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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

Chilean Copper Commission

01

NET CASH COST C3 VS COPPER PRICE

(¢US$/LB)

Source: Cochilco and Woodmackenzie Q32017

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

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

68,4 65,8 65,5 66,2 64,8 72,5100,9 102,2

143,7

140,7159,9

195,4

223,3

217,6

222,7228,9

209,1

211,8

75,5 80,0

112,5120,9

167,7

136,9151,6

178,1

222,5

231,8

222,2207,0

191,7 188,2

8272 71

81

130

167

305323

315

234

342

400

361

332

311

249 221

274

0

50

100

150

200

250

300

350

400

450

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

(f)

¢US$

/lb

Chile Rest of the World Refined Copper Price LME

0

50

100

150

200

250

1.500 6.500 11.500 16.500 21.500 26.500 31.500 36.500

Ne

t C

ash

Co

st C

3 (

¢US$

/lb

)

Paid Metal(Mlbs)

Chile2017 (f)211,8

¢US$/lb

Chile 200068,4 ¢US$/lb

2017 (f)2000

WORLD COPPER NET CASH COST C3 CURVES

2000 VS 2017(F)

• 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

0

50

100

150

200

250

1.500 6.500 11.500 16.500 21.500 26.500 31.500 36.500

Cas

h C

ost

C1

(¢U

S$/l

b)

Paid Metal(Mlbs)

Chile2017 (f)139,4 US$/lb

Chile 2000 44,5 ¢US$/lb

2017 (f)2000

WORLD COPPER CASH COST C1 CURVES

2000 VS 2017(F)

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

Source: Cochilco and Woodmackenzie Q32017

COST OF LARGE MINING COMPANIES IN

CHILE- KEY FACTORS02

Chilean Copper Commission

VARIATION PER ELEMENT CASH COST - CHILE

2000-2016 (¢US/LB)

Source: Cochilco based on Woodmackenzie Q32016

44,5

134,3

-15,2

-7,0

+ 2,7

+ 4,0

+ 5,0

+ 9,9

+ 10,8

+ 20,2

+ 24,3

+ 35,1

C1 Cash Cost 2000

BP Credit

Deferred Costs

Conc Freight

Diesel

Acid

Power

TC RC y Marketing

Services & Contractors

Other Consumables

Labour

C1 Cash Cost 2016

VARIATION PER ELEMENT NET CASH COST - CHILE

2000-2016 (¢US/LB)

68,4

209,1

+ 3,3

+ 5,3

+ 5,3

+ 36,9

+89,9

C3 Net Cash Cost 2000

Interest

Corporate Overheads

Other

Depreciation

Cash Cost C1

C3 Net Cash Cost 2016

Source: Cochilco based on Woodmackenzie Q32016

AVERAGE COPPER MINING GRADES IN CHILE

1999-2016

• 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

0,0

0,2

0,4

0,6

0,8

1,0

1,2

1,4

1,6

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

GR

AD

ES A

VER

AG

E (%

)

AVERAGE COPPER MINING GRADES

CHILE VS WORLD 2005-2016

• 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

Concentrator Plant Heap Leach

0,0

0,2

0,4

0,6

0,8

1,0

1,2

1,4

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

OR

E G

RA

DE

(%)

Chile World

0,0

0,2

0,4

0,6

0,8

1,0

1,2

1,4

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

OR

E G

RA

DE

(%)

Chile World

ENERGY AND DIESEL

WTI Crude OilChilean EnergyPMM SING y SIC (*)

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

Source: Cochilco

Lower generation cost due to the fall in the price of diesel, improvements in efficiency in existing processes and the incorporation of cheaper technologies (NCRE).

Growth of supply (new alternatives for extraction and others.) and lower demand (China and Europe), have caused the decrease in oil prices.

0

20

40

60

80

100

120

2001

2002

2003

2004

200

5

2006

2007

2008

2009

2010

2011

2012

201

3

2014

2015

2016

2017

(US$/Barrel)

0

20

40

60

80

100

120

140

160

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

(US$/Mwh)

SING SIC

2012-2017 (jun){-22- to -28%}

2013-2017 (jun)(-50%)

ENERGY AND DIESEL

WTI Crude OilChilean EnergyPMM SING y SIC (*)

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

Source: Cochilco

Lower generation cost due to the fall in the price of diesel, improvements in efficiency in existing processes and the incorporation of cheaper technologies (NCRE).

