Mining Investment and Mining Business in Chile Eduardo Titelman Chilean Copper Commission www.cochilco.cl JOGMEC, Tokyo March 6 th, 2007
Contents Chile s Mining Sector The Chilean Economy Chile s Attraction to Foreign Investment
Chile s Mining Sector
Chile in World Mining (Main metals and minerals) (MT=Metric Tons) Product Production 2006 Position in World Ranking of Production Share of World Production (%) Share of World Reserves Forecast 2010 Copper (MT million) 5.4 1 35.5% 38% 6,2 Molybdenum (MT thousand) 43 2 23.2% 13% 52 Silver (MT) 1,602 5 7.2% NA 3,250 Gold (MT) 41 13 1.9% NA 100 Nitrates ( MT Million) 1.3 (*) 1 100% 100% 1,7 Lithium Carbonate (MT thousand) 44(*) 1 39.2% 27% 50 Source: Cochilco and USGS (reserve base) (*) 2005 figures
Chile s Main Copper Mines Region I: Collahuasi Cerro Colorado Quebrada Blanca Region III: Candelaria Salvador Ojos del Salado Regalito Project Region IV: Los Pelambres Andacollo Project N E S W Region II: Escondida Spence Chuquicamata Radomiro Tomic El Abra Mantos Blancos Lomas Bayas Michilla El Tesoro Zaldívar Esperanza Project Gaby Project Region V: Andina El Soldado Metropolitan Region: Los Bronces Region VI: El Teniente Source: COCHILCO
Size of Chilean Copper Mines and their Share of World Production Rest of the World Chile 4,000 21% 33% 62% 3,000 MT thousand 2,000 1,000 0 Small Medium Large 0-140 140-400 >400 Mine size (annual production 2005) Source: Brook Hunt
Large and Modern state-owned company Copper Production in Chile Public/Private Sector 6.000 5.000 1990 75% 2010 (est) 32% Thousand MT 4.000 3.000 2.000 25% 68% 1.000 0 1915 1920 1925 1930 1935 1940 1945 1950 1955 Public Sector 1960 1965 1970 1975 1980 Private Sector 1985 1990 1995 2000 2005 2010(est) Source: Cochilco
250 Investment in Mining Exploration US$ million 200 150 100 50 0 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 Source: Metals Economics Group
Challenges for Chile s Copper Industry Energy and water Mining cluster Investment, exploration R&D. Sustainable Development
The Chilean Economy
Key Economic Indicators Unit 2005 2006 GDP (current prices) US$ billion 115 140 GDP growth (constant prices) % 6.3 4.2 Population million 16.3 16.4 GDP per capita (current prices) US$ 7,089 8,500 Inflation % 3.1 2.6 Unemployment % 9,3 8.0 Exports US$ billion 40.6 59.0 Imports US$ billion 30.4 36.0 Mining exports/total exports % 56.2 64.0 Copper exports/total exports % 44.6 56.0 Sources: Central Bank of Chile, Finance Ministry, IMF, National Institute of Statistics (INE)
Per Capita Income, 1985-2006 (Constant Prices, 1980=100) 250 200 150 100 50 0 1985 1988 1991 1994 1997 2000 2003 2006 Source: IMF
Socioeconomic Indicators 45% 40% 38.6% 35% 32.6% 30% 25% 27.5% 23.2% % pop. below poverty line income of poorest 50% of pop. 20% 21.7% 20.2% 18.7% 15% 17.6% 18.2% 17.6% 17.3% 17.0% 17.6% 17.7% 10% 5% 0% 1990 1992 1994 1996 1998 2000 2003 Source: CASEN survey, Chilean government
Human Development Index (HDI) 88% Chile 85,9% 86% 85,4% 84% 84,3% 82% 80% 78% 76% 76,3% 78,5% 81,6% 74% 73,9% 72% 70% 68% 66% 1980 1985 1990 1995 2000 2003 2004 Source: UNDP Chile: 38/177
Human Development Index 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 91,2% 96,5% 78,7% 85,9% 79,3% 84,1% 7,2% 5,3% 40,7% 44,8% 4,8% 4,1% Norway Chile Costa Rica Nigeria 8,0% 7,0% 6,0% 5,0% 4,0% 3,0% 2,0% 1,0% 0,0% 1990 2004 Growth Source: UNDP
Sep.06 Ene.07 May.99 Sep.99 Ene.00 May.00 Sep.00 Ene.01 May.01 Sep.01 Ene.02 May.02 Sep.02 Ene.03 May.03 Sep.03 Ene.04 May.04 Sep.04 Ene.05 May.05 Sep.05 Ene.06 May.06 2500 2000 1500 1000 500 0 Spread Sovereign Bonds (basic points) Source: : Central Bank of Chile Global Chile Latin America Asia Europe 81 b.p.
