Santiago, November 22, 2012.- The National Copper Corporation of Chile, Codelco, reported surpluses of US$ 6.777 billion through the third quarter of 2012, 27.3% higher than the US$ 5.323 billion of the same period in 2011. "These results include an extraordinary gain of US$ 3.517 billion resulting from the purchase of a percentage of the ownership of Anglo American Sur SA (AAS), which was completed at the end of August," said Thomas Keller during a press conference.

In this regard, Iván Arriagada, the new Vice President of Administration and Finance, added that this figure does not yet include "the value of the acquired assets Profundo Este and Los Leones, whose valuation is being finalized," which will be incorporated into the company's results before the end of this year.

Excluding these revenues, the surplus up to September would have reached US$ 3.26 billion, lower than the US$ 5.323 billion of the same period in 2011. Last year's results had also increased by US$ 447 million due to the sale of Codelco's shares in the subsidiaries E-CL and Inca de Oro.

“The lower surpluses, then, when we discount the effect of the purchase of Anglo American Sur, are due to a lower price, which was 14% lower: the average price has been 3.61 cents per pound, compared to 4.19 last year,” said Arriagada. Along with this factor, he said that we must also add “higher costs due to the rise in the price of energy, fuel and other inputs, as well as higher maintenance costs and also the impact of the lower production volume.”

In addition, there was also a significant drop in the price of molybdenum, the main by-product sold by the company, which fell by 17.9% compared to 2011.

Comparable profit (calculated by applying the same tax regime as for private companies) reached US$ 5,166 million. This puts Codelco once again at the top of the ranking of profits among companies operating in Chile.

LOWER PRODUCTION AND SALES

Codelco's production during the first 9 months of the year reached 1 million 188 thousand metric tons of fine copper (tmf), which means a decrease of 62 thousand tmf with respect to the record reached in 2011 (4.9%). The drop is mainly explained by the lower grades of the minerals treated in the company's plants, which fell by 9% on average, although in Chuquicamata the decrease exceeded 19%.

However, this factor was considered in the mining plans, so production up to the third quarter is very close to the budget prepared for 2012. In this regard, the CEO commented that, towards the end of the year, production “will be slightly below 1.7 million tons.” He recalled that “we have consistently said that we will have lower production, mainly due to the lower grades that we anticipated last year when we projected operations for 2012; we are basically still in line with what we projected at the beginning of the year.”

Thomas Keller said that the biggest problems have occurred in Chuquicamata and Salvador, divisions affected by lower grades and geomechanical problems that prevent access to richer sectors. Regarding Chuquicamata, specifically, he commented that “these are aspects of an operation that is reaching its terminal stage, where significant challenges are indeed faced in terms of mining exploitation.”

To this own production, we must add the copper attributable to the percentage of ownership of Codelco in El Abra (55 thousand tmf) and Anglo American Sur SA (10 thousand tmf, since August 24), with which the total production of the company increases to 1 million 253 thousand tons of fine copper.

Consistent with the above, during the first nine months of 2012 Codelco sold 1,252 thousand metric tons of fine copper (tmf), of which 1,145 thousand tmf came from its own minerals and the rest from third parties.

Regarding by-products, in the reporting period there was also a lower production of molybdenum (2 thousand tmf), gold and silver. On the other hand, the production of sulfuric acid increased by 154 thousand tons compared to the previous year.

INCREASE GROSS PROFIT

Copper sales revenues totaled US$9.252 billion through September, compared to US$10.445 billion in the same period in 2011, due to lower production and, above all, lower prices. As the cost of copper sold in this period was US$5.851 billion, gross profit from copper sales reached US$3.961 billion.

This profit is added to US$ 559 million from the income generated by the sale of by-products, US$ 292 million from the results of related companies and US$ 3,517 million generated by the purchase of shares in Anglo American Sur.

On the other hand, US$ 993 million must be discounted for other income and expenses of the company, which are explained by financial expenses, exchange rate differences, collective bargaining and administration expenses.

This means that the surpluses that Codelco generated for the State in the first 9 months of 2012 amount to US$ 6,777 million, US$ 1,454 million more than in the same period in 2011.

