollar as of December 31, 2003 (2002: Ch$718.61 per US Dollar).

UF-Denominated Assets and Liabilities At December 31, 2003 and 2002, assets and liabilities denominated in UF (an inflation index-linked unit used in Chile) have been translated using the US$/UF rates effective on the closing dates of the financial statements (2003: US$28.49444, 2002: US$23.30071). 110 simplified notes to the financial statements

For the years ended december 31, 2003 and 2002 CODELCO was recorded in the accounting records.

Exchange differences are debited or credited to income, in accordance with generally accepted accounting principles pronounced by the Chilean Association of Accountants, and regulations of the Superintendence of Securities and Insurance.

The average exchange rate in the year ended December 31, 2003 was Ch$691.54 per US Dollar (2002: Ch$689.24 per US Dollar).

Chilean Subsidiaries Assets and liabilities and income statement accounts in pesos as of December 31, 2003 and 2002 have been translated into US Dollars at the exchange rates on those dates (2003: Ch$593.80 per US Dollar; 2002: Ch$718.61 per US Dollar).

Foreign subsidiaries As of December 31, 2003 and 2002, the financial statements of foreign subsidiaries have been translated from their respective foreign currencies into US Dollars using the exchange rates as of the respective year-end published by the Central Bank of Chile.

e) Time deposits Time deposits are recorded at principal invested plus corresponding interest accrued at each year-end.

f) Inventories Inventories are valued at cost, which does not exceed their net realizable value. Cost has been determined using the following methods:

- Finished products and products in process Following the full-cost method, finished products and products in process are valued at average production cost. Production costs include depreciation of property, plant and equipment and indirect expenses.

- Materials in warehouse Materials in warehouse are valued at acquisition cost.

The Company calculates an obsolescence provision considering the length of time in stock of slow turnover materials in warehouse.

- Materials in transit Materials in transit are valued at cost incurred through year-end.

g) Allowance for doubtful accounts Management estimates the allowance for doubtful accounts based on its experience and analysis along with the aging of the balances.

h) Property, plant and equipment Property, plant and equipment are expressed in US Dollars and valued at historical cost as increased by technical appraisals performed by The American Appraisal Co. and recorded during 1982 to 1984, net of accumulated depreciation.

Construction in progress includes the amounts invested in property, plant and equipment under construction and in mining development projects. The Company's income and expenses in Chilean pesos have been translated into US Dollars at the observed exchange rate on the date on which each transaction simplified notes to the financial statements 111

For the years ended december 31, 2003 and 2002 i) Depreciation CODELCO Depreciation of property, plant and equipment is calculated using the straight-line method on the book values of property, plant and equipment, including the revaluation mentioned in Note 2(h) above, and the estimated useful lives of the assets. j) Exploration, mine development and mine operating costs

- Deposit exploration and drilling costs Deposit exploration and drilling costs are incurred in the identification of mineral deposits and the determination of their possible commercial viability and are charged to income as incurred.

- Mine pre-operating and development costs Costs incurred during the development phase of projects up to the production phase are capitalized and amortized over future mineral production. These costs include extraction of waste material, constructing the mine's infrastructure and other work carried out prior to the production phase.

- Costs of developing existing mines These costs are incurred for the purpose of maintaining the production volumes from deposits and are charged to income as incurred.

- Costs for delineating new deposit areas in exploitation and of mining operations. These costs are recorded in property, plant and equipment and are amortized to income in the period in which the benefits are obtained. k) Leased assets Property, plant and equipment recorded by the subsidiaries through financial leasing contracts are recorded as other plant and equipment. These assets have been valued at their current value applying the implicit interest rate in the contracts and are depreciated using the straight-line method based on the useful lives of the assets. The Company does not legally own these assets until it exercises the respective purchase option. l) Investments in related companies Investments in domestic and foreign related companies, identified as permanent, are valued using the equity method in accordance with Technical Bulletins issued by the Chilean Association of Accountants. Equity method investments, which are accounted for in Chilean pesos and are controlled in that currency, are expressed in US Dollars at the year-end exchange rate. From January 1, 2002, differences which arise and are unrelated to the recognition of net income, are recognized in Other reserves in Equity. For applying the equity method, investments in foreign subsidiaries are controlled in US Dollars.

Unrealized gains related to investments in related companies are credited to income in relation to the amortization of the transferred assets or mine production, as applicable.

As of December 31, 2003 and 2002, the subsidiary, Complejo Portuario Mejillones S.A. is in its development stage, and the equity in development stage deficit is recognized in each year's results. m) Investments in other companies The item "Investments in other companies" represents the value of the shares the Company has been required to acquire for its operations. These are recorded at their acquisition amount, which does not exceed market value. 112 simplified notes to the financial statements

For the years ended december 31, 2003 and 2002 CODELCO n) Intangibles Intangibles are recorded at the amount of the disbursements effectively made and are amortized in accordance with Technical Bulletin No. 55 issued by the Chilean Association of Accountants.

o) Income tax and deferred income taxes The Company provides for income taxes in accordance with current regulations, including the first category tax and a) additional 40% tax applied to state-owned entities as specified by D.L. No. 2,398. Law No. 19,753 established a progressive increase in the first category tax rate to 16% for 2002, 16.5% for 2003 and 17% for 2004 and thereafter.

The Company recognizes the effects of deferred income taxes arising from temporary differences, which have a different treatment for book and tax purposes, in accordance with the Technical Bulletins issued by the Association of Accountants and the regulations of the Superintendence of Securities and Insurance.

p) Severance indemnities and other long-term benefits The Company has an agreement with its employees for payment of severance indemnities. It is the Company's policy to provide for the total accrued obligation at the shut-down method.

The Company, following its cost-reduction programs by way of using modern technologies, has established personnel severance programs, with benefits that encourage retirement, for which the necessary provisions are made when the employee commits to his/her retirement.

q) Revenue recognition Revenue is recognized at the time of shipment or delivery in conformity with contractua1 agreements and is subject to variations in contents and/or the sales price at the transaction settlement date. A provision is made for estimated decreases in sales values on unsettled operations at the end of the period based on the information available as of the date the financial statements are prepared. Sales in Chile are recorded in accordance with Chilean standards.

r) Derivative contracts The Company's contracts in futures markets are entered into based on the following hedging policies:

- Hedging operations, which have to be approved by the Board of Directors, in metal futures markets are entered into in order to protect the Company from risks inherent to the fluctuation of the price of metals. This hedging policy has the purpose of protecting cash flows associated with sales operations and therefore these operations have been considered as hedging contracts for anticipated transactions. In accordance with the provisions of Technical Bulletin No. 57 issued by the Chilean Association of Accountants, the result of these hedging transactions is recorded at the date of settlement of the operations, as part of the proceeds from the sale of the products. In other words, the Company conducts these futures operations in order to adjust the sales contracts to the commercial policy. The settlement of these operations coincides with the accounting for the corresponding transactions, and, therefore, when sales commitments are fulfilled, sales contracts' and futures contracts' results are offset.

- Hedging policies for exchange rates and interest rates.

Exchange rate hedges include contracts, which mitigate the risk of fluctuations between the UF and the US$ exchange rate for UF denominated bonds payable.

Interest rate hedges include contracts at fixed interest rates for future obligations denominated in US Dollars. simplified notes to the financial statements 113

For the years ended december 31, 2003 and 2002

The results of the exchange rate hedging contracts are recorded as of the date of maturity or settlement of the respective contracts, in conformity with Technica1 CODELCO Bulletin No. 57 issued by the Chilean Association of Accountants.

The results of the hedging contracts for interest rates for future liabilities are amortized over the term of those liabilities.

Operations carried out in futures markets are not of a speculative nature. s) Computer software Computer systems developed through the use of the Company's own human resources and materials are charged to results in the period in which they are incurred.

In accordance with Circular No. 981 dated December 28, 1990 of the Superintendence of Securities and Insurance, computer systems acquired by the Company are capitalized at acquisition cost plus all related costs, and are amortized over a period not exceeding four years. t) Research and development expenses Research and development expenses are charged to income as incurred. u) Statement of cash flows Cash and cash equivalents includes unrestricted cash and bank balances, time deposits and financial instruments, classified as short-term marketable securities, maturating within 90 days, in accordance with Technical Bulletins issued by the Chilean Association of Accountants and the regulations of the Superintendence of Securities and Insurance.

The Company has recognized cash flows from operating, investing or financing activities as required by Technical Bulletins issued by the Chilean Association of Accountants and the regulations of the Superintendence of Securities and Insurance. v) Bonds Bonds are presented at outstanding principal plus accrued interest at each year-end. The discount on bond issuance is capitalized as deferred expense, included in Other under Other Assets, and is amortized using the straight-line method over the term of the bonds.

w) Environmental exit costs The Company has established a policy of accruing for future environmental exit costs, which mainly relate to the situation of tailing dams, which, subsequent to the end of their useful lives, continue to incur expenses. This policy allows for the allocation of environmental exit costs during their exploitation stage. x) Law No. 13,196 Law No. 13,196 requires the payment of a 10% contribution to the Chilean Government on the export value of copper production and related by-products. The amount involved is included in Other expenses in the statements of income. y) Cost of sales The cost of sales includes direct and indirect costs and depreciation and amortization related to the production process. z) Bond issuance cost Bond issuance cost is charged to the year's results, as established in Circular No. 1,370 dated January 30, 1998 of the Superintendence of Securities and Insurance. 114 simplified notes to the financial statements

For the years ended december 31, 2003 and 2002 CODELCO aa) Reclassifications For comparative purposes with the 2003 financial statements, certain 2002 figures have been reclassified.

NOTE 03 - CHANGES IN ACCOUNTING PRINCIPLES From January 1 to December 31, 2003, there were no changes in accounting policies and accounting criteria described in Note 2, with respect to the prior year.

NOTE 04 - TRANSACTIONS WITH RELATED COMPANIES Balances receivable from and payable to related companies are presented in the balance sheets.

The Company's policies for transactions with related companies are specifically defined by the Company's Board of Directors and regulated by the Company's management.

The Company, acting in accordance with current applicable regulations and within the normal scope of its business, carries out transactions with related entities or parties, under fair conditions, which are similar to those usually prevailing in the market when the transactions take place.

Accounts receivable from related companies are expressed in United States Dollars and subject to interest rates which do not exceed market rates.

The main transactions with related companies are with investees, for purchases of ThUS$361,482 (ThUS$325,060 in 2002) and sales of ThUS$95,369 (ThUS$202,633 in 2002) of products or services, at market prices.

NOTE 05 - INVENTORIES The breakdown of inventories is as follows (in thousands US Dollars): 2003 2002

Finished products 560,126 196,940 Product in process 164,535 170,162 Materials in warehouse and others 122,734 111,589

Total 847,395 478,691

The value of inventories is presented net of the obsolescence allowance for materials in warehouse of ThUS$34,300 and ThUS$30,644 as of December 31, 2003 and 2002, respectively.

