Post on 02-Jul-2022
Chile Mining Market Brief: Trends & Opportunities for Australian METS
March 24th, 2021Eric MedelMarket and Industry Analyst eric.medel@plusmining.com
Juan Carlos GuajardoExecutive Directorjuan.carlos.guajardo@plusmining.com
Tomas RosasPolitical and Regulatory Analysttomas.rosas@plusmining.com
Carola CerdaMarket and Industry Analystcarola.cerda@plusmining.com
Matias MarañonMarket and Strategy Analystmatias.maranon@plusmining.com
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Chile’s mining: At the top in Cu and Li……plus relevant production in precious metals, minor metals (Mo and Re) and Iodine
* Iodine, Silver, Zinc, Nitrate, Borates, Salt, Sulfates, Arsenic and Siliceous earths.
Chile’s Share in Global Production and Reserves by Element 2020 Chile’s Average Annual Exports and Share for 2015-2019
Source: Plusmining based on Cochilco, USGS, 2021.
# Element BUS$ % Chile's Mineral Export
1 Cu 32.2 87.1%
2 Mo 1.3 3.6%
3 Iron Ore 0.8 2.3%
4 Au 0.8 2.0%
5 Li 0.6 1.7%
- Others* 1.2 3.3%
67%
57%
29%
22%19%
5%10%
54%
23%
44%
8%5%
I Re Cu Li Mo Ag
2020 Mine Production 2020 Reserves
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The Chilean mining gathers some of the largest international Majors
Source: Plusmining based on Central Bank of Chile, Cochilco, 2019.
Operation Owners Mine Cu Prod. 2020 [ktCu]
Escondida BHP (57.5%), Rio Tinto (30%) & Others (12.5%) 1,187Collahuasi Anglo American plc (44%), Glencore (44%) & JCR (12%) 629El Teniente Codelco 443
Chuquicamata Codelco 401Los Pelambres Antofagasta plc (60%), Nippon (25%) & MM LP Holding (15%) 372
Los Bronces Anglo American plc (50.1%), Codelco-Mitsui (29.5%) & Mitsubishi (20.4%) 325Radomiro Tomic Codelco 261
Centinela Antofagasta plc (70%) & Marubeni Corp. (30%) 247Andina Codelco 185
Ministro Hales Codelco 171Sierra Gorda KGHM International (55%), Sumitomo (45%) 156
Spence BHP 146Caserones Pan Pacific Copper (77.4%), Mitsui & Co. (22.6%) 126
Gabriel Mistral Codelco 102Zaldívar Barrick (50%) Antofagasta Minerals (50%) 97
Candelaria Lundin Mining (80%) & Sumitomo Corp. (20%) 95Antucoya Antofagasta Minerals (70%) & Marubeni Corp. (30%) 79
Lomas Bayas Glencore 74El Abra Freeport-McMoRan (51%), Codelco (49%) 72
Cerro Colorado BHP 69Carmen de Andacollo Teck (90%) & Enami (10%) 57
Salvador Codelco 56Quebrada Blanca Teck (60%), Sumitomo (30%) & Enami (10%) 13
Franke KGHM International 13EV & MC*
BUS$ 36 BUS$ 25 BUS$ 16 NA BUS$ 23 BUS$ 15
* EV: Enterprise Value, MC: Market Capitalization.
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Chile’s copper mining industry has been subject to three stages of expansion over 1960-2020……highlighting the maturity of this sector in the country
Source: Plusmining based on Cochilco, 2021.
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
Codelco Rest of Chile
2020
ktCu
Stage Years Hints CAGRSlow
Growth1960-1990
Nationalism and Militar Goverment 3.7%
Expansion 1990-2004
Democracy and Private Mining 9.2%
Consoli-dation
2004-2013 Supercycle 0.7%
Stagnation 2013-2020
Post-Supercycle and Political Inestability 0.03%
1. Competitive geological assets abroad
2. Regulatory complexation
3. Political/Institutionality uncertainties
4. Constrained exploration activity
5. Rising technical/supply challenges
Chile’s Mine Copper Production in a Historical Perspective 1960 – 2020 [ktCu]
EXPANSION CONSOLIDATION STAGNATION
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Along with the supercycle, Chile’s mining experience a rapid increases in costs, which has not been reverted
Source: Plusmining based on Comisión Nacional de Productividad, 2017, and Cochilco, 2019.
