CHILES MINING INDUSTRY ON A GLOBAL SCALE PEDRO PABLO DAZ HERRERA - - PowerPoint PPT Presentation

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

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• Content

I. CHILE: A MINING COUNTRY II. KEYS OF SUCCESS III. OTHER LEGAL ASPECTS IV. CURRENT TRENDS

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CHILE’S MINING INDUSTRY ON A GLOBAL SCALE

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Metallic Mining / Industrial Mining

Copper Molybdenum Rhenium Silver Gold Naturals Nitrates Lithium Carbonate Iodine

• I.- Chile: A Mining country

1.1. Chilean mining industry: Its worldwide relevance.

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Production (TT) (2009) 5,389,600 34,924 25.000 1,301 40,8 1,048,706 25,154 17,399 Worldwide production ranking 1° 3° 1° 5° 15° 1° 1° 1° Worldwide production percentage 34.2% 15.3% 48% 7.1% 1.8% 100% 53% 61% (Source: Cochilco & USGS).

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• I.- Chile: A Mining country

1.2. Mining activity development

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Chile’s copper production versus worldwide copper production (1974-2009). (Source: Cochilco).

0,0 2.000,0 4.000,0 6.000,0 8.000,0 10.000,0 12.000,0 14.000,0 16.000,0 18.000,0 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

Worldwide Chile

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• I.- Chile: A Mining country

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Chile versus other copper producing countries (1980-2009).

(Source: Cochilco).

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• I Chile: A Mining country

Copper production by company (1985-2009).

(Source: Chilean Mining Council).

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Main worldwide mining companies present in Chile: BHP, Xstrata, Anglo American, Teck, Barrick, Antofagasta Minerals, Freeport, Kinross in addition to Codelco.

0,0 1.000,0 2.000,0 3.000,0 4.000,0 5.000,0 6.000,0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Others Spence El Tesoro Los Pelambres Lomas Bayas Collahuasi El Abra Zaldívar Quebrada Blanca Cerro Colorado Candelaria Michilla Compañía Minera El Indio Escondida Anglo American Sur Anglo American Norte Codelco

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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.

2 1 4 2 3 6 27 38 9 16 1 1 1 3 8 Low risk Medium –Low risk Medium risk High risk Very high risk Country Risk Level:** Medium – High risk 2 1 1 17 1 2 2 3 31 8 2 1 1 9 1 1 22 1 1

Jorge Bande | November 2010

• I Chile: A Mining country

Sites of the Future: Number of Copper Mining Projects by Country*

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• I.- Chile: A Mining country

1.3. The Mining industry’s contribution to the Chilean economy.

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• Gross Domestic Product
• Exports
• Fiscal Revenue
• Employment
• Foreign Investment

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• I.- Chile: A Mining country

Gross Domestic Product

The mining industry’s participation within 2009 GDP: 16%.

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GDP participation by Area (2009) (Source: Central Bank of Chile).

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%

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• I.- Chile: A Mining country

Fiscal revenue

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Mining revenue (US$) % Participation in GDP

GDP (million US$)

(Source: Ministry of Mining).

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• 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.

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Direct mining employment 1990-2009

(Source: Cochilco). Contractor Employees

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• 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.

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Foreign Investment 1974-2009 Thousands of US$ (Source:

Chilean Foreign Investment Committee).

20000000 40000000 60000000 80000000 100000000 120000000 140000000 Authorized Materialized

Mining National Total

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• 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

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• II.- Keys of success

2.1. Geological potential and exploration Geological potential

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Copper Molybdenum Rhenium Silver Gold Natural Nitrates Lithium Carbonate Iodine Participation in world’s reserve 38% 12.8% 52% 17.5% 4.3% 100% 27% 60%

United States Australia Canada Chile China Indonesia Kazakhstan Mexico Peru Poland Russia Zambia Other Countries

Worldwide Copper Reserves

(Source: USGS).

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• II.- Keys of success

Investment in exploration

• Chilean investment in exploration represents 5% of the

worldwide exploration budget in 2009.

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(Source: Metal Economic Group).

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%

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• II.- Keys of success

2.2. Mining Culture

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• 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 .

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• II.- Keys of success

2.3 New Mining Legislation

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• A. Legal framework
• B. Mining concessions
• C. Mining preparatory agreements
• D. Business structures
• E. Legal mining easement

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• II.- Keys of success

A.-Legal framework

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• 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. Background “Copper Chilienisation”: modest compensations. (1964-1970). “Copper Nationalisation”: without compensations. (1971).

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• II.- Keys of success

Political Constitution of the Republic of Chile. (“PC”).

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• 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.