NOTE 06 - INCOME AND DEFERRED TAXES

Income tax At December 31, 2003 and 2002, the provisions for first category income tax and that required by D.L. No. 2,398 amount to ThUS$124,281 and ThUS$3,793, respectively , and are shown net of estimated monthly payments of taxes and of other tax credits in income taxes recoverable in current assets. simplified notes to the financial statements 115

For the years ended december 31, 2003 and 2002 CODELCO Deferred tax In accordance with Law No. 19,753 and Technical Bulletin No. 71 issued by the Chilean Association of Accountants, the Company has recognized the effects of the increase in the tax rate of first category income tax. Deferred taxes calculated under the criteria in Note 2 (o) represent, at December 31, 2003, a net liability of ThUS$992,434 consisting of assets of ThUS$314,688 and liabilities ThUS$1,307,122 and at December 31, 2002, a net liability of ThUS$906,778 consisting of assets of ThUS$340,093 and liabilities of ThUS$1,246,871.

At December 31, 2003, there are other debits to the account for ThUS$59,466.

NOTE 07 - PROPERTY, PLANT AND EQUIPMENT The composition of property, plant and equipment is as follows (in thousands US Dollars): a) Property, plant and equipment: 2003 2002

Land and mining rights 26,587 25,668 Buildings and infrastructure 6,026,437 5,724,464 Machinery and equipment 5,373,072 5,297,943 Other plant and equipment 49,354 - Technical appraisal 383,246 417,794

Total gross property, plant and equipment 11,858,696 11,465,869 b) Accumulated depreciation

2003 2002

Buildings and infrastructure 3,227,354 3,321,252 Machinery and equipment 3,503,305 3,313,510 Other fixed assets 430 -

Total accumulated depreciation 6,731,089 6,634,762

The assets acquired under financial leasing, which correspond to buildings, are included in other plant and equipment, and have the following characteristics:

Average annual interest rate : varies between 4.67% and 11.27% Amortization period : UF cluding purchase option : Between 188 and 291 months Principal : UF 1,777,723 116 simplified notes to the financial statements

For the years ended december 31, 2003 and 2002 CODELCO NOTE 08 - INVESTMENTS IN RELATED COMPANIES The detail of investments in related companies as of December 31, 2003 and 2002 is as follows (in thousands US Dollars):

Company Equity in net income (losses) related equity 2003 2002 2003 2002

Codelco Kupferhandel Gmbh 1,149 775 25,632 20,189 Chile Copper Ltd. 60 129 1,962 1,718 Codelco Group USA Inc. 174 152 953 779 Codelco International Limited (7,093) (3,134) 28,482 - Minera Pecobre S.A. de C.V. (2,240) (2,354) 902 559 Minera Yabricoya SCM (12) 4 - 45 S.C. Minera Picacho (11) (808) 97 88 Inversiones Tocopilla Ltda. 19,114 (5,677) 155,016 105,786 Compañía Contractual Minera los Andes (56) (8,372) - - Isapre Chuquicamata Ltda. 54 28 2,031 1,619 Elaboradora de Cobre Chilena Ltda. (149) - - - Asociación Garantizadora de Pensiones 167 (39) 695 625 Isapre San Lorenzo Ltda. 158 135 529 303 Isapre Rio Blanco Ltda. (118) 71 456 471 CMS Chile S.A. 2,636 (3,642) - - Sociedad Contractual Minera El Abra 15,844 (38,995) 88,564 52,431 Electroandina S.A. 10,625 (529) 89,407 41,133 Agua de la Falda S.A. (1,431) (151) 4,557 5,987 Ejecutora Hospital del Cobre Calama S.A. 5 31 42 31 Complejo Portuario Mejillones S.A. (805) (6) 25,812 19,485 Instituto de Innovación en Minería y Metalurgia S.A. 23 115 2,805 2,391 Santiago de Río Grande S.A.C. (4) - 23 7 CMS Tecnología S.A. 405 (692) - - Geotérmica del Norte S.A. (588) (1,565) 1,163 - Inversiones Mejillones S.A. 20,824 (300) 45,441 22,180 Fundición Talleres S.A. 245 - 15,169 - Biosigma S.A. (649) (81) 1,647 907 Sociedad Contractual Minera Purén Ltda. - - 74 -

TOTAL 58,327 (65,972) 491,459 276,734

These investments are presented net of unrealized gains of ThUS$251,863 in 2003 and ThUS$295,901 in 2002.

In general, the Company's foreign subsidiaries facilitate the commercial activity of the Company in foreign markets.

The Company has not assumed any liabilities as hedging instruments to cover its foreign investments. simplified notes to the financial statements 117

For the years ended december 31, 2003 and 2002 CODELCO A brief explanation of the main companies in which the Company has interests is as follows:

Codelco Group Inc. (U.S.A.) Codelco Group Inc. is a holding company which owns two operating companies, Codelco (U.S.A.) Inc. and Codelco Metals Inc. Codelco Group Inc. is a wholly-owned subsidiary of Codelco.

Codelco (U.S.A.) Inc. is a sales agent for Codelco and manages sales contracts and settlements and coordinates product delivery for markets in the U.S.A., Canada and México.

Codelco Metals Inc. carries out metal sale and purchase operations with Codelco and other companies, and covers the North American market.

Codelco Kupferhandel GmbH (Germany) Codelco Kupferhandel GmbH operates in the copper wire business, through the conversion of refined copper at a plant in Emmerich, Germany, owned by Deutsche Giessdraht Gmbh in which Codelco Küpferhandel GmbH has a 40% interest.

Codelco Kupferhandel Metall Agentur, a subsidiary of Codelco Kupferhandel GmbH, is a sales agent for Codelco, manages sales contracts and settlements and coordinates product delivery principally to markets in Germany, Austria, Holland and Denmark.

Chile Copper Limited (United Kingdom) Chile Copper Limited is a wholly-owned subsidiary of Codelco.

Chile Copper Limited is a sales agent for Codelco and manages sales contracts and settlements and coordinates product delivery for markets in England, Finland, Norway and Sweden.

Codelco Services Limited, a subsidiary of Chile Copper Limited, carries out metal sale and purchase operations with Codelco and other companies, covering principally the European market.

Codelco International Limited (Bermudas) Codelco International Limited was formed in July 2001 and is a wholly-owned subsidiary of Codelco. The Company's business objective is the management and control of the interest of Codelco in several international projects. Through both this Company and its subsidiary, Codelco Technologies Limited, Codelco has entered joint investments with BHP Billiton in Alliance Copper Limited for the use of modern technology in mining operations. In addition, Codelco made investments through Codelco International Limited in Quadrem International Holdings Limited, a global company comprised of 18 of the most significant global mining companies to operate in an electronic market in which companies may buy and sell goods and services.

Codelco International Limited and Codelco Technologies Limited formed Codelco Do Brasil Mineracao Limitada, located in Brazil, with the objective of developing projects for exploration and exploitation, business and market development activities.

Instituto de Innovación en Minería y Metalurgia S.A. Instituto de Innovación en Minería y Metalurgia S.A. is a non-public limited liability company which performs activities in connection with research, development and technological innovation in the areas of mining and metallurgy. Codelco owns 99.93% of this company.

Complejo Portuario Mejillones S.A. Complejo Portuario Mejillones S.A., a non-public limited liability company, manages studies and development activities in connection with a port project in Mejillones, Region II of Chile, and which commenced activities in January 2002. Codelco owns 99.90% of the company. 118 simplified notes to the financial statements

For the years ended december 31, 2003 and 2002 CODELCO Healthcare institutions. Isapre Chuquicamata Limitada (98.30% owned), Isapre San Lorenzo Limitada (99.95%) and Isapre Río Blanco Limitada (99.90%) are civil limited liability companies and whose objective is the providing of healthcare services and benefits to Codelco's present and former employees.

Geotérmica del Norte S.A. Geotérmica del Norte S.A. is a non-public limited liability company whose business objective is the exploration and exploitation of geothermal deposits located between the Regions I, II and III of Chile and the sale, of all products and by-products derived directly or indirectly from the conduct of the aforementioned activities. Codelco owns 50.10% of the company.

Agua de la Falda S.A. In 1996, Agua de la Falda S.A. was formed by Codelco (49%) and Minera Homestake (51%).

The company's business objective is the exploration and exploitation of gold and other ore deposits in Region III of Chile.

Compañía Contractual Minera Los Andes Compañía Contractual Minera Los Andes was formed in 1996 through contributions made by Codelco, AMP Chile Holding Ltda., and Australian Mutual Provident Society for the exploitation and development of Exploradora, Sierra Jardín, María Delia and Sierra Morena prospects located in Regions I, II and III of Chile.

The business through both Compañía Contractual Minera Los Andes and Inversiones Minera Los Andes S.A. did not produce the expected results and therefore Codelco and AMP Holdings Chile Ltda. opted to terminate their association.

As a result, the Company's Board of Directors extended powers to the Chief Executive Officer to carry out the steps required to reach an agreement with AMP Holdings Chile Ltda. as to the conditions for the termination of the previously mentioned association for which each partner would maintain control of the company most related with its speciality. Under these conditions, in 2001, Codelco assumed the majority control of Compañía Contractual Minera Los Andes S.A. in exchange for its participation in Inversiones Minera Los Andes S.A.

Minera Pecobre S.A. de C.V. Minera Pecobre S.A. de C.V. is a Mexican company with variable capital formed by the Mexican company Minas Peñoles S.A. de C.V. and Codelco, with share holdings of 51% and 49%, respectively.

The company's line of business is the exploration of copper and by-products in mining area concessions in the state of Sonora, Mexico. Through other mining companies, the company also explores, processes and disposes of ore found in the mining areas.

Inversiones Tocopilla Ltda. and Electroandina S.A. Inversiones Tocopilla Ltda. is a holding company in which Inversora Eléctrica Andina S.A. (a consortium of Powerfin S.A. of Belgium, Iberdrola S.A. of Spain and Enagas S.A. of Chile) has a 51% interest and Codelco 49%.

The principal business of Electroandina S.A., a publicly traded company, is the generation, transmission and distribution of electric energy in Region II of Chile. Inversiones Tocopilla Ltda. holds 65.2% and Codelco holds 34.8%. The main assets of Electroandina S.A. were acquired from the Company's former Tocopilla Division.

Sociedad Contractual Minera El Abra Sociedad Contractual Minera El Abra was formed in 1994 by Codelco (49%) and Cyprus El Abra Company (51%), with Cyprus Amax Minerals Company as a guarantor, both linked to the Phelps Dodge mining consortium, to develop and exploit the El Abra deposit.

Codelco's investment in the project consisted of the contribution of a number of mining properties. The financing agreements for the project became effective June 15, 1995 and include the following obligations during the term of the agreements: simplified notes to the financial statements 119

For the years ended december 31, 2003 and 2002 a) A long-term trading agreement with Codelco Services Ltd. for part of the production of El Abra. CODELCO b) The commitment from the partners to maintain majority ownership of the property of Sociedad Contractual Minera El Abra. c) A pledge on the ownership rights of Sociedad Contractual Minera El Abra in favor of the lending institutions.

Biosigma S.A. Biosigma S.A. is a non-public limited liability company which was formed by Codelco and Nippon Mining & Metals Co. Ltd. with shareholdings of 66.67% and 33.33%, respectively.

Biosigma S.A. was formed on May 31, 2002 and its business objective is the commercial development of process and technology for mining purposes.

Inversiones Mejillones S.A. Inversiones Mejillones S.A. was formed on March 20, 2002, with direct ownership of 34.8% by Codelco and 65.2% by Inversiones Tocopilla Ltda.. Codelco owns 49% of the capital of Inversiones Tocopilla Ltda.