Copper Price vs Chile’s C3 Costs 2001 – 2018 [cUS$]
Partially explained by a Total Factor Productivity (TFP) fall of 14% for the 2000-2014 period
TFP* in Chile’s Copper Mining 2000 – 2014 [Baseline 2000=100]
* Productivity of copper mining measured as Total Factor Productivity (TFP) corrected by endogenous and exogenous factors to the operation. The TFP shows a drop of 1% per year between 2000-2014.
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Squeezing the profits of the sector and putting the focus on optimization
Source: Plusmining, 2020.
0
50
100
150
200
250
300
350
400
450
-10%
0%
10%
20%
30%
40%
50%
60%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
LME Copper Price (U
S$/lb)Pr
ofit
Mar
gin
(%)
Average Profit Margin (%) LME Copper Nominal
Average Net Profit Margin of Chile’s Copper Mining Industry [%, LHS] vs Copper Price [cUS$/lb, RHS] 2001 – 2019
* Net Profit Margin = Net Profits (or Income) / Net Sales (or Revenue).
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But growth options for production in Chile are increasingly challengedIn fact, to get one ton of copper...
Source: Plusmining based on Cochilco, 2018.
2008 2018
100 ton ofrock
135 ton ofrock
6.300 MWh 8.830 MWh
5 km 9 km
67 m3 47 m3
1.18%
0.78%1.01%
0.51%
2002
2004
2006
2008
2010
2012
2014
2016
2018
Concentrator
Leaching
…Water consumed:
... the amountof ore to be processed:
… Energy used:
…Distance made:
Feeding Copper Grade by Process 2002 -2018 [%]
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Today, 60% of the Chile’s copper mining cash flows goes to operational costs……discounting direct labor and contractors, 50% goes to international suppliers
Chile’s Copper Mining Cash Flows and Distribution of Operational Cost* 2019 [MUS$, %]
Source: Plusmining, Consejo Minero based on financial statement of members companies and Cochilco, 2020.
* Discounting Depreciation and Amortization that represents 26% of the operational costs.
20,00045%
9,00020%
7,00016%
5,00011%
3,7008%
Operational Costs
Investments
Dep. & Amort.
Dividends
Taxes
10,80054%
4,30022%
2,20011%
1,1005%
8004%
8004%
Own Workers +Contractors
Materials
Electric Energy
Fuel Oil
Sulfuric Acid
Freight
9Source: Plusmining, 2021.
Mining
Open Pit
Trucks automa-tization
Hydrogen as fuel
Vertical conveyors
Big data & AI
Underground
Cont. mining (boring
machine)
Big data & AI
Electrifi-cation
Recovery
Concentration
Coarse grinding
Coarse flotation
Ore sorting
Big data & AI
Leaching
Primary sulfide
leaching
Secondary sulfide
leaching
Leaching in-situ
Water/Waste Management
Arsenic stabili-zation
Water recovery
Therefore, the Chilean mining industry is searching for technological improvement and breakthroughs focused on more efficiency, safety and circular activity
Mapping the Chilean Mining Orientation in R&D+i
10
10%
90%
BF GF
IN THE ROW, 90% OF THECOPPER PROJECTS AREGREENFIELD*…
WHILE IN CHILE, 90% OF THECOPPER PROJECTS AREBROWNFIELD*…
90%
10%
BF GF
About 60% of the new copper production will come from America……of which 40% comes from the challenging Chilean brownfield-based portfolio
Source: Plusmining, 2021.
Fresh Cu Mine Production by Region 2020 – 2025 [kt Cu]
* Discounting Depreciation and Amortization that represents 26% of the operational costs.
11Source: Plusmining based on Eduardo Agüero Prado, 2018.
CAPEX Overrun as Total Investment over Feasibility Estimates [%] For Selected Projects in Cu, Au and Iron Ore between 2006 and 2016
1% 1% 2% 3% 6% 9% 10%
11%
12% 14%
15%
17% 20
%20
%34
%35
%35
%37
%59
%60
% 63%
75%
76%
86%
100% 10
9%0% 0% 0%
5% 7% 8% 11% 15
% 19% 22
%23
% 27%
29%
30%
50%
52% 61
%89
%11
3%5.
