Variables Affecting the Competitiveness of Countries in...

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2015/SOM3/MTF/WKSP/019 Session 1

Variables Affecting the Competitiveness of Countries in the Extractive Industry - Copper Mining

Submitted by: Cochilco

Workshop and Public-Private Dialogue on Enhancing the Trade and Investment Environment

for Mining Through the APEC Mining Sub-FundCebu, Philippines

25-26 August 2015

02‐09‐2015

Cochilco‐Ministerio de Minería 1

Logo Gobierno: 160x162px. Ministerio, Subsecretaría, Organismo, etc.:160x145px

Variables affecting the competitiveness of countries in the extractive industry.Copper Mining

COCHILCO – Chilean Copper Commission

Jorge Cantallopts A.Director of Research and Policy Planning

25 August, 2015

1. Mining in Chile.2. Chilean copper mining competitiveness. 3. Final remarks.

Content:

Ministry of Mining| COCHILCO

02‐09‐2015


Imagen Referencial

1. Mining in Chile


1. Mining in Chile

Economic development


2014:Mining 57%Copper 50%

Source: Central Bank, COCHILCO

Tax revenue (2014)•9% of total•4.9 billions of US$

Foreing Direct Investment (2009 – 2013)•45%•45.3 billions of US$

Gross Domestic Product (2008 –2014)•13% nominal0

15

30

45

60

75

90

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

Bill. US$

Non‐mining exports

Other mining exports

Copper exports

02‐09‐2015


0

1,000

2,000

3,000

4,000

5,000

6,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Kton

of fine

cop

per

Smelting Concentrate Cathodes SW‐EW

Copper production


Source: COCHILCO.

69%

44%

24%

32%

5,75 MtonPrice boom starting

1. Mining in Chile

World copper mining


Source: COCHILCO

0.0

5.0

10.0

15.0

20.0

25.0

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Mton

PRODUCCION CHILE PRODUCCION MUNDIAL

35% 35% 36% 34%34%

34%32%

32% 32% 31%

20%

22%

23%

25%

26%

28%

29%

31%

32%

34%

35%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Chile Participation

1. Mining in Chile

02‐09‐2015


Tax revenue


Source: DIPRES, COCHILCO

34%32%

26%

14%

21% 19%

14%

10% 9%

0%

7%

14%

21%

28%

35%

0

4

7

11

14

18

2006 2007 2008 2009 2010 2011 2012 2013 2014

k US$

Mining tax revenue [k US$] Mining participation in fiscal income

1. Mining in Chile Imagen Referencial

2. Chilean Copper Mining Competitiveness


02‐09‐2015


2. Chilean copper mining competitiveness


Geo

logicalPoten

tial

• Copper reserves:‐ Quantity‐ Average copper grade

• Life span

Investmen

t Clim

ate

• Currency Variations• Production Costs• Political Stability• Legal Frameworks• Labor Force• Tributary System

Pillars of mining investment and the variables which influence the competitiveness of a country

MINING INVESTMENT


Criteria for selecting countries for the competitiveness comparison analysis

CountryMining copper

producers

World class copper reserves

Potential for increased production

Highest exploration expenses (top ten)

Total Copper

Argentina * √Australia √ √ √ √ √Brazil √ √ √ √Canada √ √ √ √ √Chile √ √ √ √ √China √ √ √ √ √DR Congo √ √ √ √ √EE.UU. √ √ √ √ √Indonesia √ √Mexico √ √ √ √ √Peru √ √ √ √ √Russia √ √ √ √

Zambia √ √ √ √Note:*Argentina is included because to its proximity to Chile

Prepared by Cochilco


02‐09‐2015



I. Geological potential

a) Copper Reserves b) Reserves vs average grade

Source: COCHILCO on the database of Wood Mackenzie

0 50 100 150 200 250

ArgentinaBrazil

DR CongoZambia

AustraliaRussia

IndonesiaCanada

USAChina

MexicoPeruChile

Reserves CuF (Mt)

0.00

0.50

1.00

1.50

2.00

2.50

3.00

0

50

100

150

200

250

%Mt

Reserves CuF (Mt) Ave. Grade (% Cu)



I. Geological potential

c) Life span of reserves

Source: COCHILCO on the basis of Wood Mackenzie data

0102030405060708090

0

50

100

150

200

250Years/WLOMMt

Reserves CuF (Mt) Life of Mine (years) Weighted LOM


02‐09‐2015



II. Investment climate

a) Currency variations

Source: COCHILCO on the basis of data from the World Bank and central banks of the respective countries

