Copper Physical Trading and Supply Chile and Perú JLC

Copper Physical
Trading and Supply

Chain
Physical Traders Operations in Chile and Perú
Index
I. I. Executive Summary ................................................................................ 2

Targets
Description
II. II. A Brief Guide to Physical Trading and

Supply Chain ............................................................................................... 3
The Basics of Commodity Trading
The Structure of Copper Supply Chain
Who are Commodity Traders and What they Do
Copper Concentrate Trading Examples
How to Make Profit by Trading Metals
Specific Considerations for Copper Concentrates Trading
Copper Concentrates Trading Example
The Risks of Metals/Commodity Trading
How Trader Add Value
Commodity Trading, Financing and Capital Framework
Latest Development in Physical Metals Trading
III. III. Physical Traders Operations in Chile

and Perú ..................................................................................................... 27
Chilean Physical Copper Trading
Chilean Port Losgistic
Peruvian Physical Trading Market
Peruvian Copper Concentrates Trading
Peruvian Zinc Concentrates Trading
Peruvian Lead Concentrates Trading
Peruvian Port Logistics
IV. IV: Final Remark ........................................................................................ 49
1
I. Executive Summary
Targets
The purpose of this work is to give an overview of the copper physical trading
business and its market in Chile and Perú.
Description
We start with a brief explanation on how the trading companies work and how
they add value, we present the leading firms in the in the sector and the principal
business model, then we focused more in the characteristics of the copper
concentrate market in Chile and Perú. Finally, we show all the ports and metal
export capacity in Chile and Perú.
COPPER PHYSICAL TRADING AND SUPPLY CHAIN – JUNE 2018 2

II. A brief guide to copper physical trading and
supply chain
The basics of commodity trading
The basics of commodity trading, focusing on the three major transformations that commodity
traders undertake. Commodity traders are essentially logistics companies that use financial
markets to fund their operations and hedge or limit the price risk involved. They transport and,
in several ways, transform, commodities across the world.
This notion of transformation is key. Commodities undergo a variety of processes to transform

them into things we can consume. These can be categorized as transformations in space, time,
and form.
Commodity traders add value by identifying and optimizing transformations in commodities

that reconcile mismatches between supply and demand.
Commodity Transformations
The 3 arbitrages opportunities in the transformation process
In Space: Spatial transformations involve the transportation of commodities from regions where
they are produced (supply regions) to the places they are consumed. Transportation—
transformation in space—is necessary to bring commodities from where they are produced to
where they are consumed. Transporting commodities from where they are produced to where
they are consumed is the most visible aspect of the commodity trading business. Mineral
deposits are rarely near urban consumption centers. Commodities are often transported across
continents. Shipping therefore plays a vital part in commodity trading.
In Time: The timing of commodity production and consumption is often disjoint as well. Many
commodities are produced at a relatively constant rate through time but are subject to

random fluctuations in demand due to a variety of factors. Commodity supply and demand
are not always in sync. Supply can be disrupted in the short term by industrial action,
geopolitical conditions or extreme weather. Oversupply or excess demand can persist over the
medium term, because of the time it takes for productive capacity to adjust to changing
demand conditions. Commodity traders deal with mismatches in supply and demand through
temporal transformation. Storage reduces volatility by smoothing fluctuations in the prices and
availability of commodities. To do this effectively, commodity traders need access to
strategically located storage facilities and financial credit. Commodity demand can also
fluctuate due to macroeconomic events, such as a financial crisis that causes economic
activity to slow. Supply can also experience random changes, due to, for instance, a strike at
a copper mine. These mismatches in the timing of production and consumption create a need
to engage in temporal transformations, namely, the storage of commodities. Inventories can
be accumulated when supply is unusually high, or demand is unusually low, and can be drawn
down upon when supply is unusually low, or demand is unusually high. The other transformations
(in space and form) require time to complete. Thus, commodity trading inevitably involves a
storage and financing element.
In Form: All commodities undergo some transformation before they can be consumed. While
commodity traders do not usually involve themselves in industrial processes, they often blend
or mix different grades of metal products to suit their customer´s needs. Moreover, commodities
often must undergo transformations in form to be suitable for final consumption, or for use as
an input in a process further down the value chain. Though often overlooked, blending and
mixing are important transformations in form. Consumers of a commodity (e.g., a copper
smelter that uses copper concentrates as an input) frequently desire that it possess a particular
combination of characteristics that may require the mixing or blending of different streams or
lots of the commodity. Physical and regulatory bottlenecks may act as constraints on these
transformations.

The Structure of the Copper Supply Chain
An efficient supply chain add value by ensuring smooth transmission and transformation
process. The market-based mechanism aligns supply and demand highly effectively.
Traders act as conduits between producers and consumers in both primary and secondary
commodity markets. They transform and transport commodities to meet customers’ timing,
delivery and quality requirements
Economic and geopolitical fundamentals link markets and affect key trade routes. History
shows a lot of cases with multi-dimensional consequences that illustrate the
interconnectedness of markets.
Storage plays a key role in the global supply chain. It acts as a shock absorber, reducing overall
price volatility. In medium term a reduction in demand results in persistent, excess supply.
Inventories rise. Without any kind of circuit breaker prices would fall even faster.
Trading firms manage global storage inventories that help keep markets in equilibrium. They
use futures markets as a hedge against changes in commodity prices. Typically, they build up
inventory in buyers’ markets and reduce inventory in sellers’ markets. In doing this, they both
profit from market volatility and help to reduce it by smoothing underlying supply / demand
imbalances

Who are Commodity Traders and What Do They Do
Commodity trading firms play a pivotal role in the global supply chain by bridging gaps
between producers and consumers, and by balancing supply and demand both within and
between connected markets. They not only get involved on the marketing and
commercialization of raw material, but they also invest in supply chain infrastructure, support
financing to leverage its position and bringing products to the market at reduced cost in order
to improve the margins.
Commodity traders need excellent peripheral vision to understand the interconnected nature
of the global economy. Conditions in commodity markets can change rapidly and traders
need to remain alert to many micro and macro factors. Economic cycles, geopolitical
developments and technical factors all have a global scope impact.
The leading firms
The principal traders in agricultural products have a long lineage; Cargill for example started
grain trading at the end of the American Civil War. In recent years, they have also begun to
trade in energy and ‘hard’ commodities as a subsidiary activity. Vitol, Trafigura, Mercuria,
Gunvor and Noble are leading firms that specialize in energy, metals and minerals trading.
Glencore started up as a pure trader but is now a major mining company. Several major oil
and mining companies are also active traders, as a sideline to their industrial activity,
Commodity trading firms also differ by the breadth of the commodities they trade. Some firms
are relatively specialized, trading one or a few commodities. Others trade a broader set of
commodities but within a particular sector. Furthermore, firms in a particular segment differ in
their involvement along the marketing chain.
Some firms participate upstream (e.g., mineral production ownership), midstream (e.g.,
transportation and storage), and downstream (e.g., processing into final products or even
retailing). Others concentrate on a subset of links in the marketing chain.
Commodity trading firms also vary substantially in size. There are large numbers of small firms
that tend to trade a single commodity and have revenues in the millions of dollars. At the other
end of the spectrum, the largest traders participate in many markets and have revenues well
over $100 billion.
Firms that engage in commodity trading also exhibit diverse organizational forms. Some,
including many of the most prominent (Cargill, Louis Dreyfus, Koch Industries) are privately
owned. Some of these non-public traders are funded by private equity investors: Trail-Stone
(Riverstone Holdings) and Free-point Commodities (Stone Point Capital) are well-known
examples. Others (e.g., ADM and Bunge) are publicly traded corporations. Some are affiliates
or subsidiaries of publicly traded firms. Yet others are organized as master limited partnerships
with interests traded on stock exchanges: Kinder Morgan, ETP, and Plains All American are
examples of this.

Glencore Business Model
Value Propositions Customers Relationships

Glencore is a leading integrated commodity producer and trader Long-term contracts
Exploiting natural resources under envorimental friendly industrial practices Simplicity
Responsability
Customers Segments Openess
Industries that transform commodities into final and medium goods Dependence of its intergrated model
Traders Concessions
Automotive Switching cost
Power Generation Partnership
Steel Production and processing industries Co-operation
Tranparency and mutual benefits
Channels
Global presence with project teams Key sources
Email Mining and metallurgical assets
Corporate Offices More than 90 offices located over 50 countries
Website Logistics network
Social media Know-how
Supply agreements
Key Activities Employees and contractors
Metals and Minerals (exploration, exploitation, refining, trading, storage, Unique business model integrated (diverse, products, activities,
logistics and locations all along the commodity chain)
Energy Products
Agricultural products Cost Structure
Exploitation and transport costs
Key Partners Employees
Investors Contractors
Goverments Facilities
Association with mining companies CAPEX
Exploitation with technology companies License and concession
Traders Infrastructure
Contractors Royalties and loand-owners
Third party producers Enviromental compensation programs
Taxes
Renevues Streams
Businees to Business and Business to Customers (B2B and B2C)
Contract Supply
Agricultural business
Sales of commodities
Glencore is the largest diversified trading company and a major producer and marketer of
more than 90 commodities. Glencore's operations comprise around 150 mining and
metallurgical sites, oil production assets and agricultural facilities. Glencore's companies
employ around 146,000 people, including contractors. Unlike other trading companies, its
strategy was to become more “Industrial” and invest in the producing assets in all categories
of commodity trading. For example, Glencore produces approx. 1,4 mio mt of Copper per year
from its own mines, which is equivalent to more than 8% of the worldwide copper production.
Among the most important Copper assets, Glencore owns, totally or partially, African Group
(Katanga, Mopani and Mutanda), Collahuasi, Antamina, Alumbrera, Lomas Bayas,
Antapaccay, Mont Isa, Ernest Henry, Cobar, AltoNorte, Horne, Pasar and CCR among other
assets.
Trafigura, on the other hand, is lighter in mining-oil assets and invest more in ports, terminal and
logistics to enhance its physical trading activities. In terms of mining-oil assets, Trafigura only
owns 100% in Catalina Huanca (Peru), 25% Stake in Nyrstar, Terrafame (Finland), 25% of Essar
Oil Refinery (India) and 50% of Aguas Tenidas mines (Spain). However, on the logistic side,
Trafigura owns a stake on Buckeye Texas Partners (in USA), Burnside Port (USA), 50% of Porto
Sudeste Brazil (50mtpy of Iron ore, JV with Mubadala), 100% of Multimodal logistic corridor in

Magdalena river (in Colombia) with an investment of usd1bn and several minerals warehouses
in Peru, Mexico, Bolivia, Chile, Brazil, Spain and Africa, among other assets.
Trafigura has an extent client and supplier base, including more than 55 smelter and almost of
metal producers
Trafigura Business Model
Value Propositions Customers Relationships