9%17
.7%
18.9
%25
.0%
25.4
% 36.7
%42
.6%
43.8
%
0%
15%
30%
45%
60%
75%
90%
105%
120%
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Copper Gold Iron ore
Avg. Copper overrun = 35%
Avg. Gold overrun = 30%
Avg. Iron Ore overrun = 27%
Feasibility threshold = 15%
Avoiding investments overrun will be key in the next 5 years
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Moreover, the Chilean mining faces several challenges in terms of infrastructure and logisticsMAJOR FACTORS RESHAPING IT
Productive matrix, water scarcity, national/international environmental regulations, climate change, and urban expansion
TRANSPORT AND LOGISTIC
Collapse of the logistics system in the largest mining region (Antofagasta) Railroad expansions being evaluated
PORT ADAPTATION
Bulk transport and intensification of storm
WATER SUPPLY
North-Central Chile’s water stress: Top political priority Country plan: desalination plants vs. water highways?
CONCENTRATES’ FOOTPRINT REDUCTION
Europe and China aiming to reduce import of As/Hg in raw materials►Potential split in the concentrates market
Long-term solutions will be “in minesite”►Blending, roasting, pre-conditioning, etc.
Source: Plusmining, 2021.
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Pandemic Related Risks and Trends in the Chilean Mining Industry
Third-party Contractors & Services
Short-termShift towards
modular, ready-to-assembly solutions
Long-termMore “integral contracts” with
less people
Production
Short-termLack of
equipment maintenance and mining
services Lack of mine development
Long-termReformulations
to maintenance methods to
improve social distancing
Investment
Short-termDelays already materialized in several projects
Long-termInvestment in
integral services packed
up in larger contracts
Labor
Short-termIncreased on-
site productivity in
some operations
Long-termAcceleration of
autonomous and automated
equipment: specially in
hauling trucks and drilling equipment
Source: Plusmining, 2021.
The Covid-19 pandemic could also lead to structural changes……such as local rather than global supplier networks
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America is entering a new stage of transformations where nationalism is looming…Coupled with greater adoption of environmental and sustainability standardsPOLITICAL ISSUES
• Generalized political challenges
• Social unrest in Chile, Colombia, Ecuador, Bolivia, Costa Rica, Venezuela
• Upcoming elections:Year Elections
2020Bolivia (Presidential)Chile (Referendum)Venezuela (Parliament)
2021 Ecuador (Presidential)Peru (Presidential)Peru (Parliament)Chile (Various)
2022Colombia (Presidential)Brazil (Presidential)Costa Rica (Presidential)
Source: Plusmining, 2021.
ENVIRONMENTAL LIABILITIES
• Environmental Kuznets Curve: Level of nations development linked to environment deterioration
• Mining and other industries face a new environmental reality
• Chile still has a deficiency regarding the treatment of environmental liabilities but is taking steps based on the Circular Economy model
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+Efficiency and Process Optimization
Accelerate search for breakthroughs
Engagement with local communities & Stakeholders
Capitalisms
ESG adoption & Circular Economy
Mining is also being transformed by global trends
Source: Plusmining, 2021.
Better life quality
Environment protection
Domestic political pressures, Geopolitical and
Critical/Strategic Minerals
Technological revolutions
TREN
DSR
ESPON
SE
Disclaimer
This document and information contained are considered confidentialand thus may not be distributed to anyone outside Austmine
without Plusmining‘s prior written consent.
www.plusmining.com
LatAm’s Political and Economic Environment and Trends in the Mining Industry
March 24th, 2021Eric MedelMarket and Industry Analyst eric.medel@plusmining.com
Juan Carlos GuajardoExecutive Directorjuan.carlos.guajardo@plusmining.com
Tomas RosasPolitical and Regulatory Analysttomas.rosas@plusmining.com
Carola CerdaMarket and Industry Analystcarola.cerda@plusmining.com
Matias MarañonMarket and Strategy Analystmatias.maranon@plusmining.com