Chile s Attraction to Foreign Investment
Source: Foreign Investment Committee less Civic Safety Friendly towards Foreign Investment Open Economy Good Infrastructure Qualified labor force in mining Excellent Mining Potential Successful strategy of growth based upon F.I. Friendly Non-discriminatory legal system Stable rules, policies and political system 20 th (20/163) place in Corruption Perception Index 2006 Low crime level compared to other developing countries
Chile & Economic Agreements Economic Complementary Agreement: Argentina, Uruguay, Paraguay, Brazil, Venezuela, Bolivia, Colombia, Ecuador y Perú Free Trade Agreement: China, USA, Canada, Japan, South Korea, Mexico, Panama, Costa Rica and El Salvador Partial Scope Agreement: India Economic Partnership Agreement: EU, P4 (New Zealand, Brunei, Singapore and Chile), 2007: Malaysia, Australia, Vietnam, Turkey and India
General Tariff in Latin American Countries 16 14 12 10 8 6 4 2 0 Uruguay México Brasil Perú Argentina Venezuela Colombia Ecuador Paraguay Bolivia Chile 2005 Source: : WTO
Effective Tariff Less Than 2% Evolution Ge ne ral Tariff v/s Effective Tariff (%) 10 9 General Tariff Ef f ective Tariff 8 7 6 5 4 3 2 1 0 Ene- 00 Jul- 00 Ene- 01 Jul- 01 Ene- 02 Jul- 02 Ene- 03 Jul- 03 Ene- 04 Jul- 04 Ene- 05 Jul- 05 Source: : Central Bank of Chile
Sound Infrastructure Indicator Australia Canada Argentina Brazil Chile Mexico Population (mill. of inh). 20,3 33,1 39,9 188,1 16,4 107,4 Area( mill. of km2) 7,7 10 2,8 8,5 0,8 1,9 Internet users per inh. 0,72 0,66 0,25 0,14 0,42 0,17 Airports (N / mill of inh) 22,4 40,4 34,6 22,7 22,1 17,1 Sea Ports (N / mill of Km2 ) 1,4 0,8 2,9 1,1 10,0 3,7 Phones - main lines in use (lines/ inh.) 0,57 0,55 0,22 0,23 0,21 0,18 Mobille cellulars per inh. Source: World Factbook 0,9 0,5 0,6 0,5 0,7 0,4
Foreign Investment Statute (DL-600) Main guarantees: Right to repatriate all capital and earnings Access to the banking system to purchase foreign currency for remittances at market exchange rates Invariable income-tax rate; maximum of 42% (instead of 35%) Right to maintain accounts in US dollars Right to export products freely Source: Foreign Investment Committee
Source: Foreign Investment Committee Very Friendly Legal Framework for Foreign Investment in Mining Mining concession property rights guaranteed under the Constitution and granted by law, not the incumbent government. Legal framework: Political Constitution Organic Constitutional Law on Mining Concessions Mining Code
Specific Mining Tax Introduced on January 1, 2006 Tax rate of 0% to 5% on operating income from mining (deducted as cost for income tax purposes). Investors able to choose between DL-600 or SMT tax invariability systems. International comparison of tax burden and changes in Fraser Index. Source: Foreign Investment Committee
World Copper Reserve Base Poland 5% Reserve Base : 937 million MT Others 23% USA 8% Australia 5% Evolution of Copper Reserves in Chile 1985-2000 (MT million ) 400 350 300 Peru 6% Mexico 4% Indonesia 4% China 7% Chile 38% 250 200 150 100 50 Sources: USGS Mineral Commodity Summaries 2007, Sernageomin, Central Bank of Chile 0 1985 1990 1995 2000 Reserves Resources