0

50

100

150

200

250

300

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Argentina

Australia

Brazil

Canada

China

DR Congo

Mexico

Peru

Russia

Zambia

Indonesia

Chile




b) Costsb1. Cash Cost

b) Costsb2. Net cathode cost


‐150%

‐100%

‐50%

0%

50%

100%

150%

‐300

‐200

‐100

‐

100

200

300

cUS$/lb

2013 2014 % a/a‐100%

‐50%

0%

50%

100%

150%

‐200

‐100

‐

100

200

300

2013 2014 % a/a


02‐09‐2015




c) Labor Forcec1. Labor force efficiency per country*

Source: COCHILCO on the basis of World Economic Forum data (several years)

c) Labor Forcec2. Labor cost in copper mining**


46.79

37.69

32.20

21.15

14.80

9.34

8.26

7.92

7.10

5.57

6.42

4.92

2.40

0 10 20 30 40 50

Australia

Canada

USA

ChileArgentina

Brazil

Indonesia

Zambia

DR Congo

RussiaPeru

Mexico

China

$/HH

2014

2013

1 2 3 4 5 6 7

DR Congo

Argentina

Brazil

Australia

Mexico

Peru

Russia

Zambia

Indonesia

China

Chile

Canada

USA 2014

2013

ND

* This index takes into account variables such as labor relations, hiring and firing practices, payment and productivity, a country´s ability to retain and attract talent, the effect of taxation on the incentive to work, among others. 1 being the worst score and 7 the best.

** Average labor cost according to used HH




c) Labor Forcec3. Labor effeciency in

mining**

c) Labor Forcec4. Labor cost per

production**


** Scan efficiency depending on the HH used in mining by total production

** Adjusts labor costs based on total production in copper mining

0 50 100

MexicoCanada

PeruAustralia

USAZambia

ChinaBrazil

DR Congo

ArgentinaIndonesia

ChileRussia

HH/'000 t Cu

20142013

(17,7 HH/kt)


‐ 1,000 2,000 3,000 4,000

Canada

Australia

USA

Mexico

Peru

Chile

Brazil

Zambia

Argentina

Indonesia

DR Congo

Russia

China

US$/ '000 t

2014

2013

Chile

02‐09‐2015


Ministry of Mining | COCHILCO


d) Political stability (2013 Index)**

Source: COCHILCO on the basis of World Bank and World Economic Forum data

** On a scale of 1‐7, averaging transparency and stability index

1 2 3 4 5 6 7

DR Congo

Peru

Mexico

Russia

Indonesia

China

Brazil

Argentina

Zambia

USA

Chile

Australia

Canada




e) Regulatory and legal framework for investment**

Source: COCHILCO on the basis of World Economic Forum and The Heritage Foundation data

** On the scale of 1 to 7, averaging index of economic freedom, legal framework, transparency and property rights.

1 2 3 4 5 6 7

DR Congo

Argentina

Russia

China

Brazil

Indonesia

Peru

Mexico

Zambia

USA

Australia

Chile

Canada2014

2013


02‐09‐2015


0 50 100 150

ZambiaCanadaChile

IndonesiaPeruUSA

AustraliaRussiaMexico

DR CongoChinaBrazil

Argentina % of profit

20132012

Ministry of Mining | COCHILCO


f) Tributary systemf1. Fiscal freedom

f) Tributary systemf2. Tax rates on profits


** On the scale of 1 to 7, averaging level of taxation and marginal rates. Economic Freedom Index.

Source: COCHILCO on the basis of The Heritage Foundation data

1 2 3 4 5 6 7

AustraliaUSA

ArgentinaBrazilChina

ZambiaDR Congo

ChileMexico

PeruCanada

IndonesiaRussia 2014

2013




f) Tributary systemf3. Taxation on investment effect

Source: COCHILCO on the basis of World Economic Forum data

1 2 3 4 5 6 7

DR Congo

Argentina

Brazil

Russia

Mexico

Peru

Australia

Zambia

China

USA

Chile

Indonesia

Canada 20142013

ND

Chile


02‐09‐2015


Imagen Referencial

3. Final Remarks


• Mining competitiveness can be approached onthe basis of two pillars: Geological potential Investment climate.

• Chile ranks in the top five in the case studycountries in the report.

• The work seeks to establish unbiasedparameters, but still depends on non-officialinformation from the districts.

• A joint effort is required to have reliableinformation that contributes to design betterextractive public policies in the APEC region.

3. Final Remarks


02‐09‐2015


Logo Gobierno: 160x162px. Ministerio, Subsecretaría, Organismo, etc.:160x145px

Variables affecting the competitiveness of countries in the extractive industry.Copper Mining

COCHILCO – Chilean Copper Commission

Jorge Cantallopts A.Director of Research and Policy Planning

25 August, 2015

Variables Affecting the Competitiveness of Countries in...

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