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CHILEAN COPPER MINING COSTS

Jorge Cantallopts
Director of Research and Policy Planning
Chilean Copper Commission

December, 2017
 MINING COST: CHILE VS WORLD
01

Chilean Copper Commission

NET CASH COST C3 VS COPPER PRICE
(¢US$/LB)
450
400
400
361
342
350 332
323
315 311
305
300 274
249 221
250 234 231,8
223,3 222,7
228,9 211,8
195,4
¢US$/lb

200 222,5 222,2 209,1

167 167,7 217,6 207,0
159,9
140,7 191,7 188,2
150 130 178,1
120,9
112,5 151,6
100 82 81 143,7 136,9
72 71 75,5 80,0
100,9 102,2
50 72,5
68,4 65,8 65,5 66,2 64,8

0
2002

2013
2000

2001

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2014

2015

2016

2017 (f)
Chile Rest of the World Refined Copper Price LME

• 2012: Mining companies began to make efforts to contain the rise in costs.

• 2016: Margins of the companies presented levels observed before 2002.

Source: Cochilco and Woodmackenzie Q32017
WORLD COPPER NET CASH COST C3 CURVES
2000 VS 2017(F)
2017 (f)
250 2000
Net Cash Cost C3 (¢US$/lb)

200

150
Chile
2017 (f)
100 211,8
¢US$/lb
50 Chile 2000
68,4 ¢US$/lb
0
1.500 6.500 11.500 16.500 21.500 26.500 31.500 36.500
Paid Metal
(Mlbs)
• Costs moved from the second to the fourth quartile.

• In 2000, the production of Chile represented 34.7% of the world copper mine
production. In 2017 it represented 26.3% (august).
Source: Cochilco and Woodmackenzie Q32017
 WORLD COPPER CASH COST C1 CURVES
2000 VS 2017(F)
250

200
2017 (f)
2000
Cash Cost C1 (¢US$/lb)

150

100 Chile
2017 (f)
139,4
50
US$/lb
Chile 2000
44,5 ¢US$/lb
0
1.500 6.500 11.500 16.500 21.500 26.500 31.500 36.500

Paid Metal
(Mlbs)

• Costs C1 moved from the second to the third quartile.

Source: Cochilco and Woodmackenzie Q32017

 02 COST OF LARGE MINING COMPANIES IN
CHILE- KEY FACTORS

Chilean Copper Commission

VARIATION PER ELEMENT CASH COST - CHILE
2000-2016 (¢US/LB)

C1 Cash Cost 2016 134,3

Labour + 35,1
Other Consumables + 24,3
Services & Contractors + 20,2
TC RC y Marketing + 10,8
Power + 9,9
Acid + 5,0
Diesel + 4,0
Conc Freight + 2,7
Deferred Costs -7,0
BP Credit -15,2
C1 Cash Cost 2000 44,5

Source: Cochilco based on Woodmackenzie Q32016

VARIATION PER ELEMENT NET CASH COST - CHILE
2000-2016 (¢US/LB)

C3 Net Cash Cost 2016 209,1

Cash Cost C1 +89,9

Depreciation + 36,9

Other + 5,3
Corporate Overheads + 5,3
Interest + 3,3

C3 Net Cash Cost 2000 68,4

Source: Cochilco based on Woodmackenzie Q32016

AVERAGE COPPER MINING GRADES IN CHILE
1999-2016

1,6

1,4

1,2
GRADES AVERAGE (%)

1,0

0,8

0,6

0,4

0,2

0,0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

• The decrease in ore grade in Chile has been higher than the world average.

• Mining development in Chile began earlier and ore deposits and blocks with a
higher concentration of ore have been exploited.

Source: Cochilco
 AVERAGE COPPER MINING GRADES
CHILE VS WORLD 2005-2016

Concentrator Plant Heap Leach

Chile World Chile World

1,4 1,4

1,2 1,2
ORE GRADE (%)

ORE GRADE (%)

1,0 1,0

0,8 0,8

0,6 0,6

0,4 0,4

0,2 0,2

0,0 0,0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

• Average Ore grades of the sulfide line have decreased similarly (27%), Chile and the
World.

