Mining Sector in Chile. Business opportunities for Swiss companies.

March 2013, osec.ch

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Study of the Mining Sector in Chile and business opportunities for Swiss companies

English

152 pages, March 2013 The present report provides a review of the Chilean mining market pointing out business opportunities for Swiss companies. In the first place, it shows a sample of areas where they can satisfy the demand for requirements of products, goods and services associated to this sector. Then, based on these requirements, a list of Swiss Companies that can serve this sector is presented. Finally, a guide of critical steps to become a supplier is given. A review of macroecomomy, demography and the business culture is presented in Annex I. Andrés Quirland Max Leclerc Woken Business Consulting Carlos Dickens 2319, La Reina Santiago, Chile www.wokenconsulting.cl Ladina Baniclès Sarah Zaupa Cámara Chileno-Suiza de Comercio A.G. Antonio Bellet 77- of 104, Providencia Santiago, Chile www.swisschile.cl

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Table of Contents

1. SUMMARY .......................................................................................................................................................... 6

2. THE MINING INDUSTRY IN CHILE .................................................................................................................. 8

2.1 THE MINING INDUSTRY TODAY .................................................................................................................. 8 2.1.1 Description of the sector ................................................................................................................... 8 Metal Prices ............................................................................................................................................... 15 (US$) 15 2.1.2 World Market and Development...................................................................................................... 15

2.2 MAIN PRODUCERS IN CHILE ..................................................................................................................... 20 2.2.1 Anglo American Norte ..................................................................................................................... 20 2.2.2 Anglo American Sur ........................................................................................................................ 20 2.2.3 Candelaria ....................................................................................................................................... 20 2.2.4 Cerro Colorado ................................................................................................................................ 21 2.2.5 Codelco ........................................................................................................................................... 21 2.2.6 Collahuasi ........................................................................................................................................ 21 2.2.7 El Abra ............................................................................................................................................. 21 2.2.8 El Tesoro ......................................................................................................................................... 22 2.2.9 Escondida ........................................................................................................................................ 22 2.2.10 Esperanza ....................................................................................................................................... 23 2.2.11 Los Pelambres ................................................................................................................................ 23 2.2.12 Quebrada Blanca ............................................................................................................................ 23 2.2.13 Zaldívar ........................................................................................................................................... 24 2.2.14 Enami and the medium-size Mining ................................................................................................ 24

2.3 WORLD DEMAND .......................................................................................................................................... 24 2.3.1 Inventories and Prices ..................................................................................................................... 25 2.3.2 Expected demand and prices. ......................................................................................................... 26 2.3.3 Long term price projection ............................................................................................................... 26

2.4 PROJECTIONS FOR CHILE ......................................................................................................................... 27 2.4.1 Large-scale mining .......................................................................................................................... 28

2.5 EXPLORATION AND INVESTMENT IN CHILE ......................................................................................... 29 2.5.1 World copper mining projects .......................................................................................................... 31 2.5.2 Mining projects ................................................................................................................................ 32

3. GOODS AND SERVICES ................................................................................................................................ 37

3.1 MINING GOODS AND SUPPLIES ............................................................................................................... 37 3.1.1 Service sector in the mining industry .............................................................................................. 39 3.1.2 Engineering and consulting services .............................................................................................. 40 3.1.3 Building and erection services ........................................................................................................ 41 3.1.4 General and maintenance services ................................................................................................ 42

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3.2 PROJECTIONS FOR THE DEMAND OF GOODS, SUPPLIES AND SERVICES ............................... 43

3.3 NEW NEEDS OF THE MINING INDUSTRY ............................................................................................... 44 According to an estimation of the OECD (Organisation for Economic Co-operation and Development), the annual average growth rate of environmental goods and services is estimated in 10% in developing countries. ..................................................................................................................................................... 44 3.3.1 Use and management of water and its effluents............................................................................. 44 3.3.2 Waste management ........................................................................................................................ 45 3.3.3 Atmospheric emissions and air quality ............................................................................................ 45 3.3.4 Energy efficiency and renewable energies ..................................................................................... 46 3.3.5 Closure of mining sites .................................................................................................................... 46 3.3.6 Risk evaluation and management of liabilities ................................................................................ 46 3.3.7 ICT (Information and communication technologies) in mining ........................................................ 46