Moving physical commodities where they´re needed when is needed Network
Trafigura is the largest private metal trader Provide access to market/sources
Trafigura is the 2nd largest private oil trader Dedicated account management
In support of its arbitrage-based business model Tarfigura ensures a degree
of control over supply storage and logistics through industrial subsidiraries Key Resources
Trafigura operates 65 ofiices in 36 countries
Customers Segments Mines/Smelters
Traders Logistics Resources/Shipping
Producers of commodities looking for acess to market Know-how
End users and industry lookig for commodities as raw material Supply agreements
Employees and contractors
Channels Network
Regional Offices Stake in pipelines
Dedicated sales team Port and storage terminals
Website Global presence
Email
Telephone Cost Structure
Exploitation and transport costs
Key Activities Employees
Sourcing Contractors
Storage Facilities
Blend CAPEX
Deliver License and concession
Procurement Infrastructure
Networking and legal affairs Royalties and loand-owners
Logistics cost
Key Partners Taxes
Subsidiaries
Adquisitions Renevues Streams
Companies along commodities value chain producers, contractors, It trades metals,energy and oil
industrilals and final users logistics services
Oil storage and distribution busines Puma Energy Contract Supply
Sales of commodities
Its Geneva-based trading teams are supported by regional and local offices around the world.
They work closely with their offices to develop long-term relationships and to guarantee a
consistent, high-quality service.
A carefully selected investments in infrastructure are furthering its volume growth. A joint-
venture 50-50 with Mubadala of Abu Dhabi has doubled capacity at the MATSA concentrates
mining complex in Spain. In China, Trafigura has a strategic partnership with a lot of smelters,
and specially with Jinchuan Group, which gives them a minority stake in its Fangchenggang
copper smelter and access to supply and offtake agreements covering both copper
concentrates and refined metals.
Through Impala Terminals, they have been investing in logistics and infrastructure to facilitate
the safe, prompt passage of product to market. They combine their warehousing, blending
and transport capabilities to aggregate base tonnage, align blends with specific import and
customer requirements, and transport products to Western Europe, China, South East Asia, USA,
Russia and Japan.
Louis Dreyfus Company (LDC), today IXM entered the metal business in 2006 and it is basically
a distant third trading house for non-ferrous materials, after Glencore and Trafigura. However,

early May 2018, Louis Dreyfus Co confirmed the sale of its metal business unit to NCCL Natural
Resources Investment Fund for USD 466mm, which is managed by New China Capital Legend
as general partner and has AXAM Asset Management and China Molybdenum Co., Ltd as
limited partners
The new name of the company is IXM. It is not clear what will be the focus for the New Trading
House (NTH), but they have acquired a global presence trading company, experienced team
and some logistic infrastructure. The problem that LDC always had was that the Metals units
was controlled by the grain unit and tried to apply the same logic and risk management
process of the grain business to the metal business, something that in our opinion difficulted its
growth. We think IXM represents a good opportunity for mainly 2 reasons: First, it gives them the
opportunity that a Chinese trader become very active and catch up Glencore and Trafigura
positions and second, can get better value from IXM, if understand the business properly, which
is something that LDC didn’t get. The latter one will be a big step back if they don’t manage
the culture of the former LDC Metals.
The most important trading houses
Company Founding Commodities Traded Revenues Employees Countries Corporate

Date 2017 (Bn) Presence Status
Copper, cobalt, zinc, lead, nickel, coal,

ferroalloys, aluminium/alumina, iron ore, crude
Glencore 1974 oil, refined products, natural gas, agricultural 221,4 146.000 50+ Public Limited
commodities (including grains), oilseed products,
pulses, cotton and sugar.
Crude oil, condensates, gasoline, fuel oil,

naphtha, refined products, LPG, LNG, natural gas,
Trafigura 1993 biodiesel, coal, iron ore, alumina and metals and 136,4 3.945 35 Private
minerals (copper, lead, zinc, nickel and
aluminium)
Oilseeds, rice, sugar, grains, juice, freight, coffee,

Louis Dreyfus 1851 cotton, diary, fertilizers and metals and minerals 43,0 19.000 43 Private
(Copper, Lead and Zinc).
Petrochemicals, biofuels, environmental products,

natural gas and LNG, power, coal, iron ore, base
Mercuria 2004 91,0 1,000+ 27 Private
metals (Copper, Lead and Zinc) and agricultural
products.
Crude and refined products, LNG, coal, copper,

Noble Group 1986 32,0 900 <20 Public Limited
lead, zinc, iron ore and carbon steel.
Transamine 1953 Copper, lead and zinc concentrates. < 10,0 < 200 12 Private
Ferroalloy, copper, lead, zinc and energy

Traxys 2003 6,0 400 21 Private
industries.
MRI Group 1996 Copper, lead, zinc and iron ore. < 5,0 <100 10 Private
Cliveden Copper, lead, zinc and precious metals

2011 < 5,0 <200 16 Private
Trading concentrates.
Copper, lead, zinc and precious metals

Ocean Partners 1997 < 5,0 <200 22 Private
concentrates.
Concord
2015 Copper, lead and zinc concentrates and metals. 3,4 < 150 9 Private
Resources
Finally, all the other trading houses are new or small. They have the challenge to build up their
team and become reliable for the industry. Most of them are more “niche” players or

participate in the market being opportunistic. They rely heavily on spot deals of maximum a
year duration.
We think the market can´t work with only 2 strong metals traders, because traders will take
advantage of its competitive position, therefore there is plenty of space for this small and new
trading houses (including the new Chinese trading house) to step-up and play a bigger role in
the future

How to Profit by Trading Metals
The arbitrage business model is based on identifying and acting on market inefficiencies which
present themselves as excess price differentials between untransformed and transformed
commodities. Traders act on these pricing signals to direct commodities to where they are most
valued, reducing market mispricing. By doing this, they make markets more competitive and
in exchange earn profit.
Traders focus on spotting any gaps in the market, mispricing or dislocation in distribution. They
monitor relative prices for different grades and type of commodity (the quality spread,
optionality), for the same commodity with different delivery locations (the geographic spread)
and for different delivery dates (the price curve spread). Where they identify a mismatch, they
can lock in profit by buying in the cheaper market and selling in the more expensive market.
An arbitrage opportunity opens up when the value of transformation – the difference between
the prices of the transformed and untransformed commodity is more than the cost of making
that transformation. For example, in a contango market the forward price is higher than the
spot price (upward slope in price curve. Traders can buy and store the commodity today and
simultaneously sell it at a higher price on the future date. Arbitrage depends on careful
execution of a large volume of transactions with generally very thin margins. The trader must
be able to identify worst case revenues and costs from the beginning. They can only undertake
these large-scale, low-margin transactions if they have reliable access to funding and the
expertise to manage risk effectively
Margins vs Volume, nowadays physical trading business is characterized by “thin” margins, so

in order to make the business profitable, trading companies need to trade “volume”. Cost
structure include, back office/operations, support teams like finance, accounting and legal,
offices rent, travel expenses are mostly fixed cost and on a per employee basis, are high, so
taking bigger volume reduce the average cost.
However, big volume implies more risk as well. Increasing volumes per se doesn´t translate into
more profitable business as market can move against trader´s position and generate a big
financial loss. Nevertheless, with high volume the trading company can increase its negotiation
power to improve margins and be more competitive. (for example: if you move 50k mt out of
Callao every month, you can get better freight rate quotes compare to a quote from just
moving 5k mt).
Big volume also improves the access to a “first hand” and “on time” information. The more
volume and more counterparties the trading company has, a much better market assessment
can get. Getting regular contact and feedback from clients and counterparties, you can get
a better insight on potential business opportunities.
The way to operate: talent and good information are essential
Considering physical trading as a logistics business based on arbitrage opportunities. To find

the right business opportunities, traders are constantly looking for the best business decisions.
To accomplish their mission, traders need to hire and train human talent, who can work in a

very horizontal and dynamic organizations. Sharing internally new insights and monitor key
market information under an open and cooperative structure you can take advantage by
taking righter business decision. Internal communication is an essential element to keep a
competitive position. Most of the western trading companies have their headquarters in Europe
due to time zone reasons, as allow then to cover Asia in the morning and Americas in the
afternoon.
In the headquarter offices, you usually find the board members, the “global heads” of each
commodity, which are responsible to take “trading” decisions. In general, there is one director
that is responsible for each business unit, for example, oil, metals or bulks. The communication
between the “director of metals” and the “head of copper book” is on a daily (if not hourly)
basis as they need to be on the same page while they discuss the direction of the market and
while setting the strategy the “global head” wants to execute. The “head of copper” (or
zinc/lead etc) is the one who handle the business relation with local offices, and on the field
direct copper (or zinc/lead etc) clients. The “director of metals” also travel around the globe
visiting local offices and discussing potential business with the most important customers, as
they get the gist of the business from direct sources. The exchange of ideas and information is
permanent among the “director of metals”, the “head of copper (or zinc/lead etc) and head
of local offices.
The communication through email is also permanent and reach a wider group. You can find
different “email groups” classified depends on the purpose of the discussion issue and the
information to be reported. For specific trading ideas, a more confidential information and
defining business strategy, the group tends to be smaller and very selective, including senior
management, senior traders and legal affairs. For example, is there an earthquake in Chile, the
local office trader sends an email to the trading group with specific information to assess the
impact of the earthquake on the local copper mining industry. (i.e: copper cucons, shipping,
ports, cathodes etc) and find potential way out and potential business opportunities. For
example, If Antofagasta port were damaged, you will know that shipments in and out from the
port will be suspended, there are going to be some smelter capacity waiting for the vessel and
would be short of cucons and that´s might be a trading opportunity.
Although the “head of book” and the traders are more focus on their specific in the metal they
are involved, usually the “global director of metals” or other senior traders gather together to
discuss the global picture and outlook of other metals. They evaluate the “pros and cons” and
the potential risk from a specific situation. For example, if a trader is negotiating a “zinc contract”
with Korea Zinc and they are far apart in term, the “director of metals” could get involve the
“copper trader” to provide a high silver content blend with high impurities to bridge out the
gap between the negotiations terms.
Apart from the daily communications standards, there are “offsite events” 2 or 3 times per year
to evaluate the budget, analyze market conditions and discuss how to execute the strategy
going forward. The meetings are held in the headquarters and are follow with oriented
discussions to review different angles of the business. Is also an opportunity to check the
supply/demand balance of the market and review the position with your peers.

