CHILE’S MINING INDUSTRY ON A GLOBAL SCALE PEDRO PABLO DÍAZ HERRERA AMBASSADOR OF CHILE TO AUSTRALIA Brisbane, 18th May 2011
• Chile-Australia AUSTRALIA CHILE Population 21,766,711 (July 2010 est.) 16,746,491 (July 2010 est.) GDP PPP (2010) 889.6 billion 260 billion GDP PPP (2009-2010) 3% 5.3% GDP PPP per capita (2010) 41,300 15,000 Work Force (2010) 11.62 million 7.58 million Unemployment (2010) 5.10% 9% Inflation rate (2010) 2.9% 1.7% Exports (2010) 210.7 billion 64.28 billion Imports (2010) 200.4 billion 54.23 billion source: CIA factbook Figures in US$ 2010 INTERNATIONAL INDICES NAME SOURCE NUMBER OF PARTICIPANTS CHILE'S POSITION AUSTRALIA'S POSITION Economic Freedom Index 2010 Heritage Foundation, Wall Street Journal 179 10 3 Quality of Life Index 2010 International Living 194 31 2 Environmental Performance Index 2010 Yale University-Colombia University 163 16 51 Human Development Index 2010 United Nations Development Program 169 45 2 Gender Inequality Index 2010 World Economic Forum 134 48 23 Travel and Tourism Competitiveness Index 2011 World Economic Forum 139 57 13
• Content CHILE’S MINING INDUSTRY ON A GLOBAL SCALE I. CHILE: A MINING COUNTRY II. KEYS OF SUCCESS III. OTHER LEGAL ASPECTS IV. CURRENT TRENDS 3 3
• I.- Chile: A Mining country 1.1. Chilean mining industry: Its worldwide relevance. Production (TT) Metallic Mining / Worldwide Worldwide production production ranking percentage (2009) Industrial Mining 1 ° 34.2% Copper 5,389,600 15.3% 3 ° Molybdenum 34,924 1 ° 48% Rhenium 25.000 5 ° 7.1% Silver 1,301 15 ° 1.8% 40,8 Gold 1 ° 100% Naturals Nitrates 1,048,706 53% 1 ° Lithium Carbonate 25,154 1 ° 61% Iodine 17,399 (Source: Cochilco & USGS). 4 4
• I.- Chile: A Mining country 1.2. Mining activity development Chile’s copper production versus worldwide copper production (1974 -2009). (Source: Cochilco). 18.000,0 16.000,0 14.000,0 Worldwide 12.000,0 Chile 10.000,0 8.000,0 6.000,0 4.000,0 2.000,0 0,0 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 5 5
• I.- Chile: A Mining country Chile versus other copper producing countries (1980-2009). (Source: Cochilco) . 6 6
• I Chile: A Mining country Copper production by company (1985-2009). (Source: Chilean Mining Council) . 6.000,0 Others Spence Main worldwide El Tesoro 5.000,0 mining companies Los Pelambres Lomas Bayas present in Chile: 4.000,0 Collahuasi BHP, Xstrata, Anglo El Abra Zaldívar American, Teck, 3.000,0 Quebrada Blanca Barrick, Antofagasta Cerro Colorado Minerals, Freeport, Candelaria 2.000,0 Michilla Kinross in addition to Compañía Minera El Indio Codelco. Escondida 1.000,0 Anglo American Sur Anglo American Norte 0,0 Codelco 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 7 7
• I Chile: A Mining country Sites of the Future: Number of Copper Mining Projects by Country* 1 8 27 1 5 4 1 1 1 22 1 9 2 1 2 2 2 3 17 1 1 1 8 1 3 1 4 16 Country Risk Level:** 6 31 Low risk 6 9 2 Medium – Low risk 1 2 3 Medium risk 21 Medium – High risk 1 High risk 38 4 Very high risk Sources: Brook Hunt, Codelco and AON Group. *: Include High Probably, Probable and Possible projects. **: Include factors like war, terrorism, strikes, sovereign non-payment , political interference, supply chain vulnerability, exchange rate, legal and regulatory, resources of water and food. Jorge Bande | November 2010
• I.- Chile: A Mining country 1.3. The Mining industry’s contribution to the Chilean economy. • Gross Domestic Product • Exports • Fiscal Revenue • Employment • Foreign Investment 9 9
• I.- Chile: A Mining country Gross Domestic Product The mining industry’s participation within 2009 GDP: 16%. Agriculture 3% Fishing 1% Mining 16% Manufacturing 13% Power, Gas & Water 5% Construction 8% Market, restaurants & Hotels 9% Transport 6% Communications 2% Financial Services 16% GDP participation by Area (2009) (Source: Central Bank of Chile) . 10 10
• I.- Chile: A Mining country Fiscal revenue GDP (million US$) Mining revenue (US$) % Participation in GDP (Source: Ministry of Mining) . 12 12
• I.- Chile: A Mining country Employment Estimation: Each direct employment in the mining industry generates 6.5 positions in other areas of the local economy. Contractor Employees Direct mining employment 1990-2009 (Source: Cochilco). 13 13