4. BUSINESS OPPORTUNITIES ......................................................................................................................... 48

4.1 BUSINESS OPPORTUNITIES OF GOODS AND SUPPLIES BY TYPE OF INDUSTRY ................... 48 4.1.1 Goods and/or supplies .................................................................................................................... 48 4.1.2 Services ........................................................................................................................................... 49

4.2 INDUSTRIES AND BUSINESSES OF MAJOR INTEREST FOR SWITZERLAND .............................. 50

4.3 SWISS COMPANIES OF INTEREST TO THE MINING SECTOR IN CHILE ....................................... 51

4.4 COMPANIES SELECTED ............................................................................................................................. 52 4.4.1 Pump Technology ........................................................................................................................... 55 4.4.2 Drive Technologies: Electric Motors and others ............................................................................. 60 4.4.3 Standard Parts: Tools, screws, dowels, plugs and others .............................................................. 62 4.4.4 Chemical Industry ........................................................................................................................... 65 4.4.5 Engineering ..................................................................................................................................... 69 4.4.6 Geomatics ....................................................................................................................................... 80 4.4.7 Environmental Technologies: Water Management and Treatment, Energy Efficiency, Exhaust Air Cleaning ...................................................................................................................................................... 86 4.4.8 Air Emissions & Air Quality ............................................................................................................. 91 4.4.9 Geology, Renewable Energies and Energy Efficiency ................................................................... 95 4.4.10 Industrial Waste Management Services ....................................................................................... 106

5. DESCRIPTION OF RELEVANT ENTITIES AND ORGANIZATIONS IN CHILE ....................................... 108

5.1 ENTITIES AND ORGANIZATIONS ............................................................................................................ 108 5.1.1 AIA - (Association of Industrialists of Antofagasta) ....................................................................... 108 5.1.2 APRIMIN (Association Of Large Suppliers For The Mining Industry) ........................................... 108 5.1.3 CESCO (Center of Copper and Mining Studies)........................................................................... 110 5.1.4 Consejo Minero (Mining Council) .................................................................................................. 111 5.1.5 IIMCh (Institute of Mining Engineers of Chile) .............................................................................. 111 5.1.6 SONAMI (National Mining Society) ............................................................................................... 112 5.1.7 The Energy Ministry ...................................................................................................................... 112 5.1.8 The Environment Ministry ............................................................................................................. 113

5.1.9 The Mining Ministry ....................................................................................................................... 113 5.1.10 COCHILCO (CHILEAN COPPER COMMISSION) ....................................................................... 113 5.1.11 SERNAGEOMIN (National Service of Geology and Mining) ........................................................ 114

5.2 RELEVANT FAIRS AND EVENTS IN THE MINING SECTOR .............................................................. 115

6. CRITICAL STEPS TO BECOME A SUPPLIER OF THE MINING INDUSTRY ......................................... 120

6.1 IDENTIFICATION AND DESCRIPTION OF THE CRITICAL STEPS ................................................... 120 6.1.1 Selecting the way of operating in Chile ......................................................................................... 120 6.1.2 Selection of a work place .............................................................................................................. 121 6.1.3 Selection of the working team ....................................................................................................... 122 6.1.4 How to approach the mining companies ...................................................................................... 124

6.2 RELEVANT COSTS TO SET UP IN CHILE FOR THE MINING SECTOR .......................................... 126

6.3 SALARY AND REMUNERATION STRUCTURE ..................................................................................... 126

7. ANNEX I: CHILE, RELEVANT ASPECTS .................................................................................................. 130

7.1 SOCIOECONOMIC DATA AND RELEVANT FIGURES ........................................................................ 130 7.1.1 Geography and Demography / Population .................................................................................... 130 7.1.2 Economy and Productivity ............................................................................................................. 132 7.1.3 Infrastructure ................................................................................................................................. 143

