ANNUAL REPORT 2017 Contents
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ANNUAL REPORT 2017 CODELCO El Teniente Mine New Level 1 ANNUAL REPORT 2017 Contents 03 08 12 14 15 Message from the Message from the Board of Organization Senior Chairman of the Board CEO Directors management Corporate profile Divisions Key indicators 2013-2017 18 28 30 History 23 Effectiveness and efficiency in management 31 33 43 47 51 64 86 Economic-financial International Business Human Sustainability Innovation results: Meeting Chile’s copper market operations with resources expectations third parties Transparency, integrity & good corporate governance 92 95 97 98 99 102 New standards Ethics & integrity New supply Transparency & Board of Directors processes corporate reputation report rankings Building a company of the future 108 110 117 124 Mineral resources & reserves Mineral exploration & Capital investments and projects internationalization Subsidiaries & associates Financial statements Offices & representatives 131 160 327 Company network 159 CODELCO 2 ANNUAL REPORT 2017 Message from the Chairman of the Board Óscar Landerretche Chairman of the Board The future of Codelco is not only played out under the guidelines of integrity, best practices and transparency, but it is also defined in the essence of the business; that is, in exploring and extracting mining resources and in commercializing refined copper and its by-products. Therefore, the key objectives of our commitment to innovation and the structural projects we are currently developing are centered on Codelco’s ongoing contribution of resources to Chile in the decades to come. Óscar Landerretche Chairman of the Board CODELCO 3 ANNUAL REPORT 2017 he year 2017 was one of major challenges, growth and new opportunities for Codelco. During times and circumstances that were not always favorable, in Twhich we were exposed to criticism, our company once again demonstrated its strength. Rather than enter into incessant public debate, paralyzing the progress we started in 2009 in terms of corporate governance, integrity and transparency, we were proactive in proposing and approving new reforms to continue driving forward best business practices within Chile’s leading company. In practice, all the improvements promoted by the new corporate governance law have not only translated into awards for our actions, but also clear and tangible progress in Codelco’s way of doing business. The first thing we did was to verify the progress achieved in the short time since the adoption of Law 20.392. in 2009. During the first period of the company’s new corporate governance, which was installed in March 2010, changes were introduced that strengthened the corporate ethical pillars of the company. Among these included the communication channels for complaints, certification of the crime prevention model, compliance with the standards of the Financial Market Commission (former Superintendency of Securities and Insurance), the approval of the Securities Charter, the commencement of an auditing and control system for contractor companies, and the implementation of different information channels for the public. During the current period, that is, the second corporate government of Codelco, we launched another significant list of reforms to move us forward in the same direction. In 2014, changes focused on the powers of the Board of Directors. To cite an example, we regulated the allocation and use of the board’s resources, established a transparent and traceable management system and even recorded external requests submitted directors related to work requests, slowdowns, dismissals, meetings with suppliers and contracts awards. Moreover, we defined the rules to make transparent and systematize the relationship between Board members and senior management level executives of the company. In 2015, emphasis was placed on updating and perfecting the corporate standard that regulates operations with those companies in which “related persons” work with a Codelco official. We also implemented a policy to limit direct contract awards and private tender processes to a minimum, when compatible with efficiency. We defined stringent rules aimed at restricting lobbying at Codelco. In addition, we introduced innovations that permitted approximately 2,000 people to declare their interests in the company (previously, only 70 declared), we regulated the hiring of Politically Exposed Persons (PEP) and businesses with former employees of the Corporation, all of which today require the express approval of the Board. We also reformed the Legal Affairs Office and reinforced the operations of the Internal Auditing Unit, which ceased reporting to management and began reporting directly to the Board’s Auditing Committee. CODELCO 4 ANNUAL REPORT 2017 In 2016, we modified the Internal Comptroller Unit, emphasizing its exclusive dedication to risk control and management, with direct oversight of the Board of Directors. Furthermore, the policies and measures for management control and integrity are extended to all subsidiaries and associates of the Corporation. As can be seen, the Board’s priority to improve the different areas related to best practices, excellence, integrity and transparency was established long before the controversies began in 2017. Therefore, we continued along that line of action, without deviating from the road towards reforms established years ago. During 2017, we approved a permanent audit program to review hiring processes through direct assignments as well as miscellaneous payments. We also established an even more stringent standard than the existing in matters of incompatibility and conflict of interest. For this, we reviewed position profiles to explicitly incorporate corresponding incompatibilities, in accordance with the nature of the role, in addition to regulating the performance of the training tasks during the working day. Likewise, we created a corporate ethics and integrity platform that allows all personnel to access the regulatory framework, support material and the interest declaration systems. In line with the reforms to the purchasing system, we ordered the adoption of necessary measures to avoid deviations or deficiencies in the bidding information systems, enhancing Codelco’s purchasing portal as the only platform to process bids. We also incorporated the guidelines for PEC (Persons Exposed to Codelco) and PEP (Politically Exposed Persons), which allows us to systematically identify such persons and safeguard compliance with current regulations. Once again in 2017, the progress achieved in the aforementioned areas brought about awards and recognition in different rankings for transparency, reputation and good corporate governance, both in Chile and abroad. This year we were among the top ten Chilean companies with the highest corporate reputation in the Ranking Merco and were recognized by Merco Talento as the company in which young people preferred to work. In like manner, we led the Natural Resources Governance Index, which assesses transparency and accountability in state oil, gas and mining sector companies at the global level. Thus, for the first time in history a Chilean company ranked first in this index, a monumental achievement, considering that only four years previously placed tenth in this same index. Additionally, during 2017 we ranked first among 28 public companies on the Index of Corporate Transparency, a ranking which, through global and national corporate benchmarking, compiles the best information practices published on websites. Moreover, we distinguished ourselves at the top position in the category of companies in the productive sector. CODELCO 5 ANNUAL REPORT 2017 For the second consecutive year, Codelco complied with all the requirements placed on public entities by the Council for Transparency, qualifying as an institution that guarantees the delivery of complete information to the public, within the defined deadlines and complying with the regulations of theTransparency Law. With respect to public information, we officially launched the website www.codelcotransparente.cl, that provides relevant data on various aspects of public interest; for example, environmental, social, productive, economic or operational issues of all our work centers within different regions of Chile. The site was awarded by the Council for Transparency for disclosing important information to the public regarding our management, and for encouraging the use of open data in a way that is easy for everyone to understand. In practice, all the improvements promoted by the new corporate governance law have not only translated into awards for our actions, but also clear and tangible progress in our way of doing business. For example, 58% or our tenders were public tenders in 2017, while 32.9% were private tender. The tender system allows, as a result of enhanced management, to invite a limited number of proponents to participate in private tenders. Therefore, this year, for the first time since 2010, Codelco was able to receive more public tenders than private tenders. Another directive of the Board was to significantly reduce direct awards / assignments, since they are a constant source of questioning and may become a focus of arbitrary action. The process to reduce such practices was not easy, but it paid off. In 2017, we averaged 1.1% direct assignments, bringing this hiring mechanism down to historic levels. These outstanding advances do not make Codelco a perfect company, but rather a company with high international standards, seeking to minimize to the lowest levels possible,