Key elements to take in consideration for physical trading operations
1 Availability of storage Supply of oil and petroleum products does not come solely from wells
and refiners. Traders, producers, consumers and countries all maintain large inventory stocks in
oil tanks located strategically around the globe. Traders keep tabs on tankage to know what
capacity is available to them should they need to store stock in a particular location. They also
monitor tankage to identify potential sources of supply.
2 Geopolitical developments Conflict International sanctions can have a major impact on

supply. Both fiscal and security policy can affect supply and demand for metals
3 Benchmarks The financial spot market (for immediate delivery or receipt) in commodities is a
small fraction of the commodities global market, but it sets prices for a much larger volume of
trade. Every shipment has specific qualities, and each is priced individually. Almost always this
price is expressed as premium or discount to a benchmark price. Traders monitor the key
benchmarks to gain insight into both absolute and relative price movements.
4 Bottlenecks, peaks and troughs Traders monitor the impact of natural cycles, economic
trends and global events on supply and consumption levels in different parts of the world. They
also need to know about a range of technical factors; these might include a lack of local
infrastructure constraining supply or seasonal variations in demand.
5 Locations and logistics Product can come from multiple sources. In a competitive industry,
many transactions are only doable with narrow margins. Traders can secure competitive
advantage through a combination of keen pricing and efficient logistics. They need to assess
the real cost of the product at the point of delivery. For instance, acquiring oil inland and
transporting it by barge may be more cost-effective than bringing the same shipment to port
using the road network.
6 Product specifications Generally, commodity traders are less directly interested in the
absolute level of commodity prices than in geographic or quality price differentials between
different grades of the commodity. They aim to identify a price differential that makes it
profitable to move commodities around the world and transform them. To do that, they need
a solid working knowledge of the chemical constituents of the commodity.
7 Blending opportunities Traders may decide to acquire commodities with a view to blending
multiple commodities. They must assess the cost and effectiveness of combining commodities
to create a synthetic blend. They also need to identify when and where blending can take
place and know where other blending ingredients can be acquired.
8 Cost of financing Trading firms attract short-term secured finance to bridge the time lag
between buying and selling commodities. Finance is more expensive when commodity prices
and interest rates are higher. This is an unavoidable cost of doing business, which the trader
must factor in to determine the profitability of a transaction

9 Futures markets Futures markets provide valuable information about expected future supply
and demand on which producers, consumers and trader can act today. As the most actively
traded market, futures provide the most accurate, timely indication of changing market
sentiment.
10 Contango and backwardation Traders monitor whether futures are trading at a premium
(contango) or a discount (backwardation) to the spot price. This gives an indication of whether
inventories are rising or falling. When markets are in contango there may be an opportunity to
conduct a cash- and-carry arbitrage
11 Risk management Trading teams use futures and options to minimize exposure to market
volatility. Many trading desks include specialist risk management teams that manage the
traders’ overall exposure to absolute price risk
12 Counterparty and political risk Commodity trades are large-scale transactions. Traders try to
limit credit risk by partnering with financial institutions, but they also need to calibrate their
exposure to specific counterparties and be aware of sovereign risk.
13 Cost / availability of substitute products the price and availability of substitute products can
affect the supply and demand for a physical commodity. Close substitutes, including different
grades of the same commodity, impact on price by changing the economics for traders who
are blending commodities. More indirect substitutes affect prices in linked markets by affecting
the demand for related energy products.
14 Existing trade flows Understanding trade flow fundamentals is critical. Traders are continually
assessing relative and absolute pricing levels. Spreads between prices often relate to the
direction of trades. When trade flows shift, price differentials change.
15 Cost / availability of freight Cost of freight varies according to the availability of shipping.
Dealers in physical commodities factor in transportation cost when assessing the profitability of
a trade. The shipping and chartering department often sit alongside freight traders who can fix
prices for particular journeys in the wholesale markets.

Specifics considerations for Copper Concentrate Trading
1 Arbitrage on the TC/RC Traders usually move faster than smelter or refineries, so they act
before the market start changing. The more presence in the market they have, the more
information of their customers they enjoy and can have a better idea of the direction of the
market in the future.
2 Arbitrage on freight and location “Allocations of Cargoes”. Traders have positions worldwide
and its efficient allocation allow them to generate extra profits. For example, a trader buys a
cargo in Chile and in Brazil both basis delivery in China. Then they sell the cargo in Scandinavia
and another in China. The material from Brazil enjoys a higher freight discount if delivered in
Scandinavia vs the Chilean cargo, therefore, the allocation of the Brazilian cargo to Europe
and the Chilean cargo to China, allowed them to enjoy the freight differential from China vs.
Europe for the Brazilian cargo.
3 Reduced purchased costs Through financing, technical support, improved logistics and
freight, economies of scale and blending, trading firms get long term contracts with attractive
terms and conditions (better than market). Contracts are not only on the purchase side, but
also on the sale side. Strong business relationship with their counterparties is also important.
4 Payments and penalties Trading companies usually enjoy attractive side terms that add value
to the final PnL of their operations.
5 Quotation Periods (Q/Ps) The slope of the price curve. This deserve a special attention as
when the market fluctuates, it becomes an important revenue generator. Traders usually ask
for a “short” and “long” QP optionality, which allow them to profit whether the market is in
“contango” or “backwardation”. Once the business is booked, they lock the spreads based
on market conditions, however, by the time they have declared the QP, if the market change
from contango to backwardation or vice-versa, traders declare the new QP to its customer,
adjusting the position and profit prevailing under the new market situation.
6 Optionality Trades usually ask for optionality that its customers assign zero or little value. For
example, extra 10,000dmt lot at fixed numbers to be declared on “X” months or asking to a
smelter to include in the menu of “Y” different cucons qualities to be delivered, or just
maximizing the shipments where they profitable or minimizing the ones where they are losing
money. This brings a lot of intrinsic value on the optionality.
7 Swaps Quality and/or location and/or timing swaps. This allows traders to improve the
economics of it “position” while supporting its customer and/or allow them to save on the
freight differential between destinations. For example. Trader X swap 10,000dmt Morenci for
Andina with FCX. Trader deliver Andina in Asia on behalf of FCX and receive the Morenci that
could be sold to Grupo in Mexico, with a much lower freight than to China
8 Freight is so important for trading companies that all of them have a freight department. The
advantage of having the cargoes on FOB options is that Traders usually ask for parities of
5,000wmt or 10,000wmt, but Traders most of the time combine this cargo with other from the

same port and ship minimum 20-30,000wmt or even more from the same port. This allow them
to make between USD 2-6/mt the freight.
9 Blending Traders are the only ones who can convert a complex quality into a sellable product
(transformation of “form”), Traders end up buying complex Cu concentrates with at discounted
price In Peru, you can find good volume of these qualities that could be bought at distressed
numbers. Sometimes the market presents these golden opportunities to traders. For example,
in 2011-2012, when the Ag price was above usd30/oz, Chinese didn´t want to buy silver bearing
concentrates and PMs concentrates where very cheap. Few years ago, Ministro Halles
(Codelco Mine), Toromocho and Marcapunta have extra copper concentrates with high
Arsenic content, so they had to sell it with discount. Blends are always sold at a discount, but
as they are tailor made for each smelter, smelter usually apply a lower discount due to the
benefits that they receive. One example in 2015, China smelters bought Codelco’s blended
concentrate. Chinese copper smelters signed up for nearly 300,000 tonnes of blended copper
concentrate from Codelco, with Ocean Partners, their first term deal for the grade. The grade
was created by Codelco in 2014 by blending high-arsenic copper concentrates from its new,
at that moment, Ministro Hales mine in Chile with third-party clean, standard concentrates in
Taiwan. Chinese smelters bought spot shipments of the blend for trial runs at the beginning.
The final amount, however, was less than the 400,000 tonnes that Codelco had aimed to sell,
as Chinese smelters were betting on strong spot treatment and refining charges (TC/RC) due
to an expected global surplus in cucons that year. Smelters typically prefer the clean, standard
grade of copper concentrate, therefore Codelco had to pay the Chinese smelters TC/RC that
were USD 10 a DMT and 1 cent a pound higher than TC/RC benchmark for standard grades in
2015. That puts the term TC/RC for the blended copper mix at USD 117 per DMT and 11.7 cents
per pound.

Copper Concentrate Trading Example
• TC/RC: Market convention terms to trade copper concentrates. Treatment Charges in

USD/dmt and Refine Charges in USC/lb.
• Payment to owner of the cucons = payable metals – TC – RC – penalties, +/-
shipping/insurance. Q/P: Quotation Period,
• BL: Bill of Lading.
• dmt: dry metric tonnes, Cucons metrics.
On January 01st, Trader buys 1 lot or 10,000dmt +/-10% of Andina Cu conc (30% Cu) for delivery
in June at 60/6 (USD dmt60 / USC 6/lb) CIFFO MCP or MJP, with the option to deliver the lot on
FOB basis, with Q/P Option of M and M+4 to be declared by May 31st and BL + 30 days
payment.
On January 02nd, Assuming the market is in Contango, Trader locks the spread assuming “M”
QP for the purchase and “M+3” for the sale. Let´s assume that the spread is usd5/mt per month,
therefore trader makes usd4,35 per dmt on spreads (usd5/mt X 3 x (30 -1) %)
On January 15th, trader sells to Smelter “A” 10,000 +/- 10% of Andina or Sierra Gorda Cu conc
(22,5% Cu) Concentrates at 65/6,5 CIFFO Nantong, with M+3 QP and BL + 30 days payment.
After this sale, the Mark to Market (MTM) for trader is the following.
Sell Terms: 65/6,5 CIFFO Nantong

Purchase terms. 60/6,0 CIFFO MJP/MCP
Net on terms. -5/0,5 or -usd8,20/dmt
(USC 0.5 / lb * 2204.622 *(30-1%)= USD 3.20/dmt)
Gain on Q/P. usd4,35/dmt
Financing Costs: Zero. Same terms on both sides.
Net gain/loss (*). -usd3,85/dmt or –usd38,500 in a 10,000dmt lot.
(*) assumption. There is no other cost involved in the operation.
On February 01st, trader sells to smelter “A” another 10,000dmt +/-10% of Sierra Gorda Cu Conc
(22,5% Cu) at 65/6,5 CIFFO Nantong, with M+3 QP and BL + 30 days payment.
On February 15th, Trader buys 10,000dmt +/-10% of Sierra Gorda Cu conc (22,5% Cu) for
delivery in June at 75/7,5 CIFFO China, with the option to deliver the lot on FOB basis, with Q/P
Option of M and M+4 to be declared by May 31st and BL + 30 days payment.
On February 16th, Assuming the market is in Contango, Trader locks the spread assuming “M”
QP for the purchase and “M+3” for the sale. Let´s assume that the spread is usd4/mt per month,
therefore “trader” makes USD 2,58 per dmt on spreads (usd4/mt X 3 x (22,5 -1) %)
After this purchase, the MTM for trader is the following.

Purchase terms. 75/7,5 CIFFO China

Net on terms. 10/1 or USD 14,74/dmt.
Gain on Q/P. USD 2,58/dmt
Net gain/loss (*). Usd17,32/dmt or usd173,200 in a 10,000dmt lot.
So far, the expected Profit and Loss (PnL) of the trader is usd134,700 in the purchase/sale of
10,000 dmt “Andina” and 10,000 dmt “Sierra Gorda” to Smelter “A”. However, as trader has the
option to deliver a Sierra Gorda or Andina material to China and trader knows that Sierra Gorda
needs to swap its quality to generate “cleaner concentrates” to ship to Japan, Trader and
Sierra Gorda agree a cucon swap deal with TC/RC 10/1 profit for the trader as a fee.
On April 01st, trader swap 10,000dmt +/- 10% as per following terms.
A) Trader buys – Sierra Gorda sells.

10,000 dmt +/- 10% of Sierra Gorda Cu Conc for June delivery at 95/9,5 CIFFO Nantong, with
an option to take it FOB basis, with M+3 Q/P and BL + 30 days payment.
B) Sierra Gorda buys – Trader sells.