Inversiones Mejillones S.A., was formed with the objective of acquiring 82.34% of the shares of Empresa Eléctrica del Norte S.A. (Edelnor), rescheduling its financial obligations and coordinating the operations of Electroandina S.A. (of which Codelco and Inversiones Tocopilla Ltda. are partners) and Edelnor S.A.

Fundición Talleres S.A. Fundición Talleres S.A. is a non-public limited liability company, which was formed on October 1, 2003, by Codelco and Elaboradora de Cobre Chilena Ltda., with shareholdings of 99.9999% and 0.0001%, respectively.

Sociedad Contractual Minera Purén Sociedad Contractual Minera Purén was formed on September 23, 2003 by Codelco and Compañía Minera Mantos de Oro, with shareholdings of 35% and 65%, respectively.

The company's objective is the exploration, prospecting, research, developing and exploitation of mining projects.

Additional information on unrealized gains The Company has recorded unrealized gains on the contribution of mining properties, property, plant and equipment and ownership rights.

The most significant transactions are detailed as follows:

- Sociedad Contractual Minera El Abra The Company contributed mining rights to Sociedad Contractual Minera El Abra in 1994. At December 31, 2003, a gain of ThUS$20,289 (ThUS$6,937 in 2002) was recognized.

- Electroandina S.A. This is an unrealized gain on the contribution of fixed assets in 1996. The gain will be recognized over ten years through 2006. At December 31, 2003, again of ThUS$18,159 (ThUS$18,159 in 2002) was recognized.

- Inversiones Tocopilla Ltda. This is an unrealized gain on the initial contribution of ownership rights in 1996. The gain will be recognized over ten years through 2006. At December 31, 2003, a gain of ThUS$6,531 (2002, ThUS$6,531) was recognized. 120 simplified notes to the financial statements

For the years ended december 31, 2003 and 2002 CODELCO NOTE 09 - SHORT-TERM DEBT DUE TO BANKS AND FINANCIAL INSTITUTIONS The detail is the following (in thousands of US Dollars):

- Short-term obligations Bank or financial institution Total 2003 2002

San Paolo IMI SpA 45,033 25,116 Banco Bilbao Vizcaya 50,029 - The Bank of Tokio-Mitsubishi - 35,117 The Royal Bank of Canada 50,039 50,526 Toronto Dominion Bank - 35,000 ANZ Bank 45,013 - Dresdner Bank 30,027 - SCH Overseas Bank Inc. 100,052 - Banco Santander Santiago 30,014 - Banco de Chile 80,062 30,069 ABN AMRO Bank (Chile) - 30,189 Others 35,900 2,652

Total 466,169 208,669

Principal outstanding 465,900 207,652

Annual average interest rate 1.45% 1.99% Percentage of obligations in foreign currency (1) 100.00 100.00

- Current portion of long-term obligations

Bank or financial institution Total 2003 2002

JP Morgan - The Chase Manhattan Bank 200,828 276,806 Citibank NA 167 - BNP PARIBAS 2,107 -

Totales 203,102 276,806

Principal outstanding 200,000 275,000

Annual average interest rate 1.64% 1.70% Percentage of obligations in foreign currency (1) 100.00% 100.00% simplified notes to the financial statements 121

For the years ended december 31, 2003 and 2002 CODELCO NOTE 10 - BANKS AND FINANCIAL INSTITUTIONS - LONG-TERM These obligations accrue interest at variable rates based on Libor (in thousands of US Dollars):

Bank or financial institution 2003 2002 Years to maturity

JP Morgan - The Chase Manhattan Bank 100,000 300,000 2005 Citibank NA 300,000 300,000 2006 BNP PARIBAS 300,000 - 2008

TOTAL 700,000 600,000

Annual average interest rate 1.66% 1.83% Percentage of obligations in foreign currency (1) 100.00% 100.00%

NOTE 11 - SHORT AND LONG-TERM BONDS PAYABLE On May 4, 1999, the Company issued and placed bonds in the North American market, under Regulation 144-A, for a nominal amount of ThUS$300,000. These bonds mature in a single installment on May 1, 2009, at an interest rate of 7.375% per annum with interest paid semi-annually. At December 31, 2003 and 2002, the current liability for each year is accrued interest was ThUS$3,688 and ThUS$3,667, respectively.

On November 18, 2002, the Company issued and placed bonds in the domestic market, under the regulations of the Superintendence of Securities and Insurance. This bond was issued for nominal amount of UF 7,000,000, (at December 31, 2003 and 2002, equivalent to ThUS$199,461 and ThUS$162,643, respectively) of a single series denominated A Series, and is represented by 70,000 certificates of UF 100 each. These bonds are repayable in a single installment on September 1, 2012, at an interest rate of 4.0% per annum with interest paid semi-annually. At December 31, 2003 and 2002, the current liability for each year's accrued interest was ThUS$2,633 and ThUS$2,212, respectively.

On November 30, 2002, the Company issued and placed bonds in the North American market, under Regulation 144-A, for a nominal amount of ThUS$435,000. These bonds mature in a single installment on November 30, 2012, at an interest rate of 6.375% per annum with interest paid semi-annually. At December 31, 2003 and 2002, the current liability for each year's accrued interest was ThUS$2,311 and ThUS$2,374, respectively.

On October 15, 2003, the Company issued and placed bonds in the North American market, under Regulation 144-A, for a nominal amount of ThUS$500,000. These bonds are repayable in a single installment on October 15, 2013, at an interest rate of 5.5% per annum with interest paid semi-annually. At December 31, 2003, the current liability for accrued interest was ThUS$6,875. 122 simplified notes to the financial statements

For the years ended december 31, 2003 and 2002 CODELCO NOTE 12 - ACCRUALS The composition of long-term accruals is as follows (in thousands of US Dollars):

Item 2003 2002

Staff severance indemnities 453,363 363,456 Payroll 35,313 28,312 Environmental exit costs 72,331 71,728 Contingencies 28,106 67,239 Accrual for equity in losses of related companies 7,153 20,353 Healthcare programs 38,817 3,283

Total 635,083 554,371

The changes in the accrual for severance indemnities is summarized as follows (in thousands of US Dollars):

Long-term Movements 2003 2002

Balance as of January 1 363,456 370,594 Provision for the year (including effects for variations in exchange rates) 120,129 4,659 Transfer to current (30,222) (11,797)

Total 453,363 363,456

NOTE 13 - EQUITY The Company was formed by D.L. No. 1,350 dated 1976, which establishes that all net income generated by the Company goes to the benefit of the Chilean Government after deducting amounts that, by a charge to net earnings for each year, must be maintained in Other Reserves as established in Article Six of D.L. N° 1,350, dated 1976, as well as included in propositions made by the Board of Directors to the Ministry of Mining and the Ministry of Finance.

The composition of Other Reserves is as follows (in thousands of US Dollars):

Detail Year Accumulated

Capitalization of net income (Exempt Decree Ministry of Mining and Treasury Department) 16,348 609,051 Cumulative translation adjustment – subsidiaries 49,124 33,772 Housing programs - 35,100 Technical appraisal revaluation reserve - D.L. N°3,648 - 624,568

Balance of other reserves as of December 31, 2003 65,472 1,302,491 simplified notes to the financial statements 123

For the years ended december 31, 2003 and 2002 CODELCO Changes in equity are detailed as follows (in thousands of US Dollars):

2003 2002 Movements Paid-in Other Profits Net income Paid-in Other Profits Net income capital reserves distribution for the year capital reserves distribution for the year

Beginning balance - January 1, 2002 1,524,423 1,237,019 (76,853) 48,476 1,524,423 1,226,797 (76,853) 25,574 Recording of reserves and/or income in equity as required - 16,348 32,128 (48,476) - 25,574 - (25,574) Net changes in equity in subsidiaries and affiliated companies - 49,124 - - - (15,352) - - Net income for the year - - - 89,230 - - - 48,476 Profits distribution to the Chilean Treasury - - (50,000) - - - - -

Total 1,524,423 1,302,491 (94,725) 89,230 1,524,423 1,237,019 (76,853) 48,476

NOTE 14 - NON-OPERATING INCOME AND EXPENSES Non-operating income and expenses are detailed as follows (in thousands of US Dollars): a) Non-operating income

2003 2002

Miscellaneous sales 5,186 5,031 Services 10,131 7,925 Realized gain on contributions to companies 44,980 43,625 Other 37,059 49,553

Total 97,356 106,134 b) Non-operating expenses:

2003 2002

Export tax (Law N° 13,196) 248,807 240,071 Severance indemnities 14,770 20,783 Contingency accruals 12,000 12,000 Retirement plans 29,430 11,478 Other 156,259 154,015

Total 461,266 438,347 124 simplified notes to the financial statements

For the years ended december 31, 2003 and 2002 CODELCO NOTE 15 - FOREIGN CURRENCY TRANSLATION Assets and liabilities, traded in original currencies other than US Dollar, have been translated at the year-end exchange rate resulting in a net credit to income for the asset accounts of ThUS$49,106 (2002: a charge of ThUS$9,818). A charge to income of ThUS$125,685 (2002: a credit of ThUS$43,605) has been made for the liability accounts.

NOTE 16 - DERIVATIVE CONTRACTS The Company holds contracts for pricing operations. Such contracts add up to 711 MTMF (thousands of metric tons of fine copper) (461 MTMF for sales contracts and 250 MTMF for production contracts), out of which -at the financial year-end- 580 MTMF are protected (330 MTMF for sales contracts and 250 MTMF for production contracts), and mature in June 2005, with a positive exposure of ThUS$13,561.

In addition, it has hedging operations against exchange rate variations, for ThUS$166,258, out of which ThUS$1,776 mature in January 2004 and ThUS$164,482 in November 2012; both present a positive exposure of ThUS$18,091.

Also, at December 31, 2003, the Company has contracts in place to fix the interest rate of US Dollars denominated debt obligations with banks and financial institutions for ThUS$300,000. A negative exposure of ThUS$8,923 has been determined on these contracts at December 31, 2003. Deferred payments under these contracts amounted to ThUS$46,945 in 2003 and ThUS$58,610 in 2002, which are presented in other under other assets and are amortized over, the term of the respective obligations, from January 2004 to September 2008.

NOTE 17 - COMMITMENTS AND CONTINGENCES

Lawsuits Codelco is involved in various pending legal actions initiated by, or against, the Company which are derived from the inherent nature of the industry in which the Company operates. In general, these lawsuits are from civil, tax, labor and mining actions, all of which are related to the Company's operating activities.

In the Company's management's and legal advisors' opinion, these lawsuits do not represent significant loss contingencies. In addition, with respect to all such lawsuits, the Company defends its rights and uses all instances and legal and proceeding resources available.

Other commitments With regard to the shares resulting from the bidding process of the hydroelectric power plants Coya and Pangal, the Company has committed to the final signature of the sale contracts for such assets by April 2004.

The Company, following its cost-reduction programs by way of using modern technologies, has established personnel early severance programs, with benefits that encourage retirement, for which such obligation is recognized through provisions when the employee commits to his/her retirement.

The Company has no restrictions or covenants associated with obligations with banks and financial institutions or with the public.

