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Growth Opportunities and Challenges for the Chilean Copper Mining Industry

COCHILCO Seminar ­ Mining in the Bicentennial: The Road Ahead Bicentennial Mining Week Antofagasta Week, 29th September 2010 David Coombs

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Wood Mackenzie Disclaimer

This presentation has been prepared by Brook Hunt, a Wood Mackenzie Limited company. The information upon which this presentation is based comes from our own experience, knowledge and databases. The opinions expressed in this presentation are those of Brook Hunt. They have been arrived at following careful consideration and enquiry but we do not guarantee their fairness fairness, completeness or accuracy. The opinions, as of this date, are subject to change. We do not accept any liability for your reliance upon them.

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Agenda ­ Can Chile Maintain its Market Share of Global Copper Supply ?

1 2 3 4

Chilean Copper Mining Today - Global Context Challenges Facing the Mining Sector Opportunities for Growth Conclusion

© Wood Mackenzie 3

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Agenda

1 2 3 4

Chilean Copper Mining Today - Global Context Challenges Facing the Mining Sector Opportunities for Growth Conclusion ­ Positive Outlook

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Chile Will Produce 32% of Global Mined Copper in 2010 Can it Maintain its Market Share ?

Tension with Investors Profit ReDistribution Formation of CODELCO, Political Reform, Foreign Investment

Min Copper - Chilean % of Glob ned bal

% Nitrate 40% Nit t 35% 30% 25% 20% 15% 10% 5%

Industry American Investment

0% 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

So urce B ro o k Hunt, M etallgesellschaft, Wo rld No n Ferro us M etals P ro ductio n and P rices - 1 g 700-1 976, Schmitz

Source: Brook Hunt, Metallgesllschaft, World Non Ferrous Metals Production and Prices ­ 1700-1976, Schmitz © Wood Mackenzie 5

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Ore Reserves & Resources >10Mt contained Cu ­ Operating Mines Chilean assets ­ 25% In-Situ Cu in Reserves 75% in Resources Reserves,

4.5 4.0 3.5 3.0 2.5 25 2.0 1.5 1.0 0.5 0.0 0 5,000 10,000 Resource Mt Global

Source: Company Disclosure © Wood Mackenzie 6

Tenke-Fungurume SxEw Norilsk Kamoto_KOV KGHM Polish Copper Los Bronces Olympic Dam Antamina Grasberg Cuajone Cerro Verde Cananea El Teniente 15,000 20,000 Los Pelambres Collahuasi Escondida Andina Codelco Norte SCALE (In-Situ Cu) 50 Mt 20 Mt 5 Mt

Rese eource Grade Cu% Equivalent C

Chilean Scale

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Ore Reserves and Resources ­ Operating Mines & Projects

New Scale

2.0 SCALE (In-Situ Cu) 50 Mt 20 Mt 5 Mt Other Greenfield Projects in Chile Relincho Vizcachitas Barreal Seco Pascua Elenita Sierra Gorda - Quadra 1.0 Santo Domingo Sur/Iris Inca de Oro El Espino El Morro 0.5 Caserones Antucoya Andina Codelco Norte El T i t Teniente Esperanza Filipina Grande

Resou urce Grade Cu Equivelant u% t

1.5

Los Sulfatos (Inf) San Enrique Monolito (Inf)

Sierra Gorda Cerro Casale Antofagasta 5,000 Resource Mt Global Base Chile Projects Chile Base 10,000 Global Projects

0.0 0

Source: Company Disclosure © Wood Mackenzie 7

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Chile's Mines are Competitive

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Limited capacity in the highest cost decile ­ the Vulnerable zone

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Agenda

1 2 3 4

Chilean Copper Mining Today - Global Context Challenges Facing the Mining Sector Opportunities for Growth Conclusion ­ Positive Outlook

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Chile Provides a Competitive Policy environment in which to Invest The Fraser Institute Survey of Mining Companies 2009/10 Companies,

Policy Potential Index ­ 13 Measures incl.

