mining strategic excellence: south america what …
TRANSCRIPT
September 6, 2016
Nelson PizarroCEO
MINING STRATEGIC EXCELLENCE: SOUTH AMERICA
WHAT NEXT FOR CODELCO? A STRATEGIC OUTLOOK
CHILE MINING COUNTRYSOLID BASIS OF CODELCO
Codelco7%
Chile (exc. Codelco)
22%
Australia12%
Peru12%
USA5%
Mexico6%
Russia4%
China4%
Others28%
Codelco10%
Company 28%
Company 37%
Company 46%
Company 54%
Company 63%
Others62%
LEADERSHIP IN COPPER PRODUCTION LEADERSHIP IN PROVEN AND PROBABLE COPPER RESERVES
Codelco's origins date back to 1971.Since its beginning, Codelco has been the largest copper producer in the world.
CODELCO: HISTORICAL PERFORMANCE
Contribution to Treasury
Copper Production*
Copper pricec/lb, 2015 currencyContribution to Treasury c/lb, 2015 currency
Copper production‘000 fmt
* Includes Codelco’s stake in El Abra and Anglo American Sur.
Copper Price
CODELCO HAS CONTRIBUTED US$104,000 MILLION TO THE STATE OF CHILE AND THE COUNTRY’S DEVELOPMENT AND PROGRESS
450
700
950
1,200
1,450
1,700
1,950
0
20
40
60
80
100
120
1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015
US$ million, 2015 currency ‘000 fmt
1: Includes Codelco’s interest in El Abra and in Anglo American Sur. 2: Percentage of the population living below the national poverty lines.Sources: IMF, BLS and Codelco.
MINING: KEY DRIVER FOR CHILE’S DEVELOPMENT:
1990 2015GDP per capita, PPP (const. 2015 US$) 9,741 23,334Poverty2 (% of population) 38.6 14.4 (2013)Life expectancy at birth, total (years) 72.7 81.5 (2014)
CODELCO: KEY PLAYER / THE REAL DRIVER
2016 Estimation
2017PreliminaryBudget
ANNUAL COPPER PRODUCTION*
ACCUMULATED CONTRIBUTION
0
10
20
30
40
50
0% 20% 40% 60% 80% 100%
URB
CO
N_C
0
10
20
30
40
50
0 10,000 30,000 50,000 70,000 90,000
PPP_C
CO
N_C
GDP per capita (PPP)(US$)
Usa
ge p
er c
apita
(Kg.
)
Urbanization rate(%)
IN THE LONGER TERM, FUNDAMENTALS REMAIN STRONG
Usa
ge p
er c
apita
(Kg.
)
Copper usage per capita and GDP per capita (PPP)
Usage per capita and urbanization rate
WORLD*: COPPER USAGE PER CAPITA, GDP PER CAPITA (PPP) AND URBANIZATION RATE 1980-2015
*: It includes all countries which consume copper.Source: Prepared using data from World Bank, Codelco and IMF.
2015 weighted average: 57%2015 weighted average: US$ 18,100
HEALTHY COPPER
2015 average: 3.7 kg. per capita
• Price of metals down by 51% (copper by 49%)
• Cost of financing up considerably.• Market temporarily in surplus.• Uncertainty about the growth of
China's economy and on global macroeconomics.
THE CHALLENGES AHEAD
MARKET SITUATION: PERFECT STORM • Lower-grade minerals.
• Deeper deposits. • More impurities, making
treatment more difficult.
DETERIORATION OF MINING VARIABLES
• New safety, environmental, health and human rights standards.
• More demanding regulation in markets: the case of smelters.
• Increased accountability. demanded by communities and territories.
• Participative processes.
SUSTAINABILITY
• Scarce water resources, competition for their use
• Energy matrix and management of this critical input for competitiveness
SHORTAGE OF CRITICAL INPUTS
• Adjustment of investments • Financing alternatives
SHORT-TERM VISION ONLY 10% CAPITALISATION
OUR STRATEGY
Strengthen corporate
governance
Manage with safety and
occupational health
Operate in harmony with environment, communities and territory
Strengthen the
organization and
management processes
Create value through
innovation and new
technologies
Incorporate and maximize
talent development
GROWTH BEYOND OUR MINING BASE
PROJECTS AND EXPANSIONS TO TAKE ADVANTAGE OF OUR MINING BASE
CURRENT OPERATIONS: COST CONTROL AND INCREASING PRODUCTIVITY
SUSTAINABILITY AS BUSINESS MODEL
CODELCO'S STRENGTHS
• Leader in copper production: 10% of global production.