• Ore grades of the oxides line in Chile are lower than the world average.

• There is a depletion of oxidized resources in Chile, which will mean 66% lower
production of SX-EW cathodes by 2027.
Source: Cochilco and Woodmackenzie
 ENERGY AND DIESEL

Chilean Energy WTI Crude Oil

PMM SING y SIC (*)
(US$/Mwh) (US$/Barrel)
2012-2017 (jun)
160 {-22- to -28%} 120
2013-2017 (jun
140
100 (-50%)
120
100 80

80 60
60
40
40
20 20

0 0
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2005

2013
2001
2002
2003
2004

2006
2007
2008
2009
2010
2011
2012

2014
2015
2016
2017
SING SIC

(*) Average Market Price of Customers not subject to price regulation

Lower generation cost due to the fall in the price of Growth of supply (new alternatives for extraction and
diesel, improvements in efficiency in existing processes others.) and lower demand (China and Europe), have
and the incorporation of cheaper technologies (NCRE). caused the decrease in oil prices.

Source: Cochilco
 ENERGY AND DIESEL

Chilean Energy WTI Crude Oil

PMM SING y SIC (*)
(US$/Mwh) (US$/Barrel)
2012-2017 (jun)
160 {-22- to -28%} 120
2013-2017 (jun
140
100 (-50%)
120
100 80

80 60
60
40
40
20 20

0 0
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2005

2013
2001
2002
2003
2004

2006
2007
2008
2009
2010
2011
2012

2014
2015
2016
2017
SING SIC

(*) Average Market Price of Customers not subject to price regulation

Lower generation cost due to the fall in the price of Growth of supply (new alternatives for extraction and
diesel, improvements in efficiency in existing processes others.) and lower demand (China and Europe), have
and the incorporation of cheaper technologies (NCRE). caused the decrease in oil prices.

Source: Cochilco
PRICE VARIATION OF SOME IMPORTED MINING INPUTS
BASE 2005 = 100
Price Index of imported inputs Price Index of imported inputs (without diesel)
120

104,0
100,0
100 94,6

83,1
77,8
80 72,8 73,4
65,0

60

40

20

0
2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4

The prices of mining inputs have declined in recent years, given the lower
mining activity. Relevant inputs are: fuels, sulfuric acid, grinding balls, OTR
tires, chemical reagents, lubricants, etc.
Source: Cochilco
 SCALE IS RELEVANT BUT NOT DETERMINANT

300
(¢US$/LB Avg IIIQ16-IIq2017)
Cochilco Cash Cost

250

200

150

100

50

0
- 50,0 100,0 150,0 200,0 250,0

Quarterly Copper Production

(KTMF Avg IIIQ16-IIq2017)
Source: Cochilco
 GEOGRAFICAL REGIONS ARE NOT DETERMINANT

I II III IV V VI
250,0

200,0
Cochilco Cash Cost
(¢US$/LB)

150,0

100,0

50,0

Source: Cochilco
 03 CASH COST COCHILCO (¢US$/lb)
2014 vs 2017 (accumulated up to June)

Chilean Copper Commission

QUARTERLY MONITORING OF CHILEAN COSTS

• In 2014, Cochilco began to seek quarterly cash cost

(C1) of the 21 largest copper producing operations
in Chile (“Observatorio de Costos”).

• They account 92% of copper mine production in

Chile and 25% of world copper production.
OPERATIONAL COST OF LARGE CHILEAN COPPER
MINING (%)
Q1 2017 Acid
1%
Diesel
3%
Power
8%
Labour
Depreciation 12%
28%

Consumables Services and

17% Others
29%

Freight
2%
• Services and purchase of consumables represent 46% of the operational costs.

