Economic Management
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Generation and distribution of economic value
The main challenge for Codelco’s commercial management is to maximize value for production and return on sales, but also to guarantee the future feasibility of the copper business. For this reason, the sales strategy is centered on the development and the defense of international markets, with a special focus on sustainability, acting with the highest quality standards.
Codelco is a state-owned company that, by law, must transfer all its excess income to the State of Chile. In 2010, this contribution was of US$ 5,799 million, surpassing the excess income contributed in the previous exercise by 47%. This increase was mainly due to the strong rise in international copper and molybdenum prices.
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Another factor positively influencing Codelco’s results in 2010 was that the company maintained production levels for both copper and molybdenum. The production of own copper for the 2010 period was of 1,689 thousand fine metric tons (fmt), a figure that is increased to 1,760 million fmt, when Codelco´s participation in 49% of El Abra Mining Company is taken into account.
In 2010, The Corporation’s consolidated financial statements were elaborated following the International Financial Reporting Standards (IFRS), an accounting model widely used around the world and aimed at streamlining accounting practices across different countries.
The negative retained economic value for this period can be explained as incoming funding flows were not accounted for. The expectations are to cover future cash needs with the positive trends in prices.
Impact on the local economy
Consumption of goods and services
EC6Policy, practices, and proportion of spending on locally-based suppliers at significant locations of operation. Goods and services consumed by Codelco consider both operations as well as investments. During 2010, the total amount of goods and services consumed increased by 16% compared with the previous exercise, due to an increase in investment projects.
 
Purchase of goods and services
Purchase of goods and services during the year are presented in the following tables:
 
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The total value of goods and services purchased includes this year’s subscription of long term contracts for the supply of electric power (US$12,303 billion) and contracts for the supply of fuel (US$1,807 billion). This explains the increase in the amounts of these items compared with the previous period.
At the same time, suppliers are mostly national (3,504), thus translating into a stronger contribution to the local economy, when compared with the number of international suppliers (379).
Business per type of allocation
The total amount for business activities carried out in 2010 was of US$ 38,887 billion. These business activities are classified depending on their type of allocation, which takes into account both operations and investments.
Contribution to the development of the surroundings
Through its operations, Codelco establishes several bonds with its areas of influence, in the context of its local community and work-related relationships in the region where each division, Corporate Headquarters and the exploration sites are located.
In the work-related area, although Codelco does not have policies regarding the hiring of local workforce, all divisions generate actions tending to the hiring of local workforce through the inclusion in the company’s physical payroll and the incorporation of local suppliers of goods and services. The following describes the goods and services provided by local suppliers with their corresponding divisional expenses, that indirectly help to develop the surrounding environment where operations take place.
Salvador Division
- Development work in the Inca sector of the El Salvador underground mine.
- Load and transportation of mineral waste and minerals and renting of support equipment for open pit mine operations.
- Integral Services (production operations, control of extraction, maintenance, industrial cleaning, etc.) for Inca underground mine, concentrator plant and hydrometallurgical plant.
Andina Division
- Communication of Codelco activities in local radios and newspapers.
Ventanas Division
- Industrial Cleaning Services.
- Security Guards Service.
- Meteorological and Environmental Services.
- Materials transport Services.
- Mechanical Maintenance Services.
- Maintenance Services for Operational Lighting.
Economic-financial results
2.8Scale of the reporting organization. Codelco’s net Profits for 2010 were of US$ 2,206 billion, much higher than the US$ 836 million achieved in 2009.
According to Law 1,350, net profits in the financial statement, prior authorized deduction for capitalization and reserve funds, are handed over to the State of Chile and become part of the general National Income. Codelco’s contribution to the state, corresponding to sums effectively paid, reached US$ 6,070 billion.
The Corporation’s consolidated financial statements for 2010 show assets for US$ 20,279 billion; total liabilities for US$ 15,748 billion (including current and non-current liabilities); minority interests for US$ 2 million and a patrimony of US$ 4,531 million.
The EBITDA – measured as the income for the period plus depreciation, amortizations, and financial costs and taxes, included in Law 13,196– amounted to US$ 7,435 billion, greater than the US$ 5,349 billion for 2009.
Production
Copper production – taking own production centers and Minera Gaby S.A. into account – amounted to 1,689 thousand fmt, which increase to 1,760 thousand fmt when the 49% of Minera El Abra Mining is included.
During 2010, Codelco produced 22 thousand fmt of molybdenum, the company’s main byproduct.
Costs
Total costs and expenses for 2010, including non-operational expenses, were at an average of US$ 197.6 cents per ounce of copper produced (¢/lb). Net cathodes costs (C3), which include loans for byproducts and homologation of cathodes (TC-RC) to express the cost of copper types with less added value in the cost of cathodes, were at 171.7 ¢/lb, comparable to the 138.6 ¢/lb during 2009.
Meanwhile, cash cost or direct cost (C1) – the type of cost used in industrial mining to compare levels of efficiency among different companies, that includes non-operational expenses, depreciation and amortization – reached 104.4 ¢/lb during 2010, that is higher than the 11.5¢/lb recorded for 2009.
Sales
Total income accountable to copper, molybdenum and sale of byproducts reached US$ 16,066 billion during 2010.
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Main Markets
2.7Markets served (including geographic breakdown, sectors served, and types of customers/beneficiaries). During 2010, including own production and third party productions, Codelco sold 1.98 million fmt. Copper exports were distributed among the following markets.
During 2010, Codelco contributed 21.3% of total Chilean exports. According to a study carried out by Prochile, the Corporation is the first exporter at a national level.
 
