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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
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