DISTRIBUTION OF SURPLUS

The Corporation generated surpluses of US$ 6.777 billion as of September 2012, distributed as follows:

* Equivalent to the profit that Codelco would obtain, applying the same tax as to private companies.

HIGHER COSTS

Codelco's direct cash cost (C1) through the third quarter is 156.7 cents per pound of copper, 40.3 cents higher than the average for 2011. C1 is the cost type used by the global mining industry to compare different companies. This increase is mainly explained by an increase in the price of fuel, energy and other inputs, as well as by a lower credit for by-products due to the drop in the price of molybdenum.

Regarding higher energy costs, Thomas Keller warned that the contract signed in 2009 contemplates “an intermediate period where the price paid by Codelco in the Central Interconnected System (SIC) is basically the marginal cost of the system,” a situation that will extend until the end of 2013. “The electricity bill, so to speak, due to this phenomenon so far this year has risen by almost 200 million dollars more than we had budgeted,” he added.

On the other hand, regarding the energy situation in the north of the country, he commented that “we are very comfortable with the electricity supply contracts that we have. They are very competitive contracts, so this analysis of the impact on the cost of energy is fundamentally for operations that function within the Central Interconnected System,” said the Executive President.

Total costs and expenses reached 247.5 c/lb of copper in the first half of 2012, higher than the average of 205.6 c/lb observed in 2011. The rise in the prices of energy, fuels and other inputs and the decline in mining variables (grades) explain a large part of the increase.

Corporate net cathode costs (C3) reached 223.2 cents per pound in the first 9 months of 2012, versus an average of 171.6 c/lb in 2011.

Keller also said that the Corporation was also being affected by the rising costs of projects, like the entire industry. Asked specifically about the investment in Ministro Hales, currently under construction, he confirmed that the total investment amounted to US$ 3.1 billion and that the start-up is still scheduled for the end of 2013.

Regarding labor costs, the CEO of Codelco indicated that they must be in accordance with the operating conditions of structural projects, initiatives that imply changes and adjustments to work practices. “We have been making progress in collective negotiations in the sense of reaching agreements that point in that direction,” he said.

Specifically, regarding the early negotiation in the Chuquicamata Division, Keller said that “obviously the ongoing early collective bargaining must address the challenges facing that division and, in particular, the challenges that have to do with the transition from an open-pit mine to an underground mine. That means touching on a series of aspects that are important, that are transcendental. We are approaching this collective bargaining process with the seriousness and optimism that the situation merits.”

He went on to say that there are no targets for reducing labour costs, but that work is being done to reach agreements with unions that will make the operation of the various divisions possible in the long term.

MAIN MARKETS AND ANGLO AMERICAN

In terms of sales destination, China remains the main market with 36%, followed by the rest of Asia with 22%, then Europe with 18%, South America with 12%, North America with 11%, and Oceania with 1%. The figures for 2012 are very similar to those observed in the same period last year.

Asked about the outlook for copper prices, Thomas Keller said that, “although they remain at healthy levels, they have fallen compared to the excellent year they had in 2011.” Evaluating the 2013 sales campaigns carried out so far by the company, he noted that Europe closed successfully and that in China there are levels of interest in copper that reflect healthy prices.

Thomas Keller also referred to the joint work with Anglo American to benefit the operations of the Andina Division and Los Bronces. In this regard, he reported that “in this first stage we have dedicated ourselves to greatly improving the protocols that we already had. They all aim to facilitate our mutual operations and we have identified, in this process, a series of other areas in which we can collaborate for the benefit of both operations,” such as the management of water resources or exploitation plans.

DECREASES ACCIDENT RATE

In 2012, Codelco achieved unprecedented figures in terms of workplace safety. The overall accident frequency rate, which considers its own personnel and those of contracted companies, reached 1.43 in January-September of this year, which shows a slight decrease compared to the rate of 1.44 in the same period of 2011. Nevertheless, Codelco regretted last April the fatal accident of Manuel Antonio Lara Ramírez, a contracted worker of the El Teniente Division.

Communications Management

For photos of the press conference click here