Growth of supply (new alternatives for extraction and others.) and lower demand (China and Europe), have caused the decrease in oil prices.

0

20

40

60

80

100

120

2001

2002

2003

2004

200

5

2006

2007

2008

2009

2010

2011

2012

201

3

2014

2015

2016

2017

(US$/Barrel)

0

20

40

60

80

100

120

140

160

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

(US$/Mwh)

SING SIC

2012-2017 (jun){-22- to -28%}

2013-2017 (jun)(-50%)

PRICE VARIATION OF SOME IMPORTED MINING INPUTS BASE 2005 = 100

Source: Cochilco

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.

100,0104,0

94,6

83,1

65,0

72,8 73,477,8

0

20

40

60

80

100

120

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

Price Index of imported inputs Price Index of imported inputs (without diesel)

SCALE IS RELEVANT BUT NOT DETERMINANT

Source: Cochilco

0

50

100

150

200

250

300

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

Co

chilc

o C

ash

Co

st(¢

US$

/LB

Avg

IIIQ

16

-IIq

20

17)

Quarterly Copper Production(KTMF Avg IIIQ16-IIq2017)

GEOGRAFICAL REGIONS ARE NOT DETERMINANT

Source: Cochilco

-

50,0

100,0

150,0

200,0

250,0

I II III IV V VI

Co

chilc

o C

ash

Co

st(¢

US$

/LB

)

CASH COST COCHILCO (¢US$/lb)

2014 vs 2017 (accumulated up to June) 03

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.

Acid1%

Power8%

Diesel3%

Labour12%

Services and Others

29%

Freight2%

Consumables17%

Depreciation28%

OPERATIONAL COST OF LARGE CHILEAN COPPER MINING (%)

Q1 2017

Source: Cochilco

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

21 PRODUCERS - LARGE COPPER MINING

Source: “Observatorio de Costos” Cochilco

(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%

91,2%

Operation Main ControllerAccumulated production to June

Representativeness

176,5

148,1

168,8

154,1149,3

146,3

156,1

144,8

162,7

148,2

157,4

146,8

161,3

130,4 130,3

120,9

128,1

146,2

130,1

100

110

120

130

140

150

160

170

180

20

12

Q4

20

13

Q1

20

13

Q2

20

13

Q3

20

13

Q4

20

14

Q1

20

14

Q2

20

14

Q3

20

14

Q4

20

15

Q1

20

15

Q2

20

15

Q3

20

15

Q4

20

16

Q1

20

16

Q2

20

16

Q3

20

16

Q4

20

17

Q1

20

17

Q2

Ca

sh C

ost

¢U

S$

/lb

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

LARGE COPPER MINING

Source: “Observatorio de Costos” Cochilco

2016: Strong

decrease in costs

EscondidaLabor strike

impacted production

CASH COST (C1) LARGE COPPER MINING

2015 VS 2016

Source: “Observatorio de Costos” Cochilco

0

50

100

150

200

250

300

350

0% 25% 50% 75% 100%

Cas

h C

ost

Co

chilc

o(¢

US$

/lb

)

Producción Acumulada (%)

Cash Cost2015

Cash Cost2016

1er cuartil 2do cuartil 3er cuartil 4to cuartil

Lower cost

CASH COST COCHILCO (¢US$/LB)

2015 VS 2016 (Accumulated Costs)

• Strong incidence of lower costs of

Services.

• During 2016, a large part of the mining

companies finalized their adjustment

processes.

• High impact of lower ore grades, which in

some cases was compensated with

increased tonnage processed.Cash Cost 2016

(¢US$/lb) 127,4

Cash Cost 2015

(¢US$/lb) 153,5

• Throughout 2016, costs were favored by a

higher value of the average exchange rate

and lower energy / fuel prices.

Source: Cochilco

Managementefforts

Market factors

Lower Ore Grades

-26,5

-7,0

+7,3

CASH COST COCHILCO (¢US$/LB)

2016 vs 2017 (accumulated up to June)

• The lower copper production impacts on lower

purchases of materials and consumption of

Energy and Fuels.

• Higher prices of byproducts (subtracted from cost)

and lower prices of materials and services

(among others), help to counteract the strong

impact of the lower price of the dollar.