• World-class assets: 7% of global copper reserves.
• Second largest molybdenum producer: 10% of global production.
• Long-life reserves and resources (75 years* for reserves and mineral resources; 245 years* for geological resources).
• Portfolio of profitable projects.
• Highly-trained human resources with mining experience.
• Technological and commercial know-how.
• Institutional framework.
I II
*: Weighted average. Source: Based in Annual Report.
0200400600800
1,0001,2001,4001,6001,8002,000
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
STRUCTURAL PROJECTS PRODUCTION
0200400600800
1,0001,2001,4001,6001,8002,000
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
CODELCO: PILLAR OF DEVELOPMENTWHAT NEXT?
CONTINUE TO BE A PILLAR OF CHILE’S DEVELOPMENT
BUT THE ROAD IS NOT EASY
Develop 7 Structural Projects.
CODELCO IDENTIFIES SUSTAINABILITY AS ITS BUSINESS MODEL
Address changes in the business environment.
‘000 tonnes
CURRENT OPERATION WITHOUT PROJECTS*
* Includes Traspaso Andina Project.
Productivity, no matter what
Address the present through cost savings
Assure the future through innovation
COST CONTROL AND HIGHER PRODUCTIVITY
1
2
COST CONTROL PROGRAMME IS STEADILY DELIVERING EXPECTED RESULTS
c/lb
164 163
150
139
128
110
120
130
140
150
160
170
2012 2013 2014 2015 2016Jan-Jun
CODELCO CASH COST C1
Productivity gains Lower input prices (exchange rates, energy, fuels, other supplies and services)
Despite 36% lower molybdenum prices in 2015, Codelco has
reduced its costs significantly
2015 Cost Reductions: Main Drivers
500
750
1,000
1,250
1,500
1,750
2,000
2012 2013 2014 2015 2015Jan-Jun
2016Jan-Jun
Divisiones El Abra AAS
FOCUS ON PRODUCTIVITY AND COST MANAGEMENT HAS REDUCED THE FINANCIAL IMPACT OF COPPER PRICE DECREASE
Adjusted EBITDA Margin (%)
Copper Price c/lb
*: 2012 Adjusted EBITDA excludes the extraordinary fair value accounting effect of Anglo American Sur 20% acquisition. Law 13,196 considered as a tax.
‘000 tonnes
361
332
311
249
269
213
150
200
250
300
350
400
0
13
26
39
52
65
2012* 2013 2014 2015 2015Jan-Jun
2016Jan-Jun
Mining EBITDA Margin (%) Copper Price
1,7921,841
Total Copper Production Mining EBITDA Margin and Copper Price
1,891
1,758
906910
Permanent Good Practices
management
PRODUCTIVITY AND COSTS AGENDAGOAL 2020: US$ 2,000 MILLION IN COST REDUCTION
Valu
e
2016 2017 2018 2019 2020
Integrated management of the Productivity Agenda and
incorporation of disruptive initiatives
Development of the Productivity Agenda and kick off of initial
corporate initiatives
Productivity as part of the regular management of the Corporation,
results in sustainability and growth
Efficient Accreditation
Maintenance Planning
Optimization
Services Productivity Model
Implies
Positively contribute to Codelco's
Competitiveness
IMPLIES
New Third Party Management
Practices
New China-Low Cost Procurement
Office Strategy
C+ Lean as part of corporate
management
Innovation applied to the Divisions
District Contracts
Optimization
Installation of Proactive
Maintenance
Inventory Optimization
EARLY RESULTS (US$ million)
2015 2016 2017 - 2020
≈ 500 237 - 300 2,000
At Codelco, innovation will focus
primarily on transforming
knowledge into value.
Research
Innovation
Value Knowledge
Innovation is to create economic, environmental and social value from knowledge.
Research is to create knowledge from economic value.
Source: Dr. Hartmut Raffler, VP Innovation, Siemens.