Conymet Chilean Know how in Mining
Excellent potential for mining investment Current Mineral Potential, Assuming Current Regulations/Land Use Restrictions (Survey of 64 jurisdictions around the world, published in March 2006) 1 Chile 96 pts. 2 Nevada 3 Mongolia 90 pts. 89 pts. 4 Québec 89 pts. 5 Mali 86 pts. Source: The Fraser Institute Annual Survey of Mining Companies 2005/20062
Direct Foreign Investment in Chile 1990-2005 Other 22% Mining 32% Communications 11% Financial Services & Insurance 14% Electricity, Gas & Water Supply 21% Source: Foreign Investment Committee Total = US$ 55 billion Mining =US$ 17,5 billion
Source: Yahoo Finance (01/07/2005) Source : COCHILCO Large number of foreign-owned companies Ivanhoe Mines Ltd. Antofagasta PLC Falconbridge Southern Peru Copper Freeport-McMoRan Cameco Corp. Phelps Dodge Barrick Gold Corp. New mont Mining Market Capitalization Main Mining Companies Inco Alcan Xstrata Alcoa Rio Tinto (US$ billion) Main Private Copper Companies in Chile Name Escondida Collahuasi Los Pelambres Owners BHP Billiton (57%), RTZ Corp. (Rio Tinto) (30%), JECO (Mitsubishi and others) (10%), IFC (2.5%) Xstrata (44%), Anglo American (44%) Nippon-Mitsui (12%) Antofagasta Minerals (60%), Nippon Mining, Manuberi, Mitsui, Mitsubishi Materials Corp. and Mitsubishi Corp.(40%) Production 2006 (TMT Cu) 1,256 440 335 Sur Andes Anglo American (100%) 295 Candelaria Free Port-Phelps Dodge Corp. (80%), Sumitomo Corp.(20%). 170 El Abra Phelps Dodge (51%), Codelco (49%) 219 Mantos Blancos Anglo American (100%) 152 Zaldívar Placer Dome (100%) 146 Anglo American Vale do Rio Doce BHP Billiton 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 Cerro Colorado Quebrada Blanca BHP Billiton (100%) 116 Aur Resources (76.5%), Inversiones Mineras S.A. (13.5%), Enami (10%) 82
Chile-Japan: Copper Mining Nittetsu Mining Mitusubishi Corp Mitsui Nippon Mining Sumitomo Corp. Pan Pacific Marubeni Collahuasi Escondida Candelaria Los Pelambres Japan Copper Concentrate Chile Regalito Project Atakama Kozan Smelters Mining Projects Investment Copper Mines
Japan-Chile: Copper Mining Related Business Estimated Investment in Copper Mining in Chile (2007-2011) : US$ 11.400 Million Potential Business (2007-2011): US$ 1.430 Mill/yr..supplies US$ 570 Mill/yr... investment goods US$ 2.500 Mill/yr.services
Opportunities for mining related business Energy efficiency and water management New technologies for mining exploration Management software Information and communication technologies (ITC s) Environmental technology Mine closures Modeling, simulation & robotic Designing Logistic Bioleaching
The Challenge: Sustainable Development sharing business complementing both economies strengthening friendship between our nations.
Mining Investment and Mining Business in Chile Eduardo Titelman Chilean Copper Commission www.cochilco.cl JOGMEC, Tokyo March 6 th, 2007