The Company has obligations with Tesorería General de la República de Chile for Law 18,634 in connection with deferred custom duties of ThUS$99,916 in 2003 (ThUS$134,312 in 2002). simplified notes to the financial statements 125

For the years ended december 31, 2003 and 2002 CODELCO NOTE 18 - SURETIES OBTAINED FROM THIRD PARTIES The Company has received a number of guarantees that mainly cover obligations of suppliers and contractors related to various projects under development. Considering the large number of guarantees received as of December 31, 2003 and 2002 and the many suppliers and contractors involved, the amounts covered are presented by Division as follows (in thousands of US Dollars):

División 2003 2002

Andina 7,013 5,182 Codelco Norte 97,864 132,090 Head Office 20,610 51,318 Salvador 9,371 25,442 El Teniente 69,235 70,677

Totals 204,093 284,709

NOTE 19 - ASSETS AND LIABILITIES IN LOCAL AND FOREIGN CURRENCIES At December 31, 2003, the Company has assets transacted in local currency for ThUS$568,335 (2002: ThUS$475,325) and liabilities for ThUS$839,488 (2002: ThUS$643,601).

NOTE 20 - SANCTIONS Codelco, its Directors and Management have not been subject to sanctions applied by the Superintendence of Securities and Insurance or other administrative authorities.

NOTE 21- ENVIRONMENT The practice of exploration and recognition of new resources, which are environmentally sustainable, has been a significant concern for the Company. Consequently, since 1998 the Company defined its environmental commitments, which are controlled through an environmental management system for explorations that has been improved over time to conform to the worldwide standard ISO 14001, which has assisted in the geology, geochemical, geophysical and soundings work directed towards exploration of mineral resources both in Chile and abroad.

At December 31, 2003, Codelco Norte, made up of the Chuquicamata and Radomiro Tomic, Andina, El Salvador and Teniente Divisions, had received ISO 14001 certification. The Parent Company and exploration management also received ISO 14001 certification. Exploration management received the certification separately for the relevance and impact of its activities on the environment.

In accordance with this policy, in 2003 the Company has made investments, identifiable with the environmental theme, which amount to ThUS$39,015 (2002: ThUS$93,066).

NOTE 22 - SUBSEQUENT EVENTS On January 23, 2004, Codelco transferred 60% of Fundición Talleres S.A.'s shares to Compañía Electro Metalúrgica S.A., thus remaining as a minority shareholder with 40% of shares, without implying significant results for the Company.

On January 29, 2004, Codelco, Suez Tractebel S.A. and Tractebel Andino S.A. signed an agreement that regulates certain aspects of the reorganization plan of their electrical assets in the Big North Interconnected System with the aim of materializing, during 2004, an overall partnership restructuring that involves Electroandina S.A., Edelnor S.A., Gasoducto Nor Andino S.A. and Gasoducto Nor Andino (Argentina) S.A, among other companies. 126 simplified notes to the financial statements

For the years ended december 31, 2003 and 2002 CODELCO The agreement establishes the essential steps to be taken and the periods for each of them to be performed in order to materialize the proposed restructuring.

The Company's management has no knowledge of other significant events of a financial nature or any other nature, occurring between December 31, 2003 and the date of issuance of these financial statements which may affect them.

Juan Villarzú Rohde Francisco Tomic Errázuriz Chief Executive Officer Corporate Vice President of Human Development and Finance

Patricio Mac-Niven Silva Mario Allende Gallardo Corporate Manager Accounting Manager Of Shared Services financial analysis of the stand alone financial statements 127 CODELCO The purpose of the following section is to analyze and to explain the material fluctuations which occurred in the stand-alone financial statements of the Corporación Nacional del Cobre de Chile between the financial position as for December 31, 2003 and 2002 and between the statement of operations for the respective periods then ended. A summary of the information contained in such statements is shown below.

Summary of the financial ratios of the Company (all figures are expressed in thousands of United States dollars):

Balance Sheets 31.12.2003 31.12.2002 Variation Ratio Ratio %

Liquidity Current assets/Current liabilities 1.37 1.17 18% (Current assets-Inventories-Prepaid expenses)/Current liabilities 0.71 0.68 4%

Debt Total liabilities/Equity (times) 1.83 1.44 26% Current liabilities/Total liabilities 0.25 0.25 0% Long-term liabilities/Total liabilities 0.75 0.75 0%

Activity Accounts receivable turnover 10.00 14.72 -32% Accounts receivable turnover in days 36 24 50% Inventories turnover 2.78 5.05 -45% Inventory in days 129 71 82%

Profitability (income after taxes) Assets % 1.12 0.73 54% Equity % 3.16 1.77 78% Return on operational assets % (2) 1.19 0.76 57%

ThUS$ ThUS$

Current liabilities 5,155,520 3,948,416 Income before taxes and Law 13.196 607,440 369,455

Income statements 31.12.2003 31.12.2002 ThUS$ ThUS$

Sales 3,348,235 3,121,022 Costs of sales (2,357,435) (2,416,764) Gross margin 837,450 560,676 Non-operating expenses-net (including Law 13.196) (478,817) (431,292) Financial expenses (104,919) (76,152) Depreciation (373,812) (388,323) 128 financial analysis of the stand alone financial statements CODELCO Income statements 31.12.2003 31.12.2002 ThUS$ ThUS$

Amortization (87,680) (97,121) R.A.I.I.E. 358,633 129,384 Law Nº 13,196 (248,807) (240,071) Tax income (269,403) (80,908) Income after taxes 89,230 48,476 R.A.I.I.D.A.I.E. (1) 925,044 690,980

Equity Equity 2,821,419 2,733,065 Net fixed assets 5,127,607 4,831,107 Total assets 7,976,939 6,681,481

Income/Loss due to USD Not applicable Not applicable

31.12.2003 31.12.2002 MFT MFT

Volume of physical sales (own and third parties' copper) 1,647,139 1,817,300

(1) R.A.I.I.D.A.I.E.: Results before taxes, interests, depreciation, amortization and extraordinary items. (2) Operational assets includes total assets less investments in related and in other companies

Analysis of differences between book value and economic value Deposits owned by the Company are recognized at the value of US$1 each due to the copper nationalization process. Under these terms, the economic value of these deposits differs from the value accounted.

The above results in the understatement of the equity and assets in relation to its economic value.

Analysis of the market variations At December 31, 2003, the markets in which the Company sells its products have not undergone major changes.

Analysis of the balance sheets As of December 31, 2003, the current liquidity ratio shows an increase compared to the previous period due to the net increase of current assets (increase of trade receivables, inventories and taxes recoverable and the decrease of time deposits abroad) over the net increase of current liabilities (increase of short-term borrowing from banks and financial institutions)

In the 2003, current assets increased to ThUS$ 1,780,669 (ThUS$ 1,172,185 in 2002) and is mainly composed of inventories of ThUS$847,395 (48%), taxes recoverable of ThUS$351,772 (20%), trade receivables of ThUS$334,884 (19%), sundry debtors for ThUS$125,072 (7%) and the remainder relates to other current assets. financial analysis of the stand alone financial statements 129 CODELCO As of December 31, 2003, net fixed assets amount toThUS$5,127,607 (in 2002 amounts to ThUS$4,831,107) and is composed mainly of buildings and infrastructure for ThUS$ 6,026,437, machinery and equipment of ThUS$ 5,373,072 net of accumulated depreciation of ThUS$6,731,089; other accounts make up the remainder of the difference.

Fixed assets (gross) increased by ThUS$392,827 between the periods 2003 and 2002. The increase is mainly explained by purchases of buildings and infrastructure of ThUS$301,973. Depreciation and amortization for the year 2003 amounted to ThUS$461,492.

As of December 31, 2003, current liabilities amount to ThUS$ 1,296,251 (ThUS$1,003,389 in 2002) and are composed of bank loans for ThUS$669,271 (52%), accounts payable for ThUS$286,399 (22%), accruals for ThUS$192,219 (15%) and other sundry creditors.

As of December 31, 2003, long-term liabilities reached ThUS$3,859,269 (ThUS$ 2,945,027 in 2002) and is mainly composed of bank loans and bonds obligations for ThUS$2,134,461 (55%), deferred taxes for ThUS$1,035,509 (27%) and accrual provisions for ThUS$ 635,083 (16%).

These figures determine the ratios and variations shown in the previous pages.

As of December 31 2003, equity is ThUS$2,821,419 (ThUS$2,733,065 in 2002).

As of December 31 2003, the total debt of the Company amounts to ThUS$5,155,520 (ThUS$3,948,416 in 2002); this results in a debt ratio for 2003 of 1.83 times (1.44 times in 2002). The increase is mainly explained by the increase of short-term bank and financial institution debt and long-term bank loans and bonds obligations.

Analysis of the income statements The operating income at December 31, 2003 reached ThUS$837,450, which is 49.4% greater than the prior period (ThUS$560,676). Sales reached ThUS$3,348,235, which is 7.3% greater than the prior period, mainly due to the net effect of a higher price for cathodes of 14.3% quoted at LME as compared with prior period and lower sales in metric tons of 10.3%.

Then selling price of Codelco's mix (own and third parties') for the year 2003 reached US$0.805 per pound (US$0.697 in 2002).

In November 2002, the Company's Board of Directors approved the assigment of 200,000 tons of fine copper production for 2003 for its strategic stock. Codelco decided to store such material at its facilities and not to offer it to the market, while the stock in London, New York and Shanghai Metal Exchange was over 800,000 tons of fine copper. The effect of this decision explains the increase in the inventory.

In 2003, the following fluctuations ocurred:

Total sales reached ThUS$3,348,235, of which ThUS$2,924,034 (87.3%) relates to copper and the difference in by-products and others.

Regarding the sales of Codelco's own and third parties' copper, in 2003, these reached 1,647,139FMT (1,817,300 FMT in 2002).

The cost of sales amounted ThUS$2,357,435, of which ThUS$2,101,600 (89.2%) corresponds to the cost of copper and the difference to by-products and others.

Non-operating expenses - net amounted ThUS$478,817 (ThUS$431,292 in 2002). In 2003, other expenses amounted to ThUS$461,266 (96%) and include ThUS$248,807 (54%) of Law N° 13,196, which includes the return on copper and by-products exports of 10%. 130 financial analysis of the stand alone financial statements CODELCO

The profits of Codelco in 2003 (before income tax, extraordinary items and Law Nº 13,196) reached ThUS$607,440 above ThUS$369,456 in 2002 due to a greater operating income of ThUS$276,774.

As a consequence, the income before income taxes and extraordinary items amounted to ThUS$358,633 and net income for the year reached ThUS$89,230.

Analysis of the statement of cash flows The net cash flow from operating activities for the year ended as of December 31, 2003 was a positive flow of ThUS$144,691, 75.61% lower than the prior period (ThUS$593,123) as a result of an increase in payment to suppliers, personnel and income tax.

Also, the net cash flow from financing activities for the year ended as of December 31, 2003 was a positive flow of ThUS$700,000 compared to ThUS$487,643 in 2002. This is mainly due to the increase in banks loans and bonds obligations and the decrease of the payments for bank loans.

Finally, the net cash flow from investment activities was a negative flow of ThUS$945,937 in 2003 (ThUS$ 963,552 in 2002) in keeping with the trend of the prior year.