• I.- Chile: A Mining country Foreign Investment Since 1974, the mining sector represents a 37.2% of the authorized Foreign Investment, and a 32.7% of the materialized Investment. 140000000 Foreign Investment 1974-2009 Thousands of US$ (Source: 120000000 Chilean Foreign Investment Committee) . 100000000 80000000 60000000 Mining 40000000 National Total 20000000 0 Authorized Materialized 14 14
• II.- Keys of success 2.1. Geological potential and exploration 2.2. Mining culture 2.3. New Mining Legislation 2.4. New rules on Foreign Investment 16 16
• II.- Keys of success 2.1. Geological potential and exploration Geological potential Worldwide Copper Reserves Participation in world’s reserve United States 38% Copper Australia Canada 12.8% Molybdenum Chile 52% China Rhenium Indonesia 17.5% Silver Kazakhstan 4.3% Mexico Gold Peru 100% Natural Nitrates Poland Russia 27% Lithium Carbonate Zambia 60% Other Countries Iodine (Source: USGS). 17 17
• II.- Keys of success Investment in exploration • Chilean investment in exploration represents 5% of the worldwide exploration budget in 2009. Other Countries 33% Canada 16% Australia 13% Peru 7% United States 6% Russia 5% Mexico 5% Chile 5% China 4% Brazil 3% South Africa 3% (Source: Metal Economic Group). 18 18
• II.- Keys of success 2.2. Mining Culture • General social agreement about the relevance of the mining activity on Chile’s development and the need to promote its development. • High quality of professionals and specialised manpower. - Mining School of Copiapó (1857). ´ - Mining Engineering Career: international recognition. - Mining Law classes in Law and Business Schools . 19 19
• II.- Keys of success 2.3 New Mining Legislation A. Legal framework B. Mining concessions C. Mining preparatory agreements D. Business structures E. Legal mining easement 20 20
• II.- Keys of success A.-Legal framework Background • Technology and foreign investment’s contribution (1920-1960): Development of the “Large Copper Mining Projects” by American companies. • Economic Model changes (1960-1971): protectionism and statism to mining exploitation and lack of confidence on foreign investment. “Copper Chilienisation ”: modest compensations. (1964 -1970). “Copper Nationalisation” : without compensations. (1971). 21 21
• II.- Keys of success Political Constitution of the Republic of Chile. (“PC”). • The State owns all mines (as general principle). • Ownership of surface lands is different from mining concessions. • Surface lands are subject to obligations and limitations to facilitate mining exploration, exploitation and mineral processing plants. • Minerals, with the exception of gas and liquid hydrocarbons and lithium, can be subject to mining exploration or exploitation concessions. • Ownership over mining concessions is protected by the Property Right’s Guarantee. 22 22
• II.- Keys of success Constitutional Organic Mining Law Nº 18.097 from 1982 (“COM”) • An amendment requires a quorum of 4/7 of every representative and senator on exercise. • Mining concessions’ rights and obligations. • Mining exploration and exploitation concessions. • Mining concession holder’s right to impose a legal easement. 23 23
• II.- Keys of success Mining Code of 1983 • Further development of PC and COM’s regulations. • Mining concessions’ characteristics. • Legal protection of mining concessions (required steps to keep the mining concessions in good standing). • Mining corporations regulation. 24 24
• II.- Keys of success B.-Mining exploration and exploitation concessions. GRANTING Granted on a first-come, first-served basis by a regulated judicial process, EXTINCTION non- subject to a judge’s discretion or CADUCITY an arbitrary decision by the Administration. CONTROVERSIES 25 25
• II.- Keys of success THE SAFETY OF A CONCESSION • Constitutional's Guarantee of Property Rights. • If an exploitation concession is expropriated, the indemnity’s calculation process must consider the present value of future cash flows corresponding to the proved reserve base. • Express causes of caducity and extinction regulated by law. • Independent judicial system, that adheres to the rule of law and due process. 27 27
• II.- Keys of success D.- Business structures General principle: Any kind of companies Contractual mining companies Mining Joint Ventures 30 30
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