7.2 POLITICAL SYSTEM ................................................................................................................................... 145 7.2.1 President of the Republic .............................................................................................................. 145 7.2.2 Legislative Branch ......................................................................................................................... 146 7.2.3 Judicial Branch .............................................................................................................................. 146 7.2.4 Central Bank.................................................................................................................................. 146 7.2.5 General Comptroller of the Republic ............................................................................................. 146 7.2.6 National Prosecutor’s Office .......................................................................................................... 147 7.2.7 State Defense Council .................................................................................................................. 147

8. ANNEX 2: Main Types of Societies ............................................................................................................ 148

9. ANNEX 3: Useful Links & Abbreviations ................................................................................................. 150

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1. SUMMARY

Chile represents today an interesting opportunity to do business in a wide variety of areas and industries, in services and in products. According to the latest rankings and international reports of institutions such as the OECD (Organisation for Economic Co-operation and Development), World Bank or Economist Intelligence Unit, Chile is the best evaluated economy in Latin America and, indeed, one of the best evaluated among emerging economies worldwide. Ernst & Young placed Chile among the countries with major economic growth, together with China, India, Russia and Brazil. According to the 2012 version of “Doing Business” ranking, Chile moved to position 27 at world level.

Chile has balanced fiscal accounts, low taxes, controlled inflation (2%-4%), stable foreign debt and full employment. Its competitiveness is reflected in the World Competitiveness Yearbook 2012 where it figures at rank 28. Chile offers an attractive business climate thanks to its political and economical stability.

It is globally connected (airports, highways, ports, telecommunications), with talented human capital and proven legal confidentiality (foreign investment).

Undoubtedly, Chile has gained the name of a “mining country”. This sector is the strongest and the one with the biggest and most relevant economic activity. It stands for the 15% of the Gross Domestic Product (GDP) of the country. It attracts 57% of foreign investment, valued in 9,500 million dollars (accumulated amount from January to October 2012).

Chile is the main center of mining production at world level, with 33% of the production of copper in the world (1st place worldwide), 15% Molybdenum, (3rd place worldwide), 7% gold (13th place worldwide) and 5% silver (6th place).

As for the rest of Latin America, the projection of investments for 2017 in the mining sector will reach the amount of US$ 120,000 million, 33% of which in mining products and goods and 42% in services. Latin America gathers 51% of the mining projects at world level.

This report shows detailed information of the Chilean mining sector. It focuses on the main requirements of products and services at present and in the near future.

The products demanded in the mining area will reach US$ 2,475 million for 2015, and services up to US$ 3,245 million.

The commercial balance between Switzerland and Chile reached US$ 450 million during 2011, and imports from Switzerland reached US$ 323 million.

There is an important potential market in services, such as: environmental studies, management of atmospheric emissions and air quality, energy efficiency and renewable energies. The

Chilean mining sector is in the need of such innovative solutions and we consider that Swiss companies have products and solutions to provide it with.

Everything related to the handling and care of water is critical. General environmental services, such as management of solid and dangerous waste are very important here.

In the near future, technologic solutions applied to processes and communications of companies will also be required: Exploration, geologic modeling, plant planification, abilitating technologies like automatic control systems, tele-operation technologies, and production control systems.

Applications for companies: ERP (Enterprise Resource Planning), CRM (customer relationship management, DAM (Digital Assets Management), DW (Data Warehouse), and so on.

The grund work for the present report consisted in performing an indepth analysis of the Chilean mining market, looking for the mining sector demands in products and services. Afterwards, the Swiss market was scrutinized in order to identify companies that could provide them.

Over 100 Swiss companies that potentially have business opportunities to serve this market have been pinpointed.

Finally, this report provides a Critical Steps Guide to render and develop the Chilean mining market, which is also a platform for other countries near Chile with mining development, such as Peru, Colombia and Brazil.

Some of the Critical Steps presented are: • Selecting the way operations will be carried out in Chile.

• Deciding on the type of society to be constituted.

• Determining the place of operations and selection of the work team.

• Setting up as supplier for the mining industry in Chile and associated costs.

• Relevant costs to set up in the mining sector in Chile.

• Salary and remunerations structure.