FOCUS ON APPLICATION OF INNOVATION
ASSURING THE FUTUREINNOVATION TO ADDRESS DETERIORATION OF MINING VARIABLES
LOWER GRADES, GREATER DEPTHS AND MORE COMPLEX ORES
0
0.2
0.4
0.6
0.8
1
1.2
1.4
2016 2018 2020 2022 2024 2026 2028
As C
onte
nt (%
)
DEEPER1
1.00
0.71
Sources: 1.¨Factores claves es que inciden en que inciden en el desarrollo de la exploración minera en Chile¨, Cochilco (2012); 2. Internal Data, Codelco (2016) 3. ¨Minería en cifras¨, Consejo Minero (2016)
MORE COMPLEX2 LOWER GRADES3
Rock outcrop
Blind rocks
Covered rocks
Down 29% from 2004 to 2014
EXPENDITURE ON INNOVATION AT CODELCO
0.0%
0.4%
0.8%
1.2%
1.6%
2.0%
2.4%
0
50
100
150
200
250
300
2010 2011 2012 2013 2014 2015 2016 E
% COPPER EFFECTIVE SALES
1,5% COPPER SALES
INNOVATION EFFECTIVE SPENDING
INNOVATION SPENDING(ASSUMING 1.5% COPPER SALES)
• Spending on Innovation, for a company, should tend to 1.5% of sales.
• Innovation should be seen as an investment, managed with method and discipline.
US$ million % copper sales
INNOVATION MANAGEMENT SYSTEM IN CODELCO
CodelcoTec
Suppliers and Technology Partners
• The results are the result of amethodical and disciplinedprocess, developed within aManagement Innovation System.
Corporate Strategy
Results
Innovation Process & R+D
Strategic Level
Execution Level
Enablers
Support
I
II
III
IV
Role, Goals and Aims of Innovation
Innovation Portfolio Management
Innovation & R+D Project management
Intra- entrepreneurs management
Control People and Incentives Marketing Technology
Vigilance
R&D Centers and
Network
Resources
Organization
CURRENT FOCUS OF R&D IN CODELCO
ROBOTIC CONCENTRATE SAMPLING
SEMI-AUTONOMOUS LHDsLEACHING OF SULPHIDES
GRADE > 2% GRADE ~ 0,5%
• BREAKTHROUGHS FOR COMPETITIVE ADVANTAGES
– Increased productivity and lesser environmental impact / Leaching of sulphides
• SOLUTION OF OPERATIONAL DIFFICULTIES
– Hazardous areas of pits / Remote mining.
– Operational control / Robotic concentrate sampling.
– Preventive maintenance / Big data.
• TRANSFORMATION OF RESOURCES INTO RESERVES
– Increased productivity and safety / Semi-autonomous LHDs.
– More impurities / Processing of complex concentrates.
MINING OPERATIONS
Stage
CODELCO IS SO FAR WORKING ON SEVERAL CORPORATE INITIATIVES TO INCREASE ITS COMPETITIVENESS
Impact
Tailings dams metals recovery
Integrated Corporate Information CenterBath Smelting
instrumentation
Engineering improvement Biosigma
Hangout Handler
Autonomous trucks software update
Electro-oxidation leaching
LHD Semi -Autonomous
Tires treatment
High productivity pit technologies
Continuous conversion
In addition,• Codelco is working with several companies on innovative developments in divisional projects.• Redefinition of the Cluster as an Open Innovation Strategy.• Technological cooperation agreements with leading global companies.
• This year, CodelcoTec is being developed by merging all the technological subsidiaries.• It is installing a Management Innovation System at corporate level and in all divisions.
Examples of innovation initiatives
EnargitaSelective Flotation
ProcessesPitUndergroundSmelting & refining
Sustainability
Automation
Technological conceptualization
Experimentation Industrial validation Basic engineering
Implementation Operation
SUMMARY
• Large mining resource base.
• High-quality projects underpinned by our mining base.
• Focus on operating cost control and productivity.
• Innovation and technology geared to enhancing productivity.
• High credit rating.
• Optimisation of investments through the cycle.
• Experienced management with proven track record.
• Strong owner support.
CODELCO'S STRENGHT AND FUTURE GROWTH