10,000 dmt +/- 10% of Andina Cu Conc for June delivery at 85/8,5 CIFFO MJP, with M+3 Q/P
and BL + 30 days payment.
Therefore, the swap fee is 10/1 for trader.
1) Allocations and Freight Allowances:
On May 01st, after the swap with Sierra Gorda, Trader allocates the cargoes as follows.
1) 10,000 dmt +/- 10% of Andina to Sierra Gorda (for shipment to Japan).
2) 10,000 dmt +/-10% of Sierra Gorda to Smelter “A”
3) 10,000 dmt +/-10% of Sierra Gorda (swap) to Smelter “A”.
Trader declares its option to take the material FOB ST. Using the freight market, Trader receives
an allowance of usd35/wmt for 10,000dmt lots (to simplify the analysis, we assume that both
ports (Las Ventanas and Antofagasta) pay the same freight to China)
Then trader goes to the freight market and look for a vessel of approx. 33,000 wmt to Asia (02
cargoes to Nantong and 01 to Niihama. Trader manages to get freight of usd34/wmt for the
10,000dmt of Andina to Niihama and usd32,5/wmt for the 20,000dmt to Nantong. So, trader is
saving usd2,5/wmt in each Sierra Gorda Cargo and usd1/wmt on the Andina cargo.
2) Q/P declarations and hedge adjustments:
On May 31st, the market conditions of price curve are in backwardation and trader needs to
declare the Q/Ps for its both, Andina and Sierra Gorda cargoes. Assuming the backwardation
is at usd6/mt per month, trader declares its QP as follows:
To Coldelco: Declares M+4 QP and adjust its intake from M to M+4. This is usd6,96/dmt income
(usd6/mt x 4 month x (30-1)%).
To Sierra Gorda (outright purchase…lot at 75/7,5 CIFFO China).

Declares M+4 QP and adjust its intake from M to M+4. This is usd5,16/dmt income (usd6/mt x 4
month x (22,5-1) %).

3) Tonnage Maximizations/Minimizations. (+/- 10%)
a. Andina at 60/6,0 to Sierra Gorda at 85/8,5 Minimize

b. Sierra Gorda at 75/7,5 to Smelter “A” at 65/6,5 Maximize
c. Sierra Gorda (swap) at 95/9,5 to Smelter “A” 65/6,5 Maximize
For this specific example, we assume that all cargoes are minimized or maximized. Sometimes
is difficult to minimize one leg of the swap and maximize the other leg, but could happen, as
mining companies usually don’t make that kind of control and pay little attention at those
details.
Therefore, the PnL for those 3 shipments will be as follows:
1) Andina to Sierra Gorda (minimized to 9,000dmt)
Sell Terms: 85/8,5 CIFFO Niihama

Purchase terms. 60/6,0 CIFFO MJP
Net on terms. -25/2,5 or –USD40,98/dmt.
Gain on freight: USD 1.09/dmt (USD 35/wmt vs USD 34/wmt)
Gain on Q/P. USD11,3/dmt (USD 4,34/dmt + USD 6,96/dmt)
Net gain/loss(*). -Usd28,86/dmt or –usd259,700 in a 9,000dmt lot.
2) Sierra Gorda (purchase) to Smelter “A” (maximized to 11,000dmt)

Purchase terms. 75/7,5 CIFFO Nantong
Net on terms. 10/1 or usd14,74/dmt
Gain on freight: USD 2,72/dmt (USD 35/wmt vs USD 32,5/wmt)
Gain on Q/P. USD 7,74/dmt (USD 2,58/dmt + USD 5,16/dmt)
Financing Costs: Zero. Same terms on both sides
Net gain/loss(*). USD 25,2/dmt or USD 277,200 in a 11,000dmt lot
3) Sierra Gorda (swap) to Smelter “A” (maximized to 11,000dmt)

Purchase terms. 95/9,5 CIFFO Nantong
Net on terms. 30/3 or usd44,22/dmt
Gain on freight: USD 2,72/dmt (USD 35/wmt vs USD 32,5/dmt)
Gain on Q/P. Zero. M+3 in both sides
Financing Costs: Zero. Same terms on both sides
Net gain/loss(*). Usd46,94/dmt or usd516,340 in a 11,000dmt lot

Considering all in, trader was expecting to make usd134,000 with the initial sale of Andina and
Sierra Gorda cargoes to Smelter “A”. However, due to Trader got a menu of quality (optionality)
for the first lot with Smelter “A”, Trader prefers to deliver another Sierra Gorda Cargo against its
short position with Smelter “A”. Trader swapped its Andina Cargo to Sierra Gorda and got an
additional 10/1 swap fee. Additionally, with the change of the market conditions from
“contango” to “backwardation” (Q/Ps)), with the option to take the cargoes FOB basis and
minimizing/maximizing the cargoes, trader ended up making more than USD 530,000.

The Risks of Metals/Commodity Trading
Commodity trading business face several types of risk. Limit and managing risk efficiently is an
essential function of a commodity trader.
Price Risk vs and Spread Risk In general, Commodity Traders have little exposure to commodity
prices. They normally hedge physical commodity transactions with derivatives. However, they
are more exposed to “basis” risks and “spread” risks.
“Basis” is the differential between the price of a physical commodity and its hedging financial
instrument. Basis risk is the risk of a change in this differential.
Commodity traders are more exposed to “spread risk” that arises from mismatches of time
between a commodity and a hedging instrument. For example, the hedging instrument
assumed an arrival of the cargo in April, but due to change of the voyage, the vessel arrived
in May. Then the positions need to be adjusted, but the spread is different than the one fixed
initially, which will impact on the PnL.
To manage these risks efficiently, commodity traders have their own “deal desk” and
“derivatives” departments. The former controls that the hedges match all the physical positions
(among other functions) and adjust them if there is a mismatch, while the latter make the
market for the “deal desk” department to adjust the positions or make the market for traders
when they need to lock spreads margins, quote back-pricings, fix prices, etc.
Operational Risk Physical Traders are exposed to a wide range of operational risks, including
insurance, availability of credit lines, health and safety controls, hedges, shipping, etc. They
manage these risks having good and experienced teams of traffic operators, involvement of
traders in the follow-up of the operations and the “deal-desk” department controlling and
checking the operators. To support the increase on the number of operations and have a
better control, its important to count with sophisticated and tailormade systems (in-house built
most of the time).
Margin and Volume Risk. Margins (sell/buy) for trading companies are low compare to other
industries, between 1.5% to 4% from revenues. On the other hand, big volume usually means
bigger revenues and bigger profits. Margins and profits tend to be positive correlated.
Trading companies are very aware of this issue and have a more proactive approach
nowadays. In the past, they used to be very secretive and opaque with its businesses, but now
they have improved its communication and inform permanently to the market what businesses
are doing, what is its business model, etc. Even more, they are selective with its business and try
maintaining very high standard in its “industrial” activities.
Default, Credit and Political Risk This is the risk that a counterparty does not pay. Commodity
Trading companies has its own “credit” departments where they evaluate the financial
situation of its counterparties. They even rank the category of each customer and set the
requirements-conditions needed to perform businesses with each counterparty.

A counterparty default is really a big issue. As trading companies are large volume-low margin
business, not receiving a payment can affect its financial situation. Banks are very reluctant to
lend them money to do business with risky companies, in which case, trading companies look
to buy an “insurance” to facilitate the operation. These kind of commercial insurance for each
company could be bought in the Lloyd’s market in London. Likewise, there are also insurance
against political risk, more precisely against Confiscation, Expropriation, Nationalization and
Depravation (CEND).
Traders Can Reduce Risk
Through Diversification. There is little correlation between basis risks in different commodity
markets. A Commodity Trader can reduce its overall exposure by trading in multiple commodity
markets. Most large firms are widely diversified and are therefore less susceptible to market
shocks. (metals vs energy basis risk)
Through Integration. Owning assets across the value chain provides opportunities to self-hedge.
When there is a market shock, cushioning effects generally occur elsewhere along the value
chain.
Liquidity Risk
Hedging liquidity Traders use futures exchanges to hedge commodities. Loss-making hedges
incur costs daily before offsetting profits on physical commodities are realized.
Market liquidity in some commodities markets it may be difficult to realize value from a trading
position at short notice. Markets places operate much more effectively when there is deep
and consistent liquidity.
Funding liquidity Under high commodity prices environment, commodity trading firms need
substantial capital to trade effectively and properly.
Traders help create liquidity in commodity markets and thereby lower transaction costs. Traders
thrive on volatility and commodity markets are often highly volatile. Traders profit from
bottlenecks in the logistical supply chain, but do not cause them, it does not necessarily follow
that they encourage volatility.

How Traders Add Value
Generally, Traders undertake physical arbitrage activities, which involve the simultaneous
purchase and sale of a commodity in different forms.
Mostly they do not speculate on outright commodity price risk but aim to profit on the
differential between the untransformed and transformed commodity.
Trader specialize in the production and analysis of information that identifies optimal
transformations. They respond to price signals and invest in physical, human capital under a
secure internal tailor-made IT platform to perform these transformations.
Traders reduce the cost of trading by leveraging their financial capacity, maximizing their
operational efficiency, using their infrastructure/logistics capabilities and trading in big volumes
Arbitrage depends on careful execution of a large volume of transactions with generally very
thin margins. A good trader must be able to identify worst case revenues and costs from the
beginning. They can only undertake large-scale, low-margin transactions if they have reliable
access to funding and the expertise to manage and limit risk effectively

Commodity Trading, Financing and Capital Framework
The trading companies uses financial markets to find their business operations and manage risk
price.
A commodity trading firm capital structure depends on the scale of its operations and the size
of its asset base.
Leverage for the largest most asset-heavy trading firms is similar to non-financial US corporations.
Other commodity trading firms are more highly leveraged but much less leveraged than banks.
balance sheets are structured differently from banks. In general, short-term assets are funded
with short-term debt and long-term assets with long-term funding.
Historically, banks have been the major suppliers of credit to trading companies. Fears that
reduced bank funding would destabilize markets appear unfounded so far. However, bank
funding may be more restricted in future. This may increase concentration in commodity
trading, but the impact on trading volumes will be limited.
Smaller firms are all privately owned. Private ownership aligns incentives between managers
and equity owners.
Some larger more asset-heavy trading companies are publicly listed like Glencore. They may
require large-scale equity investments that exceed the capacity of a small group of owner-
managers. Public listing allows firms to transfer risks to diversified investors.
Broader market developments, including the wider availability of information, are causing
some firms to become more asset-intensive. This will put increasing pressure on the private
ownership model.
Sometimes trading companies also act as financial intermediaries for their customers through
complex transactions that bundle financing, risk management and marketing services.
Common structures include trade credit agreements, pre-financing, commodity prepays and
tolling arrangements. Banks and other financial institutions remain, overwhelmingly, the
ultimate source of credit. Trading companies act as conduits between these financial
institutions and their customers.
In December 2017, Glencore have formed 50:50 joint venture partnership focused on base
metals streams and royalties with some pension funds.
Under the terms of the agreements for the joint venture, the trading companies contributed a
portfolio of selected royalties (the "Royalty Portfolio") and pension funds subscribed cash and
funds for its interest in the JV
The Royalty Portfolio includes a selection of existing royalties on producing and development
stage. The JV would eventually pursue investment opportunities, focusing primarily on base

metals streams and royalties. The JV will provide future transaction partners with deep sector
expertise, operating and technical skills alongside access to capital.
Trafigura also, in Nov 2017 has sold inventory-backed bonds from a SPV in Singapore to a
selected group of banks and eventually direct to the capital market in the future. Bonds are
backed by a portfolio of crude oil and metal inventories. Monetization of their inventories has
source of financing.