Source: Cochilco
21 PRODUCERS - LARGE COPPER MINING

Accumulated production to June

Operation Main Controller
(ktmf Cu) %
Escondida BHP Billiton 328 13,0%
El Teniente Codelco 219 8,7%
Collahuasi Anglo American plc y Glencore 247 9,8%
Anglo American Sur Anglo American plc 175 6,9%
Los Pelambres Antofagasta Minerals 170 6,8%
Radomiro Tomic Codelco 152 6,0%
Chuquicamata Codelco 116 4,6%
Centinela Antofagasta Minerals 117 4,6%
Andina Codelco 112 4,4%
Spence BHP Billiton 103 4,1%
Ministro Hales Codelco 113 4,5%
Candelaria LundinMining 76 3,0%
Gaby Codelco 60 2,4%
Zaldivar Barrick Gold/ Antofafasta Minerals 52 2,1%
Sierra Gorda KGHM International Ltd 52 2,0%
Mantos Copper Audley Capital Advisors LLP 42 1,7%
Caserones SCM Minera Lumina Copper Chile 56 2,2%
Cerro Colorado BHP Billiton 35 1,4%
El Abra Freeport McM 37 1,5%
Salvador Codelco 27 1,1%
Quebrada Blanca Teck 12 0,5%
Otros 223 8,8%
Total país 2.522 100%

Representativeness 91,2%

Source: “Observatorio de Costos” Cochilco

 QUARTERLY CHILEAN CASH COST (C1) Q4 2012- Q2 2017
LARGE COPPER MINING

Escondida
180 176,5 Labor strike
2016: impacted
168,8
170 Strong production
162,7 161,3
157,4
decrease in
160 156,1
154,1 costs
148,1 149,3 148,2
150 146,3 144,8 146,8 146,2
Cash Cost¢US$/lb

140
130,4 130,3 130,1
130 128,1
120,9
120

110

100
2012Q4

2013Q1

2013Q2

2013Q3

2013Q4

2014Q1

2014Q2

2014Q3

2014Q4

2015Q1

2015Q2

2015Q4

2016Q1

2016Q2

2016Q3

2016Q4

2017Q1

2017Q2
2015Q3

Source: “Observatorio de Costos” Cochilco

CASH COST (C1) LARGE COPPER MINING
2015 VS 2016

Cash Cost Cash Cost

2015 2016
1er cuartil 2do cuartil 3er cuartil 4to cuartil
350
300
Cash Cost Cochilco

250 Lower cost

(¢US$/lb)

200
150
100
50
0
0% 25% 50% 75% 100%
Producción Acumulada (%)

Source: “Observatorio de Costos” Cochilco

CASH COST COCHILCO (¢US$/LB)
2015 VS 2016 (Accumulated Costs)

Cash Cost 2015

153,5
(¢US$/lb) • Strong incidence of lower costs of
Services.
Management
efforts
-26,5 • During 2016, a large part of the mining
companies finalized their adjustment
processes.

Market factors -7,0 • Throughout 2016, costs were favored by a

higher value of the average exchange rate
and lower energy / fuel prices.

Lower Ore Grades +7,3

• High impact of lower ore grades, which in
some cases was compensated with
Cash Cost 2016 increased tonnage processed.
127,4
(¢US$/lb)

Source: Cochilco
CASH COST COCHILCO (¢US$/LB)
2016 vs 2017 (accumulated up to June)

Cash Cost 2016

(¢US$/lb)
129,7
• The lower copper production impacts on lower
Management purchases of materials and consumption of
Efforts
-1,6 Energy and Fuels.

• Higher prices of byproducts (subtracted from cost)

Market Factors -4,0 and lower prices of materials and services
(among others), help to counteract the strong
impact of the lower price of the dollar.
Lower Prodution +13,7
• In the first semester, the impact of the fall of 10%
in the production of the sample of 21 operations (-
Cash Cost 2017
137,8 252 ktmf) is maintained.
(¢US$/lb)

+ 8,0 ¢US$/lb

Source: Cochilco
 CASH COST COCHILCO (C1)
2016 vs 2017 (accumulated up to June)

1.097 ktmf
8 operations 48% 13 operations
decreased their 1.203 ktmf increased their
52%
costs C1 costs C1

Cash Cost Cochilco

N° Mining
Average (¢US$/lb)
Operations
2016 toJun. 2017 a Jun. Var

Operations that increased costs 13 130,3 155,8 + 25,5

Operations that decreased costs 8 128,2 119,3 -8,9

Total 21 129,7 137,8 8,0

Source: Cochilco
CASH COST COCHILCO (C1) CURVE
2016 vs 2017 (accumulated up to June)