The evolution of copper markets in 2009 and 2010 is as follows.
 
 79% of exported copper products correspond to cathodes.
Molybdenum exports during 2010 were distributed in the following markets:
On the other hand, 99% of sales of sulphuric acid are to national clients.
Business transparency and integrity
Codelco, in its Policy on Commercial Ethics, has committed to relationships based on the highest commercial ethics, integrity, transparency and equality to guarantee objective goods and services purchase and hiring processes.
To achieve this, Codelco has enforced a number of guidances regulating the relationship with customers and suppliers, as well as the behavior of workers, who fully know all guidances and the corresponding procedures.
How does Codelco ensure transparency and integrity in its business activities?
 
4.6Processes in place for the highest governance body to ensure conflicts of interest are avoided. Additionally, the Corporation has a Code of Conduct and Business Ethics that establishes the values that govern the Corporation and the fulfillment of its mission, as well as the basic guidelines for behavior that are of mandatory compliance for all people working in the company. The basic guidelines include a special section on conflicts of interest and procedures in case of noncompliance.
Donations and Subsidies
SO6Total value of financial and in-kind contributions to political parties, politicians, and related institutions by country Codelco’s annual budget, approved every year through Reserved Decree exempt from approval by the Ministry of Finance, states that the Corporation cannot perform any donations.
EC4Significant financial assistance received from government. SO6Total value of financial and in-kind contributions to political parties, politicians, and related institutions by country Codelco has precise norms determining budget contents and the destination of company profits. During 2010, Codelco did not receive any financial assistance from any government to aid in the development of its activities, nor did it make any contributions, be it financial or in kind, to any political party or institution related to any of the countries where it operated during the period.
Customer Satisfaction
PR5-APractices related to customer satisfaction, including results of surveys measuringcustomer satisfaction.(R) Every year, Codelco applies surveys to measure the quality of the service the Sales Vice-Presidency provides and the quality of its cathodes. Furthermore, a survey on sulphuric acid was designed and applied to customers in 2010.
The survey was applied to 52 clients from Asia, North America, South America and Europe. This survey was applied to determine the levels of customer satisfaction and their requirements, to detect the existence of any gaps and to establish plans to improve the service and the quality of cathodes. The analysis of the results led to the following conclusions:
- With regards to the quality of the service, the market has a positive evaluation, but the need to improve logistics was detected for traffic flows for Greece, Turkey, France and Vietnam, as well as greater timeliness, currency and accuracy of the information regarding each shipment.
- With regards to the quality of the product, the physical quality of the cathodes is increasingly important to customers, despite the importance of their chemical quality. Furthermore, OF plants prefer receiving ER rather than EW cathodes, due to their high levels of oxygen.
Benchmarking
The quality of the Sales Vice-Presidency service regarding competition.
PR8Total number of substantiated complaints regarding breaches of customer privacy and losses of customer data. (R) PR9Monetary value of significant fines for non-compliance with laws and regulations concerning the provision and use of products and services. During 2010, Codelco did not receive fines or sanctions related to the supply and use of its products and byproducts. Neither was any complaints recorded regarding data leaks or privacy breaches.
