Chile Mining Market Brief: Trends & Opportunities for

Chile Mining Market Brief: Trends & Opportunities for Australian METS

March 24th, 2021Eric MedelMarket and Industry Analyst [email protected]

Juan Carlos GuajardoExecutive [email protected]

Tomas RosasPolitical and Regulatory [email protected]

Carola CerdaMarket and Industry [email protected]

Matias MarañonMarket and Strategy [email protected]

2

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

3

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.

4

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

5

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.

6

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).

7

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 [%]

8

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


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

12

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.


13

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


The Covid-19 pandemic could also lead to structural changes……such as local rather than global supplier networks

14

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)


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

15

+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


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 [email protected]

Juan Carlos GuajardoExecutive [email protected]

Tomas RosasPolitical and Regulatory [email protected]

Carola CerdaMarket and Industry [email protected]

Matias MarañonMarket and Strategy [email protected]

Documents

Chile Mining Market Brief: Trends & Opportunities for