• In the first semester, the impact of the fall of 10%

in the production of the sample of 21 operations (-

252 ktmf) is maintained.Cash Cost 2017

(¢US$/lb) 137,8

Cash Cost 2016

(¢US$/lb) 129,7

Source: Cochilco

ManagementEfforts

Market Factors

Lower Prodution

-1,6

-4,0

+13,7

+ 8,0 ¢US$/lb

1.203 ktmf52%

1.097 ktmf48%

CASH COST COCHILCO (C1)

2016 vs 2017 (accumulated up to June)

Source: Cochilco

8 operations

decreased their

costs C1

13 operations

increased their

costs C1

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

Cash Cost Cochilco

(¢US$/lb)N° Mining

OperationsAverage

0

50

100

150

200

250

300

0% 25% 50% 75% 100%

Cas

h C

ost

Co

chilc

o(¢

US$

/lb

)

Producción Acumulada (%)

Cash Cost30 junio 2016

Cash Cost30 junio 2017

CASH COST COCHILCO (C1) CURVE

2016 vs 2017 (accumulated up to June)

Source: Cochilco

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

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

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

Source: Cochilco

Increase item “Services and others", with strong impact of the fall of the

dollar.

Increase of the diesel (+ 27%)

Increase quarterly of power average prices of

free client contracts, especially in the SING (+

21%).

Higher Au, Ag and Mo prices => higher credits

for by-products

TC/RC = Treatment and Refining Charges

Slight increase in average own endowments (+ 2%)

Cash Cost Cochilco (¢US$/lb)

2016 (accumulated to June) 129,7

By product credit -7,7

Acid -0,4

TC/RC y Marketing -0,1

Consumables 0,2

Freight 0,3

Diesel 1,1

Power 2,1

Labour 3,8

Services and Others 8,7

2017 (accumulated to June) 137,8

Variación (¢US$/lb) + 8

Source: Cochilco

Average price of the dollar falls $ 30 (-4%) and

negatively impacts on costs in Chilean peso

Increase the production of by-products and lower consumption of materials, energy and fuels.

Higher price by-products and lower prices of services, materials, H2SO4 and TC-RC

Copper production decreased 252 ktmf

(-10%).

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

Cash Cost Cochilco (¢US$/lb)

2016 (accumulated to June) 129,7

Quantity Effect (Inputs, workers, q consumptions, etc.) -1,5

Prices effect (Supplies, Personnel, Consumptions, etc.) -12,0

CPI effect, exchange rate and IPM USA 7,9

Lower Production 13,7

2017 (accumulated to June) 137,8

Variación (¢US$/lb) + 8

FUTURE TRENDS04

Chilean Copper Commission

8.116 9.046

10.242

13.016

10.954

16.584

20.524 19.027

16.561 17.726

11.624

16.400

-

5.000

10.000

15.000

20.000

25.000

CAPEX/TMF (USD/TMFY)

CAPEX INTENSITY TREND FOLLOW THE PRICE

(USD

/TM

FY)

Source: Cochilco

Source: CochilcoCreating value

Mining Ecosystem

Productions Productivity

Community Participations

Market Share

Investment Climate

Funding Human Capital

Innovations policies

Infrastructure

Environmental Governance Tech Transf

Water Land Electricity

Geological potential

Communities Environment

Government

Universities and TC

Workers NGOJunior C.

Providers Codelco S&M Mining

Mayor C.

Sustainable basis

Key Drivers

Market drivers

Players

Strategies

Pillars

Main Goal

COST CONTROL IS KEY FACTOR FOR LONG TERM SUSTAINABILITY

STRATEGY FOR ENHANCING CASH COSTS COMPETITIVENESS

Main goal

Strategies

Players

Reducing costs

Productivity Innovations

Mining Co Providers

Universities Tech C

Policies & Programs

ALTA LEY CLUSTER ANTOFAGASTA

CORFO CONICYT

FIE FCH Expande

Creating value

Government

FINAL REMARKS05

Chilean Copper Commission

FINAL REMARKS

• The Chilean mining lost competitiveness in terms ofcash cost, mainly for decreasing in ore grades, andincrease in CAPEX because the inflation in the keyinputs.

• In recent years the cost control has becoming apriority for companies and the government and hasbeen one of the focus in the policies.

• The strategies to recovery cash cost competitivenessis focusing policies in improving productivity andincreasing 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