Latest Development in Physical Metal Trading
Fast growth in Chinese demand encourage new producers and short-term pricing, expanded
trade routes, open new challenges and make possible China economic development
creating a new globalized and competitive economy with a huge marketplace.
• Specifically, in Metals, there is shift destination countries from west to east. More Chinese
smelting capacity encourage demand for copper concentrates.
• China Copper Ore and Concentrate Imports grew from 8 dmt in 2012 to roughly 18 dmt
in 2017.
• Chile and Perú represent approximately 40% of copper supply, (27,7% and 12,02%
respectively).
• Independent, specialist operators became increasingly active and have built capacity
and compete for global volume.
• Rapid growth in China demand, new technologies, geopolitical factors and diverse
market participants have encourage new producers
• India becoming an important metal consumer and growing fast
• New technologies, less proprietary information and more info transparency, and market
liquidity have increased efficiency and reduce arbitrage opportunities. More active
trading.
• As markets become more efficient, commodity trading is evolving into a low-margin
service business. Increasingly, traders make their living by providing a solidly reliable
logistics service between producer and consumer in big volume mode
• Now contracts are on spot basis. The shift from institutionally-based to market-led
trading have fueled demand for benchmark-based spot market pricing
• More active risk management but more regulated as well

III. Physical Traders Operations in Chile and Perú
Chilean Physical Trading Market
Chile is the biggest copper producer country in the world, in 2017 Chile produced 5.5 mm tons
of Copper with 30% global market share. Most of the production is concentrated in a few
companies. Codelco, BHP, Anglo American and the local Antofagasta Minerals are the main
copper producers with more than 4mm mt in copper production in 2017, representing more
than 80% of the Chilean copper production. Glencore owns 44% of Collahuasi mine, equivalent
to a Cu 230k mt plus Altonorte smelter with Cu 154k mt and Lomas Bayas mine with Cu 78k mt
and S representing approximately 8.3% of the total Chilean copper production. Teck
participation (90%)in Quebrada Blanca mine (Cu 23k mt) and Carmen de Andacollo mine (Cu
77k mt) both produced in 2017, roughly Cu 90k Cu, representing 1.6% of the total production.
Caserones (PanPacific + Mitsui) and Sierra Gorda (KGHM + Sumitomo), both together
produced in 2017, approx Cu 225k mt representing 4% of the total Chilean copper production.
Most of mines have more than 20 years and even 100 years. In the last 10yrs only 650k mt/yr are
new production capacity with Spence in 2016, Centinela in 2011, Caserones in 2013, Sierra
Gorda in 2014 and Antucoya in 2015. Most of the new production is Cu Concentrate.
Antucoya and Spence are currently producing SX-EW cathodes produce but with Cu
concentrates projects.
Based on Cochilco´s research department, the production forecast, based on the certainty
status of mining projects contemplated in the 2017 investment portfolio show a 13.9% increase
in the expected production of copper towards 2028 with reference to the current production
of 2016 of 5.5 mm tons; this means Chile would reach a copper production of 6.32 mm tons by
2028.
Due to the natural depletion of active deposits, along with the corresponding natural decrease
in grades already considered for future mining plans, this is a hypothetical scenario without
replacement projects or development of current operations which, by the year 2028, may
reduce their production by 31.54%, at a decrease rate of 2.87% in relation to 2016, reaching 3.8
million tons of fine copper.
By adding the replacement and expansion projects for current operations development it is
possible to offset in part the natural decrease in production, reaching 4.95 million tons of fine
copper. This situation highlights the need for the national copper mining to effectively face the
current challenges and materialize those projects categorized as new to be able to reach the
expected production of 6.32 million tons by 2028, thus offsetting the production decrease
scenario and obtaining an increase of over 15% in relation to the current expected production
by 2017. It is worthy of mention that the current operations and related projects in the oxide
line, due to their natural depletion, affect the productive performance of operation labors. The
production should be reversed with higher production rates of copper sulfides.

Chilean Mine Copper Production last ten years (th mt)
figures in th mt 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Chuquicamata 615 470 574 528 443 356 339 340 309 302 331
R Tomic 281 285 301 375 470 428 380 327 316 318 319
Ministro Hales 0 0 0 0 0 0 34 141 238 237 215
Salvador 64 43 66 76 69 63 54 54 49 60 62
Andina 218 220 210 189 234 250 237 232 224 193 220
El Teniente 405 381 404 404 400 417 450 456 471 475 464
Gaby - 68 148 117 118 133 128 121 125 122 123
Total Codelco 1583 1466 1702 1689 1735 1647 1622 1672 1732 1708 1734
Escondida 1484 1254 1104 1087 818 1076 1194 1165 1153 1002 925
Collahuasi 452 464 536 504 453 282 445 470 455 507 524
Los Pelambres 300 351 323 398 426 418 419 405 376 368 356
Anglo A Sur 302 284 277 258 264 417 467 437 438 354 349
El Abra 166 166 164 145 123 154 156 166 147 100 78
Candelaria 181 174 134 136 148 123 168 135 150 135 150
Anglo A Norte 152 149 152 140 131 115 111 104 106 99 88
Zaldívar 143 134 137 144 132 131 127 101 103 103 103
C. Colorado 99 104 94 89 94 73 74 80 74 74 66
Centinela (Ox) 93 91 90 95 97 105 103 94 76 56 65
Q. Blanca 83 85 87 86 63 62 56 48 39 35 23
Lomas Bayas 62 59 73 72 74 73 74 66 71 80 78
Michilla 45 48 41 41 42 38 38 47 29 0 0
Spence 128 165 162 178 181 167 152 176 176 167 199
Centinela(Sulf) - - - - 97 173 177 181 145 180 164
Caserones - - - - - - 16 45 75 117 123
Sierra Gorda - - - - - - - 13 88 98 102
Antucoya - - - - - - - - 12 66 81
Otros 285 334 319 356 384 381 378 357 327 303 296
Total Chile 5.557 5.328 5.394 5.419 5.263 5.434 5.776 5.761 5.772 5.553 5.504
Chile Copper Production by Products
Copper Prod by Product Type 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
SX-EW Cathodes 1.692 1.832 1.971 2.118 2.089 2.025 2.029 1.933 1.844 1.778 1.660
Concentrates 3.669 3.725 3.357 3.277 3.330 3.238 3.405 3.843 3.917 3.994 3.892
Mine total 5.361 5.557 5.328 5.394 5.419 5.263 5.434 5.776 5.761 5.772 5.553
ER Cathodes 958 985 988 1.071 1.055 999 873 822 885 910 952
Cu Refined Total 2.811 2.937 3.058 3.277 3.244 3.092 2.902 2.755 2.729 2.688 2.613
Sx-Ew production goes from a 29.9% share of the total production in 2016 to 8.6% towards 2028,
a 67.2% decrease towards 2028 in relation to the production reported in 2016, at an annual
decrease rate of 8.21%. The closing of oxide operations forces this situation, where out of the
33 active hydrometallurgical operations by the end of the decade, only 13 remain operative,
8 will belong to the large-scale mining and 5 from Enami. Although just a few hydrometallurgical
projects exist1, they cannot offset the fall in Sx-Ew production.
The smelting capacity in Chile has been very stable the last 20 yrs around 6.55 Mton of cucons.
67% of the local capacity is from a state own company. Codelco with 65%, including
Chuquicamata (1.4 Mton), Caletones (1.7 Mton), Potrerillos (0.7 Mton) and Ventanas (0.5 Mton)
with a combined capacity of 4.3 Mton of cucons plus Paipote Enami (0.35 Mton). In the private
sector, Altonorte Xstrata (1.2 Mton) and Chagres Angloamerican (0.7 Mton) both representing
30% of the local capacity with a combined capacity of 1.9 Mton of cucons. With all these 7
smelters Chile represents 10% of the global capacity with 2 mm tonne Anode production
capacity.

Currently, the smelting industry is under an exhaustive evaluation in Chile, the industry needs
an upgrade investment of approximately USD 2bn to fulfill new environmental regulations
requirements. Smelting cost are not efficient and the flexibility to receive different types of
cucons is very tight. The economics and financial returns in smelting and refinery business in
general are very low compare to the mining profits, the returns are not attractive to a restricted
or too ambitious projects with capital constrain. Chilean smelting capacity represents 10% of
the global capacity. Nevertheless, there some investors whom consider the tolling process as
a strategic part of the value chain in the logistic business and giving a critical access to a
terminal market with registered cathodes
The expected production of fine copper contained in Concentrates, on the other hand, would
increase from 3.89 million tons in 2016 to 5.78 million tons by 2028. This means a 48.5% increase
in the period analyzed with an annual growth rate of 0.31% and an increase of relative share
from 70.1% in 2016 to 91.4% by 2028. The previous considering no substantial changes in the
productive lines of Smelting and Refinery complex. Therefore, if in the 90’s the share of
exportable concentrates respect with the national copper production reached an average of
32%, in the 2000-2010 decade the average was 56% and in recent years that share has
skyrocketed to nearly 63% in average. Future estimates show it will reach a 73% by 2028. This
means that in the 2006 - 2016 decade our exports of around 2.1 million tons of fine copper in
concentrates as an average -around 7.65 million metric tons of concentrate- would become
3.4 million tons of fine copper in concentrates as an average for the next decade,
approximately 12.5 million metric dry tons of concentrates
Due to the relative big size of the mines and the fact that most of the big mines belongs to a
few companies, Chile has not been a natural spot market for traders. Most of the copper
production in terms in refined copper and cucons are sold to final customers in a long-term
basis under an annually revolving mechanism. In the case of registered cathodes, these are
considered almost a financial instrument with high liquidity, so trading margins are small and
lowering. Premiums over LME price for cathodes have been stable the last years.
Considerations like timing, freight rates, warehouse inducements, financial arbitrage between
exchanges, the price curve slope and the geographical availability distribution of the material
play an important role in setting the premium levels. The export share of SW EW is decreasing
the next 10 years, the ER production is and is going to be stable for the near future.
In The case of Concentrates markets, the trading business have been more active lately. due
to the new projects with “dirty material”. Mineralogical composition affects concentrates
market performance. Arsenic compounds arise in northern Chile and some mines in Peru.
Mixing concentrates from various sources and penalties charges could cost more than 200
$US/DMT.
In terms of production, Chile produce roughly 14 mm dmt and exports approximately 10.5 mm
dmt of Copper Concentrartes. Escondida is the biggest Cucons producer with 23.4% market
share and 2.4 mm dmt. Codelco with 16.4 % market share and 1.65mm dmt. Collahuasi with
15.3% and 1.55mm dmt. Minera Los Pelambres with 12.1% and 1.2 mm dmt. Anglo American
with 7.9% market share and 0.8 mm tons. Minera Centinela with 7.8% and 0.79 m tons. Minera
Canderlaria with 5.2% and 0.5 mm tons, Sierra Gorda with 4.7% market share and 0.48 mm tons.