Cash Cost Cash Cost

30 junio 2016 30 junio 2017

1st quartile 2nd quartile 3th quartile 4th quartile

300

250
Cash Cost Cochilco

200
(¢US$/lb)

150

100

50

0
0% 25% 50% 75% 100%
Producción Acumulada (%)

 Generalized displacement of the cost curve and especially of those operations with
higher costs

Source: Cochilco
 VARIATION CASH COST COCHILCO (¢US$/lb)
2016 vs 2017 (accumulated up to June)

Higher Au, Ag and Mo

prices => higher credits
Cash Cost Cochilco (¢US$/lb) for by-products
2016 (accumulated to June) 129,7
By product credit -7,7 Increase quarterly of
Acid -0,4 power average prices of
TC/RC y Marketing -0,1 free client contracts,
Consumables 0,2 especially in the SING (+
Freight 0,3 21%).
Diesel 1,1
Power 2,1 Increase of the diesel (+
Labour 3,8 27%)
Services and Others 8,7
2017 (accumulated to June) 137,8
Slight increase in average
Variación (¢US$/lb) +8 own endowments (+ 2%)

TC/RC = Treatment and Refining Charges Increase item “Services

and others", with strong
impact of the fall of the
Source: Cochilco dollar.
 VARIATION CASH COST COCHILCO (¢US$/lb)
2016 vs 2017 (accumulated up to June)
Increase the production
of by-products and
lower consumption of
Cash Cost Cochilco (¢US$/lb) materials, energy and
2016 (accumulated to June) 129,7 fuels.
Quantity Effect (Inputs, workers, q consumptions, etc.) -1,5
Prices effect (Supplies, Personnel, Consumptions, etc.) -12,0 Higher price by-products
CPI effect, exchange rate and IPM USA 7,9 and lower prices of
Lower Production 13,7 services, materials,
2017 (accumulated to June) 137,8 H2SO4 and TC-RC
Variación (¢US$/lb) +8
Average price of the
dollar falls $ 30 (-4%) and
negatively impacts on
costs in Chilean peso

Copper production
decreased 252 ktmf
(-10%).

Source: Cochilco
 04 FUTURE TRENDS

Chilean Copper Commission

 CAPEX INTENSITY TREND FOLLOW THE PRICE

CAPEX/TMF (USD/TMFY)
25.000

20.524
20.000 19.027
17.726
16.584 16.561 16.400

15.000
13.016
11.624
10.954
10.242
10.000 9.046
8.116
(USD/TMFY)

5.000

Source: Cochilco
COST CONTROL IS KEY FACTOR FOR LONG TERM SUSTAINABILITY

Source: Cochilco
Main Goal Creating value
Pillars Mining Ecosystem

Productions Productivity
Strategies
Market Community
Share Participations

Government Workers Junior C. Mayor C. NGO

Players
Providers Universities
Codelco S&M Mining
and TC

Funding Human Capital

Infrastructure
Market drivers
Environmental Innovations Investment
Governance Tech Transf
policies Climate

Key Drivers Water Land Electricity

Sustainable basis Geological

Communities Environment
potential
STRATEGY FOR ENHANCING CASH COSTS COMPETITIVENESS

Main goal Creating value

Reducing costs
Strategies
Productivity Innovations

Mining Co Providers
Players Government
Universities Tech C

ALTA LEY CLUSTER ANTOFAGASTA

Policies & Programs CORFO CONICYT

FIE FCH Expande

 05 FINAL REMARKS

Chilean Copper Commission

FINAL REMARKS
• The Chilean mining lost competitiveness in terms of
cash cost, mainly for decreasing in ore grades, and
increase in CAPEX because the inflation in the key
inputs.

• In recent years the cost control has becoming a

priority for companies and the government and has
been one of the focus in the policies.

• The strategies to recovery cash cost competitiveness

is focusing policies in improving productivity and
increasing investment in innovation.
Logo Gobierno:
160x162px.
Ministerio,
Subsecretaría,
Organismo,
etc.:160x145px

CHILEAN COPPER MINING COSTS

Jorge Cantallopts
Director of Research and Policy Planning
Chilean Copper Commission

December, 2017