Chile USA (Alaska) Mexico Canada (BC) Peru China Zambia PNG Indonesia Mongolia Congo D.R. Philippines

0 20 40 60 80 100

Regulation and Enforcement Environmental Regulation g Fiscal Regime and Stability Land Title Issues Infrastructure Socioeconomic Agreement Political Stability Labour Regulation and A il bilit L b R l ti d Availability Mineral Potential Security

Policy Potential Index

Source: The Fraser Institute - used with permission © Wood Mackenzie 11

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Key Challenges - Water

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Key Challenges - Power

Courtesy Gas Atacama

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Chilean Power Costs in 2008 Uncompetitive - Gas Supply Related Future Price Risk considered greater then Supply Risk

2008 Chile hit by gas shortage

Chile Philippines Poland Mexico Peru P Global Australia Indonesia PNG Canada USA Zambia 0 2 4 6 8 10 12 14

Global average costs in the mining sector was 7.9c/kWhr in 2008 Power averaged 14.1c/lb of direct mine site mine-site costs globally (12%), 4.5c/lb of direct smelter costs (21%) and energy, predominantly power, 1.9c/lb at refineries (34%)

Power Cost (c/kWhr)

So urce: B ro o k Hunt

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Future Regional Gas Supply ­ Potentially Leads to Lower Power Prices

16,000 14,000 12,000 10,000 10 000 mmcfd 8,000

450 400 350 300 250 200 Mcmd

6,000 4,000 2,000 0 2000

150 100 50 0 2030

2005

2010

2015 Brazil Non-Pre-Salt Argentina Unconventional Demand EMS

2020

2025 Brazil Pre-Salt Other

Bolivia Argentina Conventional LNG Regas Capacity

Source: Brook Hunt a Wood Mackenzie Company

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Potential Regional Excess of Gas ­ But will it Reach Chile ?

Courtesy Gas Atacama

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Key Challenges - Royalties and Taxation

9000 8000 7000 Roy yalties and Tax $M xes 6000

25%

20% Mining as % GDP G

15% 5000 4000 10% 3000 2000 1000 0 1994 1996 CODELCO 1998 2000 2002 2004 2006 2008 0% 5%

Main 10 Mining Companies

Mining % of GDP

Source: Cochilco © Wood Mackenzie 17

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Agenda

1 2 3 4

Chilean Copper Mining Today - Global Context Challenges Facing the Mining Sector Opportunities for Growth Conclusion ­ Positive Outlook

© Wood Mackenzie 18

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The copper price is cyclical and over the period from the 1970s to mid 2000s was in structural decline this has now reversed decline, reversed....

2009$

450 400 350 300 250 200 150 100 50 0

Cycle average price guidance offered by incentive price analysis, cost relationships are weak k Trough prices can be gauged by reference to the cost curve

This is a schematic not a forecast

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030

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Escalations in Nominal Capital Costs in US$ (Compound) Q1 2005 ­ Q1 2010 Costs have increased by between 20 and 40% annually

2007 Qtr Ave 9 1% 9.1% Annualised 42%

12% Quarterly Capex Escalation 10% 8% 6% 4% 2% 0%

2005 Qtr Ave 7.4% Annualised 33%

2006 Qtr Ave 8.7% Qt A 8 7% Annualised 40%

2008 Qtr Ave 6.7% Annualised 30% 2009 Qtr Ave 5 0% 5.0% Annualised 22%

(28) Q2 2006 2

(29) Q3 2006 2

(38) Q1 2007 2

(41) Q2 2007 2

(39) Q3 2007 2

(46) Q4 2007 2

(19) Q3 2009 2

(35) Q4 2006 2

(41) Q2 2008 2

(12) Q4 2009 2

(40) Q1 2008

(21) Q1 2009

(22) Q1 2005

(23) Q2 2005

(22) Q3 2005

(19) Q4 2005

(25) Q1 2006

Period (Number of Data Points)

Source Brook Hunt, a Wood Mackenzie Company

(23) Q3 2008

(24) Q4 2008

(19) Q2 2009

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(6) Q1 2010 2

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Capital and operating cost escalation has shifted the Incentive Price curve up Required prices at 2009 input costs being double those of 2002

320 300 280

Incentive Price for 12% IRR (c/lb Cu

260 240 220 200 180 160 140 120 100 80 60 40 20 0 0 500 1000 1500 2000 2500 3000 3500 4000 4500 5000 5500 6000 6500 7000 7500 Cum ulative Average Production (Cu/kt/a)

2002

Source Brook Hunt, a Wood Mackenzie Company

2009

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Long Term Demand for Additional Mine Capacity By 2015 we will require a further 2.1Mt mine capacity basis 5% disruptions By 2025 we anticipate the demand for an additional 13Mt/a capacity

26 24 Recovera able Mine Coppe - Mt er 22 20 18 16 14 12 10 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2015 1.2 /2.1 Mt Base Case Mine Prodn (0% Disruption) 2020 5.0 / 5.8 Mt 2025 12.5 13.1 12 5 / 13 1 Mt Base Case Mine Prodn (5% Disruption) Base Case Mine Demand (3.6% CAGR 2009-2025)

So urce: B ro o k Hunt - A Wo o d M ackenzie Co mpany

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Ore Reserves and Resources ­ Operations & Projects