Caserones with 3.7% and 0.37 mm tons. Teck with 2.4% and 0.25 mm tons, and Trafigura with
1% market share and 0.1 mm tons.
In terms of consumption, 46.5% of the total cucons exports went to China, last year, with
approximately 4.8 mm tons. Japan with 20.7% and 2.1 mm tons. India represents 9.8% with 1mm
tons. Spain and South Korea represent aprox 5 % each one with 0.5 mm tons and the others
including Brazil, Germany, Bulgaria, Taiwan with 12% and 1.2 mm tons.
The physical trading business in Chile
In relative terms to their production is not very active, as we mentioned above, most of the
production is dominated by a few companies and these companies sell much of their
production directly to their clients or have off-take agreements with their owners. The attraction
of Chile for trading companies its volume. To simplify the analysis, we separate the activity in
two items, on the one hand, there is a Copper Metallic (cathodes and anodes) trading business
and on the other hand the copper concentrate trading business.
the trading in Cathodes (99.9% copper) is very competitive business and the margins
are very low. This market is very liquid and deep. Since cathodes can be register in the LME or
CMX, they have access to a terminal market. The producer or cathodes owners (traders) have
the option to send the cathodes to a registered warehouse get a warrant a sell it to a financial
institution and receive the cash payment. In this process warehouses normally offer an
inducement/incentive to the owner of the cathodes to get the material inside. Warrant holders
are responsible for the payment of charges for storage of material in the approved storage
facilities. The warrants and registered cathodes can be used as collateral for some financial
lenders
figures in mt Direct Contracts Own Cathodes Net For Spot Trading
Producer Company Tonnage with Clients Offtake Spot Trading Glencore Trafigura LDC Red Kite Concord Wanxiang Others
Codelco 1.305.291 1.044.233 261.058 51.500 32.828 20.000 60.500 40.000 56.230
BHP 502.454 502.454
Glenocre 231.843 231.843 231.843
Antofagasta Minerals 187.921 93.961 93.961 24.000 10.000 25.000 20.000 14.961
Enami 118.501 118.501
Anglo American 98.882 98.882

Mantos Copper 65.212 65.212
Barrick 50.000 40.000 10.000 10.000

Freeport 38.000 38.000
Lumina Copper 31.000 31.000
Teck 23.515 23.515

Others 62.194 62.194 46.646 15.549
Total 2.714.813 1.296.694 759.063 659.056 283.343 113.474 45.549 85.500 40.000 76.230 14.961
Codelco is the biggest copper metallic producer in Chile, with 44% of the total production. It
should be noted that although Codelco has very traditional and regular customers, these have
several suppliers. Codelco produces 1.2 mm tons in cathodes, sells 80-90% of its output in long-
term contracts according to market conditions, and the balance is sold month by month in
spot sales.
Codelco has a business strategy to define a sales program, that is how many tons, on what
market and under what conditions (premium) they will be sold, according to a level obtained

from logistic costs, market conditions (balances, diversification), availability, shipping services,
sales returns, geopolitical risks, commercial flexibility, etc.
By way of example, Codelco makes a sale of 1,000 tons of cathodes to a customer, this is done
using the LME average of daily prices during the month following the month of shipment from
Chile (QP m+1).
Copper Concentrate trading in Chile
Chile produce 14.4 mm dmt in copper concentrate and roughly 4mm dmt goes to internal
smelters and refineries and the other 10.5 mm dmt goes to off- shore markets, principally China.
Unlike cathodes market, there is a lot of production that is committed with long to medium
term contracts, including the mine owners off-stake agreements. Since there are no new
smelting capacity and the new copper projects are coming from sulfides deposits, the copper
concentrate production is going to increase in the coming years.
Figures in DMT Direct Contracts Owners Long Term Contracts Net For Spot Trading
Producer Company Tonnage with Smelters Offtakes Glencore Trafigura Xiangang Spot Trading Glencore Trafigura LDC Cliveden MRI Others
Escondida (*) 2.208.405 1.987.565 220.841 80.481 100.000 40.000
Antofasgasta Minerals 2.115.206 1.797.925 317.281 180.000 117.281 20.000
Codelco 1.611.156 966.694 241.673 241.673 161.116
Collahuasi 1.580.129
Glencore 695.257
AngloAmerican (**) 695.257
Others 189.615
Candelaria Lundin 615.662 554.096 61.566 61.566
AngloAmerican (**) 840.671 840.671
Sierra Gorda 467.227 350.420 116.807 46.723 46.723 23.361
Lumina Copper (Caserones) 439.108 439.108
Teck 293.210 263.889 29.321 26.389
Enami 80.813 80.813
Others 266.321 79.896 186.425 111.855 74.570
Total 10.517.908 2.845.431 6.015.878 241.673 321.570 161.116 932.240 80.481 526.533 231.851 20.000 46.723 23.361
(*) Escondida was on strike for 41 days in 2017

(**) Angloamerican have trading unit

Copper Export Ports in Chile
Cu Concentrates exports by
port and local participation.
10mm DMT in 2017
Patache: 1.57 mm DMT (14.7%)
Michilla: 756k DMT (7.2%)
Angamos: 838k DMT (8.0%)
Antofagasta: 673k DMT (6.4%)
Coloso: 2.2 mm DMT (21%)
Barquitos: 117k DMT (1.1%)
Padrones: 659k DMT (6.3%)
Coquimbo: 739k DMY (7.0%)
Los Vilos: 1.35 mm DMT (12.9%)
Ventanas 1.6 mm DMT (15.3%)
Valparaíso: 3k mt (0.0%)
San Antonio: 9k mt (0.1%)
Cu Metal exports by port and

local participation. 2.7 mm MT
in 2017
Arica: 778 mt (0.1%)
Iquique: 82k mt (3.04%)
Angamos: 1.25mm mt (46.2%)
Antofagasta: 677k DMT (24.9%)
Valparaíso: 367k mt (13.5%)
San Antonio:333k (12.3%)
[Las barras laterales son perfectas para

remarcar puntos importantes del texto o
proporcionar información adicional de
referencia rápida, por ejemplo una
programación.
Normalmente se colocan en la parte
izquierda o derecha de la página, o en la
Chile Cu Metal Exports 2017
Port Load / Mining Company Tonnage MT Tonage % N° Vessel
Arica 778 0,03% 10

Cia Minera Cerro Colorado LTDA 401 51,57% 1
Pampa Camarones SA 377 48,43% 9
Iquique 82.639 3,04% 121
Cia Minera Cerro Colorado LTDA 59.490 71,99% 73
Cia Min Dona Ines de Collahuasi SCM 476 0,58% 4
Cia Minera Teck Quebrada Blanca SA 22.673 27,44% 44
Puerto Angamos 1.252.515 46,14% 793
Codelco 805.968 64,35% 353
Cia Minera Cerro Colorado LTDA 501 0,04% 1
Cia Minera Lomas Bayas SA 31.427 2,51% 29
Cia Minera Zaldivar SPA 28.717 2,29% 34
Grace SA 3.707 0,30% 7
LDC Metales Chile LTDA 2.209 0,18% 24
Mantos Copper SA 30.022 2,40% 34
Minera Antucoya 24.535 1,96% 29
Minera Centinela 17.655 1,41% 27
Minera Escondida LTDA 15.401 1,23% 12
Minera Las Cenizas SA 4.861 0,39% 15
Minera Spence SA 193.339 15,44% 87
SCM Minera Lumina Copper Chile 29.735 2,37% 78
Soc Contractual Minera El Abra 50.899 4,06% 44
Soc Contractual Minera Franke 13.539 1,08% 19
Antofagasta 677.721 24,96% 458
Cia Minera Lomas Bayas SA 45.047 6,65% 67
Cia Minera Zaldivar SPA 70.650 10,42% 75
Complejo Metalurgico Altonorte SA 154.893 22,86% 32
Grace SA 4.059 0,60% 9
Mantos Copper SA 35.189 5,19% 29
Minera Antucoya 56.285 8,31% 62
Minera Centinela 40.079 5,91% 50
Minera Escondida LTDA 228.265 33,68% 77
Minera Las Cenizas SA 3.385 0,50% 7
Minera Spence SA 3.286 0,48% 3
SCM Minera Lumina Copper Chile 2.011 0,30% 9
Soc Contractual Minera El Abra 25.431 3,75% 19
Soc Contractual Minera Franke 3.821 0,56% 8
Soc Punta del Cobre SA 5.319 0,78% 11
Valparaiso 367.497 13,54% 320
Codelco 270.382 73,57% 194
Cia Minera Amalia LTDA 9.692 2,64% 19
Cia Minera Cerro Colorado LTDA 5.057 1,38% 9
Enami 77.551 21,10% 81
Soc Contractual Minera Tres Valles 4.815 1,31% 17
San Antonio 333.664 12,29% 354
Anglo America Sur SA 167.882 50,31% 134
Codelco 121.942 36,55% 148
Cia Minera Amalia LTDA 1.505 0,45% 3
Minera Carmen de Andacollo 3.454 1,04% 19
Enami 38.350 11,49% 48
Soc Contractual Minera Tres Valles 531 0,16% 2
TOTAL 2.714.813 100,00% 2056

Chile Copper Ports existing Capacity
Patache Port (Collahuasi)
Location Iquique, Custom code 07 CLPAT, Collahuasi, Max

Loa 270mts - Max Draft 13mts - D.W.T.: 70.000tons. Mooring
area: 230 mts long by 32.2 mts wide. Operate Agunsa
Services: Unloding bulk through cranes (shiploader)
hoppers and convey belts, transference of liquid bulk
(sulfuric acid) through chute directly to the tank on ground;
loading dry bulk through conveyor belts and loading room,
Handling, stacking and storing of dry and liquid bulk.
Currently the port is suited to receive Panamax vessels or
similar.A second Pier Celta for Caol.
Michilla Port (Antofagasta Minerals)
Location Michilla, Custom Code 14, CLMIC, AMSA, Max

Loa 187.5 mts - Max Draft mts. Max DWT 19.000tons. Tugs
for vessels over 110mts, except those equipped with “bow
truster”, but subject to harbor master´s authorization.
Mina Centinela; 228k mt including 164k mt in Cucons (792k

tons cucons) + 64k mt Cathodes.
Puerto Angamos (Ultramar, Belfi-CMB Prime, TGN)
Location Mejillones, Custom Code 14, CLPAG, Private.