Taking into account the cash flows mentioned above for the years ended as of December 31, 2003 and 2002 plus the balance of cash and cash equivalents at the beginning of the year, the final cash and cash equivalents amounted to ThUS$42,691 which is lower than year 2002 (ThUS$143,937) which decrease can be explained by the variations from operating and financing activities. independent auditor´s report 131 CODELCO

To the Chairman and Members of the Board of Directors of Corporación Nacional del Cobre de Chile

We have audited the accompanying divisional statements of income of Corporación Nacional del Cobre de Chile for the year ended December 31, 2003. The divisional statements of income are the responsibility of the management of Corporación Nacional del Cobre de Chile. Our responsibility is to express an opinion on the divisional statements of income based on our audit. The divisional statements of income are derived from the consolidated financial statements and the statement of allocation of controlled income and expenses of Corporación Nacional del Cobre de Chile’s Head office and Subsidiaries for the year ended December 31, 2003, which, based on our audit and the reports of the other auditors, who audited certain affiliates and subsidiaries, we have expressed an unqualified opinion under the same date of this report. The divisional statements of income of Corporación Nacional del Cobre de Chile at December 31, 2002, were audited by other auditors, who expressed an unqualified opinion on thereon in their report dated February 28, 2003.

We conducted our audit in accordance with auditing standards generally accepted in Chile. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the divisional statements of income are free of material misstatements. An audit includes examining, on a test basis, evidences supporting the amounts and disclosures in the divisional statements of income. An audit also includes assessing the accounting principles used and the significant estimates made by the Corporation, as well as evaluating the overall presentation of the divisional statements of income. We believe that our audit provides a reasonable basis for our opinion.

The accompanying divisional statements of income have been prepared in compliance with the Corporation’s statutes, in conformity with accounting principles generally accepted in Chile and the bases described in Notes 1 and 2 thereto.

In our opinion, based on our audit and the reports of other auditors, such divisional statements of income for 2003 present fairly, in all material respects, the results of operations of Corporación Nacional del Cobre de Chile’s Divisions for the year ended December 31, 2003, in conformity with accounting principles generally accepted in Chile and the bases described in Notes 1 and 2 thereto.

Our audit was conducted for the purpose of expressing an opinion on divisional statements of income for 2003. The accompanying divisional consolidated income statement for 2003 is presented for the purposes of additional analysis. This additional information has been subjected to the auditing procedures applied in our audit of the divisional statements of income and, in our opinion, is fairly stated, in all material respects, in relation to the divisional statements of income taken as a whole.

The accompanying divisional statements of income have been translated into English for the convenience of readers outside Chile.

Mario Muñoz V. February 6, 2004 132 divisional statements of income codelco norte

For the years ended december 31, 2003 and 2002 (In thousands of U.S. Dollars - ThUS$) CODELCO 2003 2002

Sales of own products 1,387,656 1,468,622 Sales of copper acquired from third parties 353,719 454,530 Sales of products from other Divisions and by - products 464,835 309,217 ncome from transfers 28,706 10,933

Total revenue 2,234,916 2,243,302

Cost of sales of own products (834,747) (1,024,437) Cost of sales of copper acquired from third parties (346,993) (436,870) Cost of sales of products from other Divisions (296,932) (188,452) Cost of sales from transfers (81,450) (45,100)

Total costs (1,560,122) (1,694,859)

Gross margin 674,794 548,443 Administrative and selling expenses (94,684) (93,058)

OPERATING INCOME 580,110 455,385

NON-OPERATING INCOME (EXPENSES) (256,111) (253,051)

Financial income 3,826 4,808 Equity in income of related companies 35,707 (95) Other income 48,110 57,847 Equity in losses of related companies (3,790) (23,893) Financial expenses (58,632) (43,845) Other expenses (245,522) (260,296) Price-level restatement (130) 133 Foreign currency translation (35,680) 12,290

INCOME BEFORE INCOME TAX 323,999 202,334

Income tax (238,647) (118,917)

INCOME BEFORE MINORITY INTEREST 85,352 83,417

MINORITY INTEREST 490 942

NET INCOME FOR THE YEAR 85,842 84,359

The accompanying notes 1 and 2 are an integral part of these statements. divisional statements of income salvador 133

For the years ended december 31, 2003 and 2002 (In thousands of U.S. Dollars - ThUS$) CODELCO 2003 2002

Sales of own products 220,314 137,633 Sales of copper acquired from third parties 34,660 52,140 Sales of products from other Divisions and by - products 99,802 148,854 Income from transfers 13,801 104

Total revenue 368,577 338,731

Cost of sales of own products (240,258) (170,457) Cost of sales of copper acquired from third parties (34,356) (49,435) Cost of sales of products from other Divisions (63,491) (130,563) Cost of sales from transfers (21,320) (9,306)

Total costs (359,425) (359,761)

Gross margin 9,152 (21,030) Administrative and selling expenses (16,788) (15,124)

OPERATING LOSS (7,636) (36,154)

NON-OPERATING INCOME (EXPENSES) (44,550) (38,320)

Financial income 934 1,091 Equity in income of related companies 6,091 102 Other income 12,795 15,293 Equity in losses of related companies (622) (7,335) Financial expenses (11,608) (7,283) Other expenses (45,935) (41,487) Price-level restatement (21) 20 Foreign currency translation (6,184) 1,279

LOSS BEFORE INCOME TAX (52,186) (74,474)

Income tax 35,806 40,750

LOSS BEFORE MINORITY INTEREST (16,380) (33,724)

MINORITY INTEREST 80 143

NET LOSS FOR THE YEAR (16,300) (33,581)

The accompanying notes 1 and 2 are an integral part of these statements. 134 divisional statements of income andina

For the years ended december 31, 2003 and 2002 (In thousands of U.S. Dollars - ThUS$) CODELCO 2003 2002

Sales of own products 355,168 210,382 Sales of copper acquired from third parties 115,026 94,404 Sales of products from other Divisions and by - products 47,930 21,936 Income from transfers 54,641 83,282

Total revenue 572,765 410,004

Cost of sales of own products (251,762) (191,530) Cost of sales of copper acquired from third parties (114,430) (89,710) Cost of sales of products from other Divisions (29,509) (13,192) Cost of sales from transfers (50,578) (88,432)

Total costs (446,279) (382,864)

Gross margin 126,486 27,140 Administrative and selling expenses (16,880) (16,870)

OPERATING INCOME 109,606 10,270

NON-OPERATING INCOME (EXPENSES) (50,192) (28,811)

Financial income 768 958 Equity in income of related companies 9,186 (25) Other income 10,601 11,049 Equity in losses of related companies (1,089) (3,183) Financial expenses (11,485) (9,332) Other expenses (50,577) (36,254) Price-level restatement (33) 24 Foreign currency translation (7,563) 7,952

INCOME (LOSS) BEFORE INCOME TAX 59,414 (18,541)

Income tax (44,529) 9,008

INCOME (LOSS) BEFORE MINORITY INTEREST 14,885 (9,533)

MINORITY INTEREST 125 173

NET INCOME (LOSS) FOR THE YEAR 15,010 (9,360)

The accompanying notes 1 and 2 are an integral part of these statements. divisional statements of income el teniente 135

For the years ended december 31, 2003 and 2002 (In thousands of U.S. Dollars - ThUS$) CODELCO 2003 2002

Sales of own products 472,765 406,491 Sales of copper acquired from third parties 115,456 127,628 Sales of products from other Divisions and by - products 94,399 35,169 Income from transfers 284,959 265,096

Total revenue 967,579 834,384

Cost of sales of own products (378,970) (343,782) Cost of sales of copper acquired from third parties (114,564) (119,372) Cost of sales of products from other Divisions (48,060) (8,380) Cost of sales from transfers (228,759) (216,577)

Total costs (770,353) (688,111)

Gross margin 197,226 146,273 Administrative and selling expenses (36,192) (32,621)

OPERATING INCOME 161,034 113,652

NON-OPERATING INCOME (EXPENSES) (117,957) (93,718)

Financial income 3,210 2,616 Equity in income of related companies 15,423 22 Other income 29,010 25,220 Equity in losses of related companies (1,635) (14,301) Financial expenses (23,892) (16,445) Other expenses (116,333) (102,897) Price-level restatement (56) 49 Foreign currency translation (23,684) 12,018

INCOME BEFORE INCOME TAX 43,077 19,934

Income tax (33,845) (12,964)

INCOME BEFORE MINORITY INTEREST 9,232 6,970

MINORITY INTEREST 211 350

NET INCOME FOR THE YEAR 9,443 7,320

The accompanying notes 1 and 2 are an integral part of these statements. 136 divisional statements of income talleres

For the years ended december 31, 2003 and 2002 (In thousands of U.S. Dollars - ThUS$) CODELCO 2003 2002

Sales of own products - - Sales of copper acquired from third parties - - Sales of products from other Divisions and by - products 20,056 22,873 Income from transfers - -

Total revenue 20,056 22,873

Cost of sales of own products (27,137) (20,762) Cost of sales of copper acquired from third parties - - Cost of sales of products from other Divisions - - Cost of sales from transfers - -

Total costs (27,137) (20,762)

Gross margin (7,081) 2,111 Administrative and selling expenses (2,730) (2,003)

OPERATING INCOME (LOSS) (9,811) 108

NON-OPERATING INCOME (EXPENSES) (6,838) (698)

Financial income - - Equity in income of related companies - - Other income 926 707 Equity in losses of related companies - - Financial expenses (225) (141) Other expenses (7,142) (631) Price-level restatement - - Foreign currency translation (397) (633)

LOSS BEFORE INCOME TAX (16,649) (590)

Income tax 11,884 328

LOSS BEFORE MINORITY INTEREST (4,765) (262)

MINORITY INTEREST - -

NET LOSS FOR THE YEAR (4,765) (262)

The accompanying notes 1 and 2 are an integral part of these statements. consolidated divisional statements of income 137

years ended december 31, 2002 (In thousands of U.S. Dollars - ThUS$) CODELCO CODELCO NORTE SALVADOR ANDINA EL TENIENTE TALLERES CONSOLIDATED ADJUSTMENTS TOTAL

Sales of own products 1,468,622 137,633 210,382 406,491 - 2,223,128 - 2,223,128 Sales of copper acquired from third parties 454,530 52,140 94,404 127,628 - 728,702 - 728,702 Sales of by-products 92,707 6,590 2,961 35,169 22,873 160,300 - 160,300 Sales of products from Divisions 216,510 142,264 18,975 - - 377,749 - 377,749 Income from transfers 10,933 104 83,282 265,096 - 359,415 (359,415) -

TOTAL REVENUE 2,243,302 338,731 410,004 834,384 22,873 3,849,294 (359,415) 3,489,879

Cost of sales of own products (1,024,437) (170,457) (191,530) (343,782) (20,762) (1,750,968) - (1,750,968) Cost of sales of copper acquired from third parties (436,870) (49,435) (89,710) (119,372) - (695,387) - (695,387) Cost of sales of products from other Divisions (188,452) (130,563) (13,192) (8,380) - (340,587) - (340,587) Cost of sales from transfers (45,100) (9,306) (88,432) (216,577) - (359,415) 359,415 -

TOTAL COSTS (1,694,859) (359,761) (382,864) (688,111) (20,762) (3,146,357) 359,415 (2,786,942)

GROSS MARGIN 548,443 (21,030) 27,140 146,273 2,111 702,937 - 702,937

Less: Administrative and selling expenses (93,058) (15,124) (16,870) (32,621) (2,003) (159,676) - (159,676)

OPERATING INCOME (LOSS) 455,385 (36,154) 10,270 113,652 108 543,261 - 543,261

NON-OPERATING INCOME (EXPENSES)