New Scale

2.0 Udokan 20MtCu @3.2% Cu eq Konkola Deep 8.2MtCu @3.8%Cu eq Aynak Resou urce Grade Cu Equivelant u% Resolution Copper 1.5 Los Sulfatos (Inf) San Enrique Monolito (Inf) Oyu Tolgoi Reko Diq Sierra Gorda - Quadra SCALE (In-Situ Cu) 50 Mt 20 Mt 5 Mt

1.0

El Morro 0.5 Caserones Antucoya

Pebble Esperanza La Granja Andina Codelco Norte El Teniente

Sierra Gorda Cerro Casale Antofagasta 5,000

Cobre Panama (Petaquilla) 10,000 Resource Mt Chile Base Global Projects

0.0 0 Global Base

Source: Company Disclosure

Chile Projects

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Chilean & Global Mine Projects

Chilean Projects Codelco Norte - MMH - Chuqui' UG Andina 230kt/d El Teneinte NNM Capex $Bn 1.7 1.9 4.8 1.5 Cu kt/a 165 340 320 100 165 112 270 170 400 190 175 4 200 160 180 2951 211 Capital Intensity Cash Cost k$/(t/aCuEq) Quartile 8.4 4.6 13.1 13.2 10.4 26.3 8.4 12.8 12.3 10.4 10 4 11.6 26.3 12.9 8.6 9.2 92 3 3 2 2 4 4 3 1 2 3 3 1 3 10.9 Global Projects Agua Rica Antappacay Aynak Cobre Panama El Pachon Frieda River La G Granja Las Bambas Oyu Tolgoi Pebble Quellaveco Reko Diq Resolution Copper Rio Blanco Tampakan Toromocho Udokan Global Sample Total Global Sample Average Average Wt by Paid Cu Capex $Bn 2.1 1.5 4.4 4.3 2.4 4.2 2.5 4.2 4.6 2.8 2.8 3.3 33 2.5 1.4 5.2 2.2 3.9 39 54.3 Cu kt/a 130 160 320 255 200 190 500 400 550 300 200 190 560 190 340 210 150 4845 285 Capital Intensity Cash Cost k$/(t/aCuEq) Quartile 11.8 1 8.6 3 13.8 15.0 1 10.8 20.3 1 4.7 2 9.6 2 7.9 1 6.7 3 12.5 2 15.8 15 8 4.0 3 6.3 3 13.8 1 8.6 2 12.0 12 0 2 9.6

Caserones C 2.0 Cerro Casale 4.2 Collahuasi Ph II 2.5 El Morro 2.5 Escondida V and VI 5.0 Esperanza 2.3 23 Los Bronces exp 2.2 Pascua Lama 1.5 Quebrada Blanca 3.0 Relincho 1.6 Sierra Gorda - Q-FNX 2 Chile Total 38.7 Chile Average Average Wt by Paid Cu

Source: Corporate disclosure, Cochilco estimates for CODELCO- May 2010 © Wood Mackenzie 24

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Chilean Mine Production Growth

9 8 Copper Mine Produc ction - Mt Cu 7 6 5 4 3 2 1 0 1995 2000 Operating 2005 In Construction 2010 2015 2020 Probable 2025 Possible 2030

Highly Probable

Source: Brook Hunt a Wood Mackenzie Company © Wood Mackenzie 25

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Agenda

1 2 3 4

Chilean Copper Mining Today - Global Context Challenges Facing the Mining Sector Opportunities for Growth Conclusion

© Wood Mackenzie 26

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Key Policy and Investor Challenges

Policy Challenges · Maintaining Chiles Competitive Policy Environment · Water Sustainability · Power Availability and Costs · Taxation Investor Challenges · Controlling Capital and Operating Costs · Decision Making with Price Uncertainty

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Potential Chilean Global Market Share of Mined Copper Production

45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 2010 2015 +Possibles + Probable 2020 2025 Base Case & High Probability 2030

Source: Brook Hunt a Wood Mackenzie Company © Wood Mackenzie 28

Chiles as % Global Min Production s ne n

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Brook Hunt Woburn House 45 High Street Addlestone Surrey KT15 1TU Global Offices

Global Contact Details Europe Americas Asia Pacific Email +44 (0) 1932 878000 +1 713 470 1600 +65 6518 0800 [email protected]

Australia - Canada - China - Japan - Malaysia - Russia - Singapore - South Africa - United Arab Emirates - United Kingdom - United States p y g p g

Wood Mackenzie has been providing its unique range of research products and consulting services to the Energy industry for over 30 years. Wood Mackenzie provides forward-looking commercial insight that enables clients to make better business d i i b i decisions. F more information visit: www.woodmac.com For i f ti i it d

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