Max Loa 225mtS - Max Draft 14.8mts. Equipment/others:
Ports cranes/ Capacity, one Gottwald HMK 280 (100 MT
max. capacity) Fork Lifts trucks, Top Lifters + Reachstakers,
Payloaders. Warehouses Capacity 1,575 sqm (others:
open area close to piers 22,500s sqm and 70,000 sqm at
1,200 mts from the piers). 2 Tugs. Yes Moorings for rent n/a
Tugs 2 Launches 5 Garbage Service n/a Fresh Water
delivery at cost of the local delivery company+15% as
terminal charge. Copper concentrates and Containers.
Interacid terminal can only be used for discharge sulphuric
acid.
Main Exports Main imports Metal copper General

cargoes Containers Containers Project cargoes.
Puerto Antofagasta (ATI, Saam, FCAB y Empresas Navieras)
Location Antofagasta, Custo Code 14 CLANF, 7 piers Max

Loa 224mts Max Draft 11.28mts . On average Max Loa
180mts Max Draft ).14 mts. 5, Mechanical Grabs, Paylodes,
3 Convyor belts, 2 warehouses with 5.000 sqm each, 3 tugs.
Multiexport and import, general cargoes, Concentrates
(copper+lead+zinc), meta copper and moly in drums
Sierra Gorda 480k tons cucons and others.
Puerto Caleta Coloso (Minera Escondida BHP)
Location 20 from Antofagasta, Custom Mode 14 CLCLD,

Max Loa 200mts (over 200 mts Terminal must be advised
before vessel´s arrival in order to be authorized). - Max
Draft 12mts. 2 Tugs. Pier consist in a mechanical arm built
for loading cucons. Protected by south winds
Escondida 2.4 m tons Cucons
Puerto Chañaral Barquito: (Codelco)
Location Chañaral Custom Code 17 CLCNR, Max Loa

220mts – Max Draft 12.5mts. Work day/night. Copper
Cathodes, Cucons, Sulphuric acid load/unload capacity.
Barquito Oil Terminal, Max Loa 250mts Max Draft 18 mts.

Fuel Oil 6 and Diesel Oil unloading
Codelco 108k tons Cucons

Puerto Caldera Padrones (Lundin Mining)
Location Caldera, Custom Code 17 CLCLD, Lundin, Max

Loa 240 mts (max beam : 32mts)- Max Draft 12.4mts. Max
Air Draft 14.4 mts. Max DWT 50.000 Tons. Day/night
operations. Warehouse Capacity just for terminal use. 1
Tugs. Ultramar operate the terminal.
Lundin Candelaria / Ojos del Salado 533k tons Cucons +

Caserones 377k tons Cucons
Puerto Coquimbo (Inv Neltume Ltda (Ultramar) y Belfi)
Location Coquimbo, Custom Code 25 CLCQQ 2 piers,

Max Loa 220 mts – Max Draft 9.3mts each. Day/Night
operations. Port cranes. Fork lifts Trucks, Payloaders. Ware
house capacity. 1 Tug. Copper Concentrates, Mineral
bagged. Containers Cargo. General Cargo. Operate by
Empresa Portuaria Coquimbo
Teck 250k tons Cucons + Codelco 38k tons Cucons
Puerto Punta Chungo, Los Vilos (Minera Los Pelambres)
Location Los Vilos, AMSA Custom Code 25 CLLOS. Max

Loa 220mts – Max Draft 12.3mts Max DWT 60.000 tons.
Loading rate 1.400 mt /hr on average. Operate by
Ultramar.
Minera Los Pelambres 1.2mm tons Cucons

Puerto Ventanas, Quintero (Sidgo Koppers)
Location Quinteros, Custom Code 34 CLVNT. 4 piers Max

Loa 200mts and Max Draft 12.3 mts on average. Max DWT
12.000, 30.000, 45.000 and 70.000. “ Port Cranes 2x30 mt
capacity. Metallic Copper, Copper Concentrates,
Sulphuric Acid loading. Unloading Coal, Cement, Steel,
Fuel Oil, Chemical products
Codelco 969k tons Cucons + Angloamerican 807k tons.
Valparaiso Port and San Antonio port are both relative small in copper
concentrate exports. Valparaiso as multiexport/multimport container operation by Terminal
Pacífico Sur TPS (private terminal) and Empresa Porturia Valparaíso EPC (publicl terminal) ,
metallic copper is shipped in containers. San Antonio with Terminals::San Antonio Terminal
Internacional STI (private terminal), Terminal Espigón Multioperado TEM (public terminal)
Panul :Puerto Panul S.A. (private terminal for discharge solid bulk cargoes only)
Vopak :Terminal Vopak (private terminal for discharge liquid bulk cargoes only)

Peruvian Physical Trading Market
Peru is one of the largest mining countries in the world. In 2017, Peru was the second largest
Copper, Zinc and Silver mine producer and ranked fourth for Lead mine production.
Due to the relative small size of the mines and the fact that most mines are polymetallic with
high level of impurities, Peru has been a natural market for traders. Traders have provided
mainly logistics, financing, technical support and blending services.
The Peruvian mining industry has evolved in the last 15 years. We can say that there was a
“breaking point” with the start of Antamina mine. It is a different Peruvian mining industry
“before and after” Antamina. In the last 15 years, Peru has moved from a country of small size
mines (mostly family owned mines) to large mines owned by mayor mining companies, and
from polimetalic mines, being Zinc the main product, to more copper mines. Early 2000s, Peru
used to import Cu Concentrates for La Oroya smelter, however, in 2017, Peru exported
approximately 2,4mio of Cu (17% of the worldwide production). Even more, mines that started
or increased production in the last 05 years (Antapaccay, Toromocho, Cerro Verde expansion,
Constancia and Las Bambas) represents 50% of the total Cu mine production in 2017 (1,2mio
out of the 2,4mio produced). This has obviously brought big opportunities to traders.
In the logistic side, Trafigura expanded its warehouse in Callao and signed a warehousing and
loading contract with Chinalco for 100% of Toromocho production until 2031. Trafigura and
Glencore lead the project to build an environmentally friendly conveyor belt system in Callao
(both together owns 63% of TCSA). On the financing side, in 2012, Trafigura and Louis Dreyfus
bough 20% and 15%, respectively, of Toromocho Mine that allowed them to take its pro-rate
share of the production under off-take (both companies sold its stake in 2016 as Chinalco
Mining Corp International was de-listed in Hong Kong). In 2013, LD lent Hudbay usd150mm for
Constancia mine, against a 20% off-take for the life of mine. On the equity side, Glencore, not
only brought into production its Antapaccay Cu mine (2012), but also in 2017 took control of
Volcan Compania Minera, one of the largest Zinc companies in the world. There have not been
significant changes on the marketing of Volcan concentrates yet, but we believe that in the
short-medium term, 100% of the concentrates will go to Glencore under long term contracts.
While Trafigura was more active on the logistic, Glencore increased it mining assets in Peru.
These moves were not by chance, it clearly shows its strategy. Trafigura wants to be a trader
light in mining assets and more focus on logistics, while Glencore is more a miner with a very
strong commercial presence worldwide.
Regarding the trading market, Peru is a spot trading market. Unlike Chile, there is a lot of
production traded on the spot market (50%). The marketing of concentrates changes from
mine to mine but could be classified in 3 clusters. First, large JV mines, with different shareholders,
distribute the concentrates pro-rata basis of its share, and each shareholder commercialize its
share (Las Bambas and Antamina), usually through annual or “lot by lot” spot tenders or private
negotiations. Second, large mines controlled by one major shareholder. The major shareholder
usually is in charge of the commercialization that is carried out by its headquartes usually
abroad (Freeport with Cerro Verde and Hudbay with Constancia). Finally, the last group,

mainly Peruvian owned mines, commercializes its concentrates locally in Peru and most of the
time on annual or monthly spot tenders or private negotiations.
Peruvian Copper Concentrates Market
Direct Contracts
2017 (FMT) 2017 (DMT) with Smelters To Trading Trading %
Large Mines 2.144.755 7.650.000 4.298.750 3.351.250 44%
Medium Mines 156.946 675.000 130.000 545.000 81%
Small Mines 64.657 284.250 0 284.250 100%
Total 2.366.358 8.609.250 4.428.750 4.180.500 49%
The Cucons market in Perú last year 2017, was 8.6 mm DMT, different grades but in total
equivalent to a Cu 2.36 mm mt. Approx. 50% of the Cu concentrates produced in Peru, 4.18
mm dmt, are negotiated on the spot market trading (through annual negotiations or “lot by
lot” basis) with traders. That percentage is lower on the large mines (44%) segment and bigger
on the medium and small mines segment. Small Mines sell all their production (100%) to traders
Medium size mines also sell great part their production to traders (there is no an institution like
Enami in Chile). The other 50% of the cucons production, 4.4 mm dmt is committed through
long term contract with smelters.
Out of the 4.18mm dmt total production bought or own by traders, Glencore is the biggest
trader from its own Cu mines in Peru, Glencore (GL) receives or is long approx. 1,20 mio DMT
(from Mine Antamina and Mine Antapaccay) which give them a lot of leverage to trade. GL
usually sign LT contracts with smelters, including a “menu” of qualities to de delivered, which
give them the flexibility and the opportunity to trade and arbitrage. Glencore also do some
spot trading. On the other hand, Louis Dreyfus and Trafigura have been more successful in
blending, so they have tried to secure LT contracts through financing or equity with short term
investment in mine assets. Trafigura secured under LT contracts approx. 270,000 DMTs per year
while LDC secured 330,000 DMTs year. See next table
Condestable quality is key for Trafigura. It’s a clean concentrate delivered in Callao, where
Trafigura blends with other complex qualities delivered in Callao (Marcapunta, Toromocho,
Huaron, Argentum, etc). Condestable has given Trafigura a competitive advantage for several
years as Trafigura was the only trader with large volume of clean concentrates produced
locally in Peru, which is fundamental to blend. However, now with the availability of more clean
concentrates for blending, like Cerro Lindo, Constancia, Cerro Verde and Antapaccay, Louis
Dreyfuss, Glencore and other traders have become more aggressive in pricing for complex
concentrates

Own Mines in DMT Long Term Contracts in DMT Net For
figures in dmt To Traders in DMT Glencore Trafigura Trafigura LD Spot Trading
Large Mines 3.351.250 1.206.250 0 187.500 202.500 1.755.000
Minera Las Bambas SA 675.000 675.000
Cia minera Antamina 1.006.250 506.250 500.000
Soc Minera Cerro Verde 200.000 200.000
Southern Peru Copper 0 0
Cia Minera Antapaccay 700.000 700.000 0
Minera Chinalco Perú 600.000 187.500 112.500 300.000
Hudbay Perú SAC 170.000 90.000 80.000
Medium Mines 545.000 0 0 80.000 130.000 335.000
Soc Minera El Brocal 200.000 130.000 70.000
Cia Minera Milpo 175.000 175.000
Gold Fields La Cima SA 20.000 20.000
Cia Minera Condestable 80.000 80.000 0
DRP Liquidación en Marcha 50.000 50.000
Minera Shouxin Perú SA 20.000 20.000
Small Mines 284.250 8.000 1.000 0 0 240.250
Arequipa M 1.000 1.000
Catalina Huanca 1.000 1.000 0
Argentum 22.000 22.000
Atacocha 1.000 1.000
Casapalca 13.750 13.750
Minera Kolpa 2.000 2.000
Quiruvilca 4.000 4.000
Raura 2.500 2.500
Santa Luisa 2.000 2.000
CIEMSA 14.000 14.000
Contonga 8.000 8.000 0
Colquisiri 4.000 4.000
Minera Shuntur 7.000 7.000
Minera Titan del Peru 3.000 3.000
Minera Huaron 25.000 25.000
Minera Austria Duvaz 9.000 9.000
Minera Corona 23.000 23.000
Cia Minera Volcan 12.000 12.000
Sur-Nazca 70.000 70.000
Others 20.000 25.000
Imports 40.000
TOTAL 4.180.500 1.214.250 1.000 267.500 332.500 2.330.250
and have been take Trafigura’s blending market share and reduced its PnL, although Trafigura
still has a strong presence in Perú. The disadvantage for Louis Dreyfus and Glencore is that most
of the Peruvian complex qualities comes from the central mountains of Peru, therefore closer
to Callao. If the complex concentrate has to go to Matarani for blending, it has to absorb
warehouse capacity and loading costs in Callao, freight cost from Callao to Matarani and
unloading in Maratani (approx. USD 55-65/wmt).
The blending is a “niche” business that have attracted all the other traders. However, as
Trafigura and Glencore avoid giving warehousing services to competitors, other trading
companies have looked for other alternatives in order to keep participating in the Peruvian
market. The most common one is to start shipping the complex qualities in containers and
blending with clean concentrates in Asia. In 2017, approx. 400,000wmt were exported out of
Callao in Containers. Approx. 200,000wmt were Toromocho and another 65,000wmt were
Marcapunta. Balance shipments were other complex qualities like Huaron, Quiruvilca and
Argentum and some blends. Approx. 1,6mio of Copper Concentrates were shipped in bulk out
of Callao and 3,7mio out of Matarani in 2017.