More (less): Financial income 4,808 1,091 958 2,616 - 9,473 - 9,473 Equity in income of related companies (95) 102 (25) 22 - 4 - 4 Other income 57,847 15,293 11,049 25,220 707 110,116 - 110,116 Equity in losses of related companies (23,893) (7,335) (3,183) (14,301) - (48,712) - (48,712) Financial expenses (43,845) (7,283) (9,332) (16,445) (141) (77,046) - (77,046) Other expenses (260,296) (41,487) (36,254) (102,897) (631) (441,565) - (441,565) Price-level restatement 133 20 24 49 - 226 - 226 Foreign currency translation 12,290 1,279 7,952 12,018 (633) 32,906 - 32,906

NON-OPERATING INCOME (EXPENSES) (253,051) (38,320) (28,811) (93,718) (698) (414,598) - (414,598)

INCOME (LOSS) BEFORE INCOME TAX 202,334 (74,474) (18,541) 19,934 (590) 128,663 - 128,663

Income tax (118,917) 40,750 9,008 (12,964) 328 (81,795) - (81,795)

NET INCOME (LOSS) BEFORE MINORITY INTEREST 83,417 (33,724) (9,533) 6,970 (262) 46,868 - 46,868

MINORITY INTEREST 942 143 173 350 - 1,608 - 1,608

NET INCOME (LOSS) FOR THE YEAR 84,359 (33,581) (9,360) 7,320 (262) 48,476 - 48,476 138 consolidated divisional statements of income

years ended december 31, 2003 (In thousands of U.S. Dollars - ThUS$) CODELCO CODELCO NORTE SALVADOR ANDINA EL TENIENTE TALLERES CONSOLIDATED ADJUSTMENTS TOTAL

Sales of own products 1,387,656 220,314 355,168 472,765 - 2,435,903 - 2,435,903 Sales of copper acquired from third parties 353,719 34,660 115,026 115,456 - 618,861 - 618,861 Sales of by-products 181,320 51,993 28,186 82,578 20,056 364,133 - 364,133 Sales of products from Divisions 283,515 47,809 19,744 11,821 - 362,889 - 362,889 Income from transfers 28,706 13,801 54,641 284,959 - 382,107 (382,107) -

TOTAL REVENUE 2,234,916 368,577 572,765 967,579 20,056 4,163,893 (382,107) 3,781,786

Cost of sales of own products (834,747) (240,258) (251,762) (378,970) (27,137) (1,732,874) - (1,732,874) Cost of sales of copper acquired from third parties (346,993) (34,356) (114,430) (114,564) - (610,343) - (610,343) Cost of sales of products from other Divisions (296,932) (63,491) (29,509) (48,060) - (437,992) - (437,992) Cost of sales from transfers (81,450) (21,320) (50,578) (228,759) - (382,107) 382,107 -

TOTAL COSTS (1,560,122) (359,425) (446,279) (770,353) (27,137) (3,163,316) 382,107 (2,781,209)

GROSS MARGIN 674,794 9,152 126,486 197,226 (7,081) 1,000,577 - 1,000,577

Less: Administrative and selling expenses (94,684) (16,788) (16,880) (36,192) (2,730) (167,274) - (167,274)

OPERATING INCOME (LOSS) 580,110 (7,636) 109,606 161,034 (9,811) 833,303 - 833,303

NON-OPERATING INCOME (EXPENSES)

Add (less): Financial income 3,826 934 768 3,210 - 8,738 - 8,738 Equity in income of related companies 35,707 6,091 9,186 15,423 - 66,407 - 66,407 Other income 48,110 12,795 10,601 29,010 926 101,442 - 101,442 Equity in losses of related companies (3,790) (622) (1,089) (1,635) - (7,136) - (7,136) Financial expenses (58,632) (11,608) (11,485) (23,892) (225) (105,842) - (105,842) Other expenses (245,522) (45,935) (50,577) (116,333) (7,142) (465,509) - (465,509) Price-level restatement (130) (21) (33) (56) (240) - (240) Foreign currency translation (35,680) (6,184) (7,563) (23,684) (397) (73,508) - (73,508)

NON-OPERATING INCOME (EXPENSES) (256,111) (44,550) (50,192) (117,957) (6,838) (475,648) - (475,648)

INCOME (LOSS) BEFORE INCOME TAX 323,999 (52,186) 59,414 43,077 (16,649) 357,655 - 357,655

Income tax (238,647) 35,806 (44,529) (33,845) 11,884 (269,331) - (269,331)

NET INCOME (LOSS) BEFORE MINORITY INTEREST 85,352 (16,380) 14,885 9,232 (4,765) 88,324 - 88,324

MINORITY INTEREST 490 80 125 211 - 906 - 906

NET INCOME (LOSS) FOR THE YEAR 85,842 (16,300) 15,010 9,443 (4,765) 89,230 - 89,230 basis of preparation of the divisional statements of income 139 CODELCO The divisional statements of income are prepared to comply with statutes of the Corporación, in accordance with accounting principles generally accepted in Chile and the following basis:

NOTE 1 - INTERDIVISIONAL TRANSFERS Interdivisional transfers of products and services were made and recorded at the prices, which are similar to market values. Therefore, the following concepts are included in these divisional statements of income:

- Sales are composed of sales to third parties of products received from other Divisions and income by Division from transfers to other Divisions.

- In accordance with the above, costs of sales are also composed of costs applicable to products received from other Divisions and sold to third parties and costs applicable to income by Division from transfers to other Divisions.

NOTE 2 - ALLOCATION OF CORPORATE INCOME AND EXPENSES Income and expenses of the Head Office and its Subsidiaries were added to direct income and expenses of operating Divisions, in accordance with basis in force established for each year, as stated in the statement of allocation of controlled income and expenses of Head Office and Subsidiaries. 140 CODELCO independent auditor´s report 141 CODELCO

To the Chairman and Members of the Board of Directors of Corporacion Nacional del Cobre de Chile

We have audited the accompanying statement of allocation of controlled income and expenses of Corporacion Nacional del Cobre de Chile’s Head office and Subsidiaries for the year ended December 31, 2003. The statement of allocation of controlled income and expenses is the responsibility of the management of Corporacion Nacional del Cobre de Chile. Our responsibility is to express an opinion on this statement of allocation of controlled income and expenses based on our audit. The statement of allocation of controlled income and expenses is derived from the consolidated financial statements of Corporacion Nacional del Cobre de Chile for the year ended December 31, 2003, on which, based on our audit and the reports of the other auditors, who audited certain affiliates and subsidiaries, we have expressed an unqualified opinion under the same date of this report.

We conducted our audit in accordance with auditing standards generally accepted in Chile. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of allocation of controlled income and expenses is free of material misstatements. An audit includes examining, on a test basis, evidences supporting the amounts and disclosures in the statement of allocation of controlled income and expenses. An audit also includes assessing the accounting principles used and the significant estimates made by the Corporation, as well as evaluating the overall presentation of the statement of allocation of controlled income and expenses. We believe that our audit provides a reasonable basis for our opinion.

The accompanying statement of allocation of controlled income and expenses has been prepared in compliance with the Corporation’s statutes, in conformity with the allocation criteria described in Notes 1 to 11 thereto.

In our opinion, based on our audit and the reports of other auditors, such statement of allocation of controlled income and expenses presents fairly, in all material respects, the allocated income and expenses of Corporacion Nacional del Cobre de Chile’s Head office and Subsidiaries for the year ended December 31, 2003, in conformity with the allocation criteria described in Notes 1 to 11 thereto.

The accompanying statement of allocation of controlled income and expenses has been translated into English for the convenience of readers outside Chile.

Mario Muñoz V. February 6, 2004 142 statement of allocation of controlled income and expenses in the head office and subsidiaries to the corporation´s operating divisions For the years ended december 31, 2003(In thousands of U.S. Dollars - ThUS$) CODELCO Administrative, selling, financial and other expenses TOTAL CODELCO NORTE SALVADOR ANDINA EL TENIENTE TALLERES

Sales activities of the Head office and Subsidiaries 607,391 327,997 53,832 83,983 141,579 - Cost of sales of activities of the Head office and Subsidiaries (596,618) (322,180) (52,877) (82,493) (139,068) - Administrative and selling expenses (92,769) (51,220) (9,506) (10,754) (21,199) (90) Financial income 4,985 2,753 539 555 1,138 - Equity in income of related companies 66,165 35,729 5,864 9,149 15,423 - Other income 57,693 30,057 5,722 7,421 14,493 - Equity in losses of related companies (7,018) (3,790) (622) (971) (1,635) - Financial expenses (104,923) (57,930) (11,509) (11,388) (23,871) (225) Other expenses (325,785) (181,146) (32,285) (38,626) (73,728) - Price-level restatement (240) (130) (21) (33) (56) - Foreign currency translation (75,056) (36,459) (6,141) (7,628) (24,445) (383) Income tax (269,331) (238,647) 35,806 (44,529) (33,845) 11,884 Minority interest 906 490 80 125 211 -

Totals (734,600) (494,476) (11,118) (95,189) (145,003) 11,186

The accompanying notes 1 to 11 are an integral part of this statement criteria applied to the allocation of controlled income and 143 expenses of the Head office and subsidiaries CODELCO Income and expenses controlled in the Head office and Subsidiaries are allocated to each operating Division in accordance with criteria set forth for each of the income statement accounts, as follows:

1) Sales and cost of sales of the commercial activities of the Head office and Subsidiaries

- Sales and cost of sales of commercial activities are allocated considering the values of products and by-products billed by each Division.

2) Administrative and selling expenses

2.1 Administrative expenses

- The cost centers identifiable with each Division are directly allocated.

- The cost centers related with the sales function are allocated considering the values billed and accounted for as deliveries of products and by-products of each Division.

- The cost centers related with the procurement function are allocated considering the warehouse accounting balances of each operating Division.

- The remaining cost centers are allocated considering the operating cash expenses of the respective Division.

2.2 Selling expenses

-The costs identifiable with each Division are directly allocated.

- Any remaining selling expense is allocated in accordance with values billed and accounted for as deliveries of products and by-products of each Division.

3) Financial income

- The income associated and identified with each Division are directly allocated.

- Any remaining financial income is allocated considering operating cash income of each Division.

4) Equity in income of related companies

- The income associated and identified with each Division are directly allocated.

- Any remaining income is allocated considering the values of own products and by-products billed by each Division.

5) Other income

- The income associated and identified with each Division are directly allocated.

- Any remaining other income is allocated considering the balances of the item "Other income" of each Division. 144 criteria applied to the allocation of controlled income and expenses of the Head office and subsidiaries CODELCO

6) Equity in losses of related companies

- The loss associated and identified with each Division is directly allocated. - Any remaining loss is allocated considering the values of own products and by-products billed by each Division.

7) Financial expenses

- The expenses associated and identified with each Division are directly allocated.

- Any remaining financial expense is allocated considering operating cash expenses of each Division.

8) Other expenses

8.1 Other expenses

- The expenses associated and identified with each Division are directly allocated.

- Any remaining other expense is allocated considering the balances of the item "Other expenses" of each Division.

8.2 Contribution to the Chilean Government Law N°13.196

The amount of the contribution to the Chilean Government is allocated considering the values billed and accounted for from copper and by-products exports of each Division. The Company makes adjustments for those contributions affecting interdivisional transfer contracts, which are allocated to the source Division of the products.

9) Price-level restatement

The balance of price-level restatement of subsidiaries and affiliates is allocated considering the value of own products billed by each Division.

10) Exchange differences

- The results identifiable with each Division are directly allocated.