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• II.- Keys of success

Constitutional Organic Mining Law Nº 18.097 from 1982 (“COM”)

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• 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.

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• II.- Keys of success

Mining Code of 1983

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• 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.

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• II.- Keys of success

B.-Mining exploration and exploitation concessions.

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GRANTING EXTINCTION CADUCITY CONTROVERSIES Granted on a first-come, first-served basis by a regulated judicial process, non-subject to a judge’s discretion or an arbitrary decision by the Administration.

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• II.- Keys of success

THE SAFETY OF A CONCESSION

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• 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.

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• II.- Keys of success

D.- Business structures

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General principle: Any kind of companies Contractual mining companies Mining Joint Ventures

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• II.- Keys of success

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2.4 New rules about foreign investment Clear and solid foreign investment legal framework.

• Framework of both constitutional and legal status.
• Non-discriminatory treatment Principle.
• Non-discretionary Principle.
• Liberalisation of the formal exchange market.
• Right to repatriate funds and remittances of revenue from abroad.

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• III. Other legal aspects

Taxes

Different tax provisions subject to scale and volume of mining industry:

• Small mining companies: to an overall income tax at a certain fixed rate.
• Mid-sized mining companies: taxed on a presumptive basis.
• General system;

Corporate income tax (called First Category Tax), 20% rate in 2011, 18.5% rate in 2012 and 17% rate in 2013 and thereafter. Additional Tax, 35% rate, on dividends or profit remittances to foreign

• shareholders. The aforesaid First Category Tax can be deducted as a

credit from the Additional Tax.

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• III. Other legal aspects

No specific restrictions or limitations are imposed to the importation of machinery and equipment or services required for mining activities.

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• III. Other legal aspects

Restrictions imposed to the use of foreign employees

• No less than 85% of the workers of one employer

(with more than 25 employees) must be Chilean, though certain exceptions may apply.

• Foreign workers are required to obtain visas to

work in Chile and individual employment contracts of foreigners must include certain mandatory clauses.

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• III. Other legal aspects

Environmental review and permitting process for a mining project. The holder of a mining project must submit an environmental assessment of the project to the SEA (Environmental Assessment Service) which can adopt two forms, depending

• n the environmental impacts:
• An environmental impact study

(EIA), which could take about 9 to 15 months.

• An environmental impact

statement (DIA), which could take between 4 to 8 months.

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• III. Other legal aspects

International treaties that apply to the mining industry or mining investments.

• Agreements for promotion and protection of

investments.

• Chile is a member of the WTO.
• Chile signed the Kyoto Protocol, the Washington

Convention and the Stockholm Convention.

• Chile has a mining treaty with Argentina.
• Chile has also signed many double taxation treaties

(i.e. Canada, etc), and free-trade agreements (i.e. Australia, Canada, U.S, etc).

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• IV.- Current Trends

National level

• Same mineral deposit: different mining operations.
• Agreements between private parties: avoid eventual conflicts achieving

joint exploitation synergies. The case of Codelco Andina and Anglo American Los Bronces.

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4.1 Joint Mining

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• IV.- Current Trends
• Exploration and exploitation of border line

mineral deposits.

• Power to create operational areas: easier

processes for immigration, employment and environmental matters.

• Use of both countries’ natural resources, goods

and infrastructure.

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International Level: Mining treaty with Argentina

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• IV.- Current Trends
• Social License.
• Corporate Social

Responsibility.

• ILO Convention 169

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4.2 Mining industry and communities.

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• IV.- Current Trends
• Institutional mechanisms and legal instances for community

participation.

• Communities with geographical, economic, cultural or ancestral

traditions, should be rewarded if a mining project is implemented.

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Social License

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• IV.- Current Trends

Mining Royalty(2005): The society was not receiving the benefits from the economic success of mining activities. New company’s behaviour: 3 P

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Corporate Social Responsibility

PEOPLE PLANET PROFIT

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• IV.- Current Trends

ILO CONVENTION 169: Related to aboriginals and indigenous tribes in independent countries, ratified by Chile in 2008.

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Protection of lands, territories and indigenous tribes’ ancestral resources. Consult Participation Rights.

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• IV.- Current Trends

4.3. Access to geo-scientific information related to mining concessions, surface lands and water rights.

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• IV.- Current Trends

4.4. Water for mining.

• Projects in dry areas are using sea water.
• For fresh water, state is investigating the basins, to make

feasible new water rights

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• IV.- Current Trends

Energy for mining.

• Demand for energy is growing dramatically, as the mining and
• ther industrial areas need it.
• Mining companies are seeing investment opportunities in the

energy sector.

• Incentives for non-conventional renewable energies (“NCRE”).

• The 2010 Corruption Perceptions Index

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Thank you !