- The amount of differences in the liquidation of US dollars into Chilean pesos is allocated in relation to the transfer of funds and payments made by the Head office in the account of each Division.

- Any remaining balance is allocated considering operating cash expenses of each Division.

11) Income taxes

- The applicable amount is allocated to each Division in accordance with the actual calculation determined considering the income before taxes of each Division. summarised financial statements of subsidiaries 145

As of December 31, 2002 (in thousands US dollars)

Chile Codelco Codelco Codelco S.C. CMS Complejo Ejecutor Instituto Asociación Santiago Isapre Isapre Isapre Biosigma Sociedad Compañía CODELCO Copper Kupferhandel Group International Minera Chile Portuario Hospital Elaboradora de Garantizadora de Río Chuquicamata San Río S.A. geotérmica contractual Limite GMBH USA Inc. Limited Picacho S.A. Mejillones del Cobre de Cobre Innovación de Pensiones Grande Ltda. Lorenzo Blanco del Norte Minera and and S.A. S.A. Chilena Ltda en Min. y S.A. Ltda. Ltda. S.A. Los Andes (1) (1) subsidiaries (1) (2) subsidiary (2) Metal S.A. (1) (2) (1) (2)

GENERAL STATEMENT Assets Total current assets 10,460 25,806 881 2,327 100 6,677 4,971 31 12 3,000 666 8 1,608 470 527 1,335 489 - Total fixed assets 40 8 7 147 - 4,345 61,400 - - 27 2 - 2,499 104 3,082 32 1,750 - Total other assets - 2,755 10 10,328 - 18 48 - - 15 - - 1,499 196 144 - 4 -

Total Assets 10,500 28,569 898 12,802 100 11,040 66,419 31 12 3,042 668 8 5,606 770 3,753 1,367 2,243 -

Liabilities Total current liabilities 8,322 8,132 119 210 7 7,919 95 - - 649 7 1 2,905 467 1,195 7 4,116 45 Total long-term liabilities - 248 - 24,156 5 11,272 46,819 - 453 - 15 - 1,054 - 2,087 - - - Minority interest - - - - - (819) ------Total equity 2,178 20,189 779 (11,564) 88 (7,332) 19,505 31 (441) 2,393 646 7 1,647 303 471 1,360 (1,873) (45)

Total liabilities and equity 10,500 28,569 898 12,802 100 11,040 66,419 31 12 3,042 668 8 5,606 770 3,753 1,367 2,243 -

STATEMENT OF RESULTS

Operating results (901) (1,062) 151 (2,962) (793) (1,858) (717) (215) - 91 (73) - (670) (128) (149) (121) (3,111) (8,139) Non-operating results 1,105 2,013 6 (172) (15) (1,167) 687 (5) (823) 44 33 - 700 286 234 - (13) (236) Results before income tax 204 951 157 (3,134) (808) (3,025) (30) (220) (823) 135 (40) - 30 158 85 (121) (3,124) (8,375) Income tax (54) (176) (5) - - (617) 24 - - (20) - - (2) (23) (14) - - - Profit (loss) of exercise 129 775 152 (3,134) (808) (3,642) (6) (220) (823) 115 (40) - 28 135 71 (121) (3,124) (8,375)

CASH FLOW STATEMENTS Net flow provided by operation activities - - 104 (2,265) - 862 (653) (23) - 151 (46) - 815 75 (98) (117) - (7)

Net flow provided by financing activities - - - 15,552 - (735) 14,273 - - (352) 2 - - - 290 1,481 - -

Net flow provided by investment activities - - (2) (14,641) - (459) (13,448) - (10) (422) (6) - (668) (38) (172) (34) - 3

Effect of inflation on cash and cash equivalents - - - 355 - 20 (4) - 9 (37) (6) - 109 2 (1) - - -

Net variation of cash and cash equivalents - - 102 (1,709) - (312) 168 (23) (1) (660) (56) - 256 39 19 1,330 - (4)

(1) It is not prepared statements of cash flows (2) Unaudited financial statements 146 summarised financial statements of subsidiaries

As of December 31, 2003 (in thousands US dollars) CODELCO Chile Codelco Codelco Codelco S.C. CMS Complejo Ejecutor Soc. Instituto Asociación Santiago Isapre Isapre Isapre Biosigma Sociedad Fundición Compañía Copper Kupferhandel Group International Minera Chile Portuario Hospital Elaboradora de Garantizadora de Río Chuquicamata San Río S.A. Geotérmica Talleres Contractual Limite GMBH USA Inc. Limited Picacho S.A. Mejillones del Cobre de Cobre Innovación de Pensiones Grande Ltda. Lorenzo Blanco del Norte S.A. Minera and and S.A. S.A. Chilena Ltda en Min. y S.A. Ltda. Ltda. S.A. Los Andes (1) (1) subsidiaries (1) (2) subsidiary (2) Metal S.A. (2) (1) (1) (2)

GENERAL STATEMENT Assets Total current assets 11,758 36,350 1,584 946 122 12,331 5,099 287 14 4,076 769 24 2,113 619 650 3,691 1,059 14,685 - Total fixed assets 19 5 5 163 - 5,136 113,557 - - 9 - - 3,059 113 3,772 531 1,394 5,309 - Total other assets - 3,301 14 27,565 - 95 283 - 2 - - - 1,539 344 204 - - - -

Total Assets 11,777 39,656 1,603 28,674 122 17,562 118,939 287 16 4,085 769 24 6,711 1,076 4,626 4,222 2,453 19,994 -

Liabilities Total current liabilities 9,300 14,024 650 189 11 12,324 7,274 245 - 1,278 10 1 3,275 547 1,558 132 131 4,825 112 Total long-term liabilities - - - - 14 11,645 85,827 - 701 - 40 - 1,370 - 2,611 1,620 - - - Minority interest 514 - - - - (92) ------Total equity 1,963 25,632 953 28,485 97 (6,315) 25,838 42 (685) 2,807 719 23 2,066 529 457 2,470 2,322 15,169 (112)

Total liabilities and equity 11,777 39,656 1,603 28,674 122 17,562 118,939 287 16 4,085 769 24 6,711 1,076 4,626 4,222 2,453 19,994 -

STATEMENT OF RESULTS

Operating results (1,297) (1,528) 280 (2,361) (1) 1,254 (1,505) 5 - (34) (82) - (905) (223) (336) (676) (770) 181 (56) Non-operating Results 1,400 2,549 (1) (4,733) (10) 1,237 467 - (151) 60 255 (4) 954 414 247 (298) (209) 114 - Results before income tax 103 1,021 279 (7,094) (11) 2.491 (1,038) 5 (151) 26 173 (4) 49 191 (89) (974) (979) 295 (56) Income tax (24) 128 (105) - - 145 232 - - (3) - - 6 (33) (29) - (195) (50) - Profit (loss) of Exercise 79 1,149 174 (7,094) (11) 2,636 (806) 5 (151) 23 173 (4) 55 158 (118) (974) (1,174) 245 (56)

CASH FLOW STATEMENTS Net flow provided by operation activities - - 406 (2,518) - (1,073) 888 (1) - 136 197 (4) 690 144 (172) (1,267) - - -

Net flow provided by financing factivities - - - 22,680 - 1,798 7,116 - - (140) (235) 17 - - 335 3,404 - - -

Net flow provided by investment activities - - - (19,524) - (817) (7,829) - - 501 340 - (283) (140) (163) (650) - - -

Effect of inflation on cash and cash Equivalent - - - - - 2 - - - (33) (4) - 7 76 - 12 - - -

Net variation of cash and cash equivalents - - 406 638 - (90) 175 (1) - 464 298 13 414 80 - 1,499 - - -

(1) It is not prepared of cash flows (2) Unaudited financial statements main accounting criteria applied 147 CODELCO NOTE 1 - SUMMARY OF THE MAIN ACCOUNTING CRITERIA APPLIED a) Period The present financial statements relate to the periods between January 1st and December 31st 2003 and 2002. b) Basis for the preparation of the financial statements These financial statements have been prepared according to accounting principles that are generally accepted in Chile and issued by the Colegio de Contadores de Chile A.G, and standards and guidelines issued by the Superintendencia de Valores y Seguros. In case of discrepancy, the latter prevail. c) Currency These financial statements are expressed in the currency of the country of origin of the subsidiary. d) Basis for the preparation of the consolidated financial statements According to the regulations of the Superintendencia de Valores y Seguros and the Technical Bulletins issued by the Colegio de Contadores de Chile A.G., the Companies have prepared these consolidated financial statements which include assets, liabilities, results and cash flows of the subsidiaries.

All significant amounts and effects of transactions between the consolidated companies have been eliminated and the participation of the minority investors has been recognized as minority interest. The consolidated financial statements include the elimination of the balances, transactions and profits that were not carried out between the consolidated companies, including the foreign and national subsidiaries. e) Currency correction The financial statements of the national subsidiaries which maintain their accounting in Chilean pesos have incorporated the effects of the variation in purchasing power of the currency occurring during the corresponding periods, as established by the currency correction standards. The updatings have been established on the basis of the official index of consumer variation price of the Instituto Nacional de Estadísticas, which originated an updating of 1% as of December 31st 2003 (3.0% in 2002). f) Conversion bases As of December 31st of 2003 and 2002, the assets and liabilities in foreign currency and unidades de fomento, have been converted to current currency according to the rates existing at the end of the period, as shown in the following table:

2003 2002 US$ US$

Sterling pound 1.77873 1.60436 Euro 1.25455 1.04723 Peso mexicano 0.08909 0.09626 Unidad de Fomento 28.49444 23.30071

g) Time deposits Time deposits are recorded at their investment value plus their corresponding accrued interests at the end of each period. h) Markatable sincent In this item, mutual funds shares and other easily liquid instruments are presented, recorded at their cost or market value (whichever is lowest). 148 main accounting criteria applied CODELCO i) Inventories Inventories are valued at cost, which is not higher than net realizable value.

- Finished and in process products: Under the absorption costing method, including depreciation of fixed assets and indirect expenses, these inventories are valued at the average cost of production.

- Material in warehouse: At purchase cost.

The Company sets an obsolescence provision considering the rotation slow-moving stored materials.

- Materials in transit: At cost incurred at the end of each year.

j) Bad dobt allowance The Company, when appropriate, records a provision for bad debts, based on the experience and analysis of the management, and portfolio aging of its accounts receivable.

k) Fixed asset Fixed assets are valued at the historical cost, net of accumulated depreciation.

Work in progress include the amounts in fixed assets under construction.

1) Depreciation The depreciation of the fixed asset is determined based on its corresponding book value, according to the straight-line method and on the basis of the years of estimated useful life of the goods.

m) Leased assets Presented in Fixed assets recorded by the subsidiaries through financi type leases are Other Fixed Assets. These goods have been valued at their current value applying the implicit interest rate in the contracts and they are depreciated on the basis of the straight-line method, according to the years of estimated useful life of the fixed assets. These fixed assets are not lawful property of the Companies as long as these do not exercise the corresponding purchase option.

n) Investment in associated companies Investments in associated companies, both in Chile and abroad, that have a permanent character, are valued according to the method of proportional equity value, following the standards established by the Technical Bulletins of the Colegio de Contadores de Chile A.G., except for the investments maintained by the subsidiaries in England and Germany.

Investments in other companies are recorded al their cost, which is not higher than the market value.

o) Intangibles These are recorded at cost their amortization is recoded according to Technical Bulletin N° 55 of the Colegio de Contadores de Chile A.G. main accounting criteria applied 149 CODELCO p) Income and deferred taxes Income taxexpense is recorded provisioned according to the legal requirements in force.

The Companies acknowledge in the financial statements the effect of originating form basis diferences for the deferred taxes allocated to the temporary differences, taxation and accounting purposes according to the Technical Bulletins of the Colegio de Contadores de Chile A.G. and following the guidelines of the Superintendencia de Valores y Seguros de Chile. q) Computer software The computer systems developed through the use of internal resources are charged to the income statement as incurred. r) Research and development expenses The expenses in research and development are charged to the income statement as incurred. s) Cash flow statements The cash balances, bank balances, financial instruments and time deposits, classified as short term negotiable values with expiration within 90 days without restrictions have been considered as cash and cash equivalents, as established by the Technical Bulletins issued by the Colegio de Contadores de Chile A.G. and regulations of the Superintendencia de Valores y Seguros. The subsidiaries of England and Germany do not present cash flow statements, since they are not required in those countries.

The Companies have classitied the cash flow associates with operational, investment or financing activities, according to the Technical Bulletins of the Colegio de Contadores de Chile A.G. and regulations of the Superintendiencia de Valores y Seguros.

NOTE 02 - ACCOUNTING CHANGES

As of December 31st 2003, there are no significant accounting changes in the application of the accounting principles compared to the previous period. 150 remunerations of the board of directors and the management CODELCO 2003 2002 US$ US$

Alfonso Dulanto Rencoret 12,471 32,241 Nicolas Eyzaguirre Guzmán 15,592 32,241 Patricio Meller Bock 33,518 32,241 Ricardo Ortega Perrier 33,518 26,733 René Valdenegro Oyanedel 33,518 26,733 Bismark Robles Gúzman 33,518 26,733 Jorge Navarrete Martínez 33,518 32,241 Luis Castelli Sandoval - 8,313 Raimundo Espinoza Concha - 8,313 Alejandro Rosa Leighton - 8,313

Total 195,653 234,102

Remunerations of the senior executives of the Company in 2003 amount to US$2,779,092 office, subsidiaries and sales representatives 151

HEADQUARTER SUBSIDIARIES CODELCO

Huérfanos 1270 Germany Postal Code 150-D Codelco-Kupferhandel GMBH Santiago, Chile Louise - Dumont Strasse 25 Cable Address: "Codelco-Chile" 40211 Düsseldorf 1 Web Site: http//www.codelcochile.com Phone: 49-211-173680 Phone: 56-2-690 3000 Fax: 49-211-1736922 Fax: 56-2-672 1473/690 3059 E-mail: [email protected] Telex: 240672 CUPRU CL MR. HERIBERT HEITLING E-mail: [email protected] MANAGER

China Codelco-Asia CODELCO-CHILE (SINGAPORE REPRESENTATIVE OFFICE) Unit 36-01, Bund Centre, 222 Yan An Riad East Shanghai 200002 PRC Phone: 65-6233 6888 ext. 6827 Fax : 65-6233 6800 E-mail: [email protected] LUIS ERNESTO MIQUELES MANAGER

United States Codelco Group Inc. 177 Broad Street, 11th Floor Stamford, CT 06901 Phone: 1-203-425 4321 Fax : 1-203-425 4322 E-mail: [email protected] HUGO JORDÁN MR. HUGO JORDAN MANAGER

England Chile Copper Ltd. 27 Albemarle Street London W1S 4HZ Phone: 44-207 907 9600 Fax : 44-207 907 9610 E-mail: [email protected] MR. GONZALO CUADRA VICE - PRESIDENT 152 COPPER SALES REPRESENTATIVES

Austria, Denmark, Germany and Holland Korea Greece, Italy and Switzerland CK Metall Agentur GMBH K.S. Metals Corp. Societa Importazione Metalli S.R.L. Louise-Dumont Strasse, 25, Postfach 240226 Dabo Bldg., 5th Floor, 140 Mapo-Dong, Via Paolo Sarpi 59, 20154 Milano (MI) Italia

CODELCO 40091 Düsseldorf 1, Germany Mapo-Ku, Seoul 121-714 Phone: 39-02-331 1461 Phone: 49-211-17369-0 Phone: 82-2-719 4255 (Rep.) Tlx.: 311480 SCHWEN 1 Fax: 49-211-17368-18 Telex: K33490 KTRADE Fax: 39-02-331 06968 HERIBERT HEITLING Fax: 82-2-719 4340 CARLO SCHWENDIMANN [email protected] YOUNG CHONG KIM [email protected] [email protected] Saudi Arabia Japan Paul Weil (Saudi Arabia) Canada and United States Shimex Ltd. A.IBM Abdul Muthalib St. (140) Corporación del Cobre USA Inc. NBC Nishi-Shinbashi Bldg. Habboubi Bldg. (1st Floor) 177 Broad Street, 11th Floor 5-10, Nishi-Shinbashi 2-chome Sharfeya Dist., Jeddah 21484 Stamford, CT 06901 Minato-ku, Tokyo 105-0003 Phone: 966-2-651 8348 / 651 3758 Phone: 1-203-425 4321 Phone: 81-3-3501 7778 Fax: 966-2-651 3947 Fax: 1-203-425 4322 Fax: 81-3-3501 7760 BASSAM YAMUT HUGO JORDÁN TADASHI SHICHIRI MANAGER [email protected] Argentina [email protected] Coppermol S.A. Hong Kong, Indonesia, Malasya, Myanmar, Singapore, Ricardo Rojas 401, Piso 4, Buenos Aires, 1001 Belgium and France Thailand and Vietnam Phone: 54-11- 4312 7086 / 3127089 Francomet S.A. Codelco-(Shanghai) Limited Telex: 23644 COMOL AR 174 Boulevard Haussmann Unit 36-01, Bund Centre, 222 Yan An Road East. Fax: 54-11-4311 4007 75008 Parìs, France Shanghai 200002 PRC EDUARDO ROMERO Phone: 33-1-4561 4781 Phone: 86-21-63350286 / 86-21-63350287 [email protected] Telex: 648127 FRANMET Fax: 86-21-63350289 Fax: 33-1-4289 0412 LUIS ERNESTO MIQUELES Australia JEAN PIERRE TOFFIER [email protected] Unimet PTY Ltd. [email protected] 13 Spring Road Malvern Vic 3144, Melbourne Mexico Phone/Fax: 61-39-824 6575 England, Finland, Norway, Sweden, Spain and Turkey Prutrade, S.A. de C.V. ESTEBAN CHEMKE Chile Copper Ltd. Riconada de Río Grande # 73 [email protected] 27 Albemarle Street, London 1X 3FA Col. Vista Hermosa CP 62290 Phone: 44-207-907 9600 Cuernavaca, Morelos Brazil Fax.: 44-207-79079610 Phone: 52-777-315 5500 / 52-777-315 5919 / 52-777-316 3213 Chilebras Metais Ltda. GONZALO CUADRA Fax: 52-777-315 3979 Avda. Brigadeiro Faria Lima, 2081 [email protected] JAIME PRUDENCIO 8º CJ. 82-A 01452-908 – Sao Paulo [email protected] Phone: 55-11-3817 4229 / 55-11-3817 5522 / 55-11-3031 1122 India Fax: 55-11-3032 2096 Trikona Services Republic of China JOSE DAYLLER Flat Nº 2 11, Aurangzeb Road Raw Materials Ltd. [email protected] New Delhi - 110 011 3rd. Floor, 141 Tun Hua North Road Phone: (Gen.) 91-11-2301 0974 Taipei, Taiwan (R.O.C.) (Direct.) 91-11-2379 3136 Phone: 886-2-712 8963 Telex: 31-65640 RESN IN Telex: 19955 RML TPE Fax: 91-11-23794933 Fax: 886-2-713 3016 RENU DAULET SINGH FRANK H.L. SHEN [email protected] [email protected] MOLYBDENUM SALES REPRESENTATIVES 153

Argentina Brazil South Africa Coppermol S.A. Chile-bras Metais Ltda. International Metal Marketing (Pty) LTF. Ricardo Rojas 401, Piso 4 Avda. Brigadeiro Faria Lima 2081 P.O. Box 78465

Buenos Aires 1001 8° Conj. 82-A Sandton 2146 CODELCO Argentina 01452-908 South Africa Phone: 54 -1- 312 7086/89 Sao Paulo-SP Tel: (2711) 2850017 Fax: 54 -1-11 2493 Brazil Fax: (2711) 8868381 Telex: 23644 COMOL AR Phone: 55-11-3817 5522 / 55-11-3817 4229 E-mail: [email protected] E-mail: [email protected] Fax: 55-11-3817 4157 MR. KEES HOEBEN MR. EDUARDO ROMERO E-mail: [email protected] MANAGER MANAGER MR. JOSE DAYLLER MANAGER ANODIC SLIMES SALES REPRESENTATIVE Australia Italy and Switzerland Unimet PTY Ltd. Del Bosco & C.S.R.L. Mexico 13 Spring Road Via Paolo Sarpi 59 Pru Trade, S.A. de C.V. Malvern Victoria 3144 20154 Milano (M) Rinconada de Río Grande #73 Melbourne, Australia Citofono N° 8 Col. Vista Hermosa Phone/fax: 61-39-824 6575 Italy C.P. 62290 E-mail: [email protected] Phone: 39-2-331 1461 Cuernavaca, Morelos ESTEBAN CHEMKE Fax: 39-02-331 06968 Mexico MANAGER E-mail: [email protected] Phone: 52-7-315-5500 / 315-5919 / 316-3213 MR CARLO SCHWENDIMANN Fax: 52-7-315-3979 Austria, Germany, Denmark and Holland MANAGER Email: [email protected] CK Metall Agentur GmbH MR. JAIME PRUDENCIO Louise Dumont Strasse 25 England, Finland, Sweden and Spain MANAGER 40091 Düsseldorf Chile Copper Ltd. Postfach 240226 27 Albemarle Street Germany London 1X3FA Phone: 49-211-17369-0 England Fax: 49-211-17369-18 Phone: 44-207 907 9600 E-mail: [email protected] Fax: 44-207 907 9610 MR. HERIBERT HEITLING E-mail: [email protected] MANAGER MR. GONZALO CUADRA VICE - PRESIDENT Belgium and France Francomet S.A. Japan 174 Boulevard Haussmann Shimex Ltd. 75008 Paris Nishi-Shinbashi 2-chome France 5-10 Nishi-Shinbashi 12-chome Phone: 33-1-4561 4781 Minato-ku, Tokyo 105-0003 Japón Fax: 33-1-4289 0412 Phone: 81-3-3501 7778 Telex: 648127 FRANMET Fax: 81-3-3501 7760 E-mail: [email protected] E-mail: [email protected] MR. JEAN PIERRE TOFFIER TADASHI SHICHIRI MANAGER MANAGER

Desing and production: Midia Comunicación

Photographs: Rodrigo Gómez, Claudio Pérez, Rodrigo Rojas, Francisco Aguayo and Codelco´s Archive.

Printing: Fyrma Gráfica codelco chile Huérfanos 1270, Santiago, Chile Phone: 56 (2) 690 3000 Fax: 56 (2) 672 1473 / 690 3059 E-mail: [email protected] Web site: www.codelco.com