Net For No Blending For Blending
figures in dmt Spot Trading Direct to vessel Glencore Trafigura Mercuria LDC Cliveden Transamine MRI OP Others
Large Mines 1.755.000 1.385.000

Minera Las Bambas SA 675.000 675.000
Cia minera Antamina 500.000 500.000
Soc Minera Cerro Verde 200.000 150.000 35.000 15.000
Southern Peru Copper 0
Cia Minera Antapaccay 0
Minera Chinalco Perú 300.000 60.000 40.000 40.000 30.000 40.000 30.000 20.000 20.000 20.000
Hudbay Perú SAC 80.000 60.000 20.000
Medium Mines 335.000
Soc Minera El Brocal 70.000 12.500 20.000 5.000 15.000 5.000 2.500 5.000 5.000
Cia Minera Milpo 175.000 40.000 20.000 30.000 20.000 30.000 30.000 5.000
Gold Fields La Cima SA 20.000 20.000
Cia Minera Condestable 0
DRP Liquidación en Marcha 50.000 20.000 10.000 10.000 5.000 5.000
Minera Shouxin Perú SA 20.000 10.000 10.000
Small Mines 240.250
Arequipa M 1.000 1.000
Catalina Huanca 0
Argentum 22.000 5.000 3.500 5.000 1.500 4.000 3.000
Atacocha 1.000 1.000
Casapalca 13.750 2.000 3.500 2.250 2.000 2.000 2.000
Minera Kolpa 2.000 500 1.000 500
Quiruvilca 4.000 1.000 2.000 1.000
Raura 2.500 1.250 1.250
Santa Luisa 2.000 1.000 500 500
CIEMSA 14.000 7.000 7.000
Contonga 0
Colquisiri 4.000 4.000
Minera Shuntur 7.000 7.000
Minera Titan del Peru 3.000 3.000
Minera Huaron 25.000 5.000 5.000 2.000 5.000 2.000 2.000 4.000
Minera Austria Duvaz 9.000 2.000 2.000 1.500 2.000 1.500
Minera Corona 23.000 23.000
Cia Minera Volcan 12.000 3.000 2.000 2.000 2.000 1.500 1.500
Sur-Nazca 70.000 45.000 15.000 10.000
Others 25.000 2.500 2.500 2.500 2.500 2.500 2.500 2.500 2.500 5.000
Total 2.330.250 1.385.000 135.250 218.250 139.750 109.000 93.500 89.000 66.000 50.500 44.000
The pioneer in blending in Asia in large scale was Ocean Partners. They started its blending
operation in Taiwan and then continue in Malasya. They bought some Peruvian complex
qualities for blending, but complex qualities in Australia, Philippines, Mexico and Canada were
more attractive from a PL point of view. Even, in 2014, they signed a big contract with Codelco
to blend, on Codelco´s behalf, and deliver material in India and China.
The solution that Trasamine found was to partner with Logisminsa and get an exclusive 10,000
m2 warehouse inside Logisminsa warehouse. Additionally, Transamine uses small blending
warehouses in Rotterdam, Huelva (Spain) and Pangkor (Malasia). After it partnership with
Logisminsa, we expect that Transamine be more agrresive in the Peruvian market and start
shipping more blends out of Peru rather than shipping the complex quality and blend it outside.
Mercuria strategy it to grow in Matarani. They are paying very aggressive numbers for clean
qualities like Cerro Verde or Constancia. Also, they collect clean cu concentrates from small
miners in the south of Peru. All this position of clean is allowing them to ship complex conc from
Callao and even to import concentrates. However, its main disadvantage is that this is a pure
spot position (can disappear easily if they don’t control the clean qualities).
The other small traders are more opportunistic in its approach. They use logisminsa to blend in
Callao and/or to ship complex qualities to other destinations. Even there are some rumors that
some complex qualities in low volume are smuggled to China through Vietnam.

As shown in below chart, Glencore and Trafigura are the most active Cu traders in Peru.
Glencore trades and operate more its own qualities, while Trafigura is stronger through blending.
Louis Dreyfus, the third largest trader in Peru, owns a warehouse concession in Callao and have
a warehousing contract with Tisur in Matarani. Also have a contract for the life of mine with
Constacia-Hudbay, that give them a big leverage to develop a blending trading position.
Finally, considering the blending Trafigura and LD do with their long-term commitments
approach, approx. 1,4 mm tons of Copper blends were exported in 2017 (approx. 15% of total
Peruvian Cu production).
2017 Total Position Market Blending Market

DMTs Share Position (DMTs) Share
Glencore 1.349.500,00 49% 135.250,00 10%

Trafigura 486.750,00 18% 436.750,00 31%
LD 441.500,00 16% 351.500,00 25%
Mercuria 139.750,00 5% 139.750,00 10%
OTROS 343.000,00 12% 343.000,00 24%
TOTAL 2.760.500 100% 1.406.250 100%
Main market for Cucons blends is China, although few lots were shipped to Europe and Brasil.
Peruvian Zinc Concentrates Market
The Peruvian Zinc Concentrate market is mainly a spot market. Almost 2/3s of the zinc
produced in Peru is sold in the spot. Similar to Cu Concentrates, Antamina Zn concentrates are
delivered to its shareholder basis its pro-rata shareholding. However, Teck-Cominco, BHP Billiton
and Mitsubishi has LT contracts for Antamina quality in the order of 200-250,000/wmt, the
balance goes to the trade.
Peru has a Zn refinery called Cajamarquilla and owned by Milpo-Nexa. Cajamarquilla

produces 310-330,000 mt of Zn metal (approx. 600,000 dmts of Zn Concentrates). Milpo-Nexa
delivers 100% of its own concentrates to Cajamarquila and additionally, Cajamarquilla has 03
LT Contracts. One for 200,000dmt contract with Volcan, another one for 150,000 dmt with
Trafigura and the last one with Glencore for another 150,000dmt. The excedent of
concentrates (approx. 350,000wmt) is exported to its Brasilean smelters.
Volcan has 02 LT contracts. The first one is with Milpo-Nexa as mentioned before, and the
second one is with Korea Zinc for about 50,000dmts.

Direct Contracts
2017 (FMT) 2017 (DMT) with Smelters To Trading Trading %
Large Mines 853.569 1.610.000 888.688 721.313 44,8%
Medium Mines 434.652 828.000 90.000 738.000 89,1%
Small Mines 51.973 100.000 0 100.000 100,0%
TOTAL 1.340.194 2.538.000 978.688 1.559.313 61,4%
Last November Glencore acquired an additional stake of 36,92% total class A common shares
of Volcan. With this purchase, they raised its stake of Class A to 55,03%, which allowed the to
control and manage the company (although they only have an economic interest in Volcan
of 23.29%, including the class B common shares and excluding treasury shares). Now that
Glencore controls Volcan, its expected that the flows of concentrates changes dramatically
and 100% of the concentrates will be sold to Glencore. Volcan used to sell 80% of its production
(400,000dmt) to companies different from Glencore, so the additional unit will make Glencore
stronger in the Peruvian market and worldwide.
SIMSA, also have a LT contract with Korea Zinc for 50% of the production, which is equivalent
to 35,000dmt. However, this volume is swapped almost every year for Australian concentrates
(Simsa delivers the KZ units to Glencore in Callao and Glencore delivers Australian Zinc
concentrates in Korea). Finally, Compañía Minera Santa Luisa, subsidiary of Mitsui Mining and
Smelting Co, delivers 100% of its concentrates to its principal.
Similar to Copper, Glencore also enjoy a strong position of concentrates coming from its own
mines or where they have some participations. They receive its stake of Antamina (approx.
240,000dmt) and 100% of the production of “Los Quenales”, Contonga and Trevali. In “Los
Quenales” and Contonga they own 100%, but in Trevali, they own 25,6%.

Own Mines Long Term Contracts Net For
figures in DMT To the Trade Glencore Trafigura Glencore Trafigura LD Spot Trading
Large Mines 721.313 241.313 480.000
Cia Minera Antamina 491.313 241.313 250.000
Cia Minera Milpo 0 0
Volcan Cia Minera 230.000 230.000
Medium Mines 738.000 45.000 90.000 55.000 35.000 50.000 463.000
Trevali Perú S.A.C. 55.000 55.000 0
Catalina Huanca 90.000 90.000 0
Cia Minera Minera Casapalca 70.000 70.000
Cia Minera T¿Raura SA 100.000 100.000
SIMSA 35.000 35.000 0
Cia Minera Santa Luisa 0 0
Minera Los Quenuales SA 45.000 45.000 0
Minera Bateas S.A.C 40.000 40.000
Minera Colquisiri S.A. 30.000 30.000
Minera Argentanum S.A. 33.000 33.000
Soc Minera Corona S.A. 65.000 65.000
Pan American Silver Huaron 35.000 35.000
Minas Buenaventura S.A.A. 45.000 45.000
Small Mines 100.000 7.000 93.000
Cia Minera Kolpa S.A. 18.000 18.000
Cia Minera Lincuna S.A. 15.000 15.000
Cia Minera San Valentín S.A. 12.000 12.000
Soc Minera Austria Duvaz S.A.C. 12.000 12.000
Contonga Peru S.A.C. 7.000 7.000 0
Magistral de Huaraz S.A.C 7.000 7.000
Brexia Gold Plata Peru S.A.C 6.000 6.000
Minera Huinac S.A.C 5.000 5.000
AC Agreagados S.A. 3.000 3.000
Cia Minera Quiruvilca S.A 2.000 2.000
Amapola 5 S.A.C. 1.000 1.000
Corporación Minera Toma La ManoS.A. 1.000 1.000
Minera Santa Lucia G. S.A.C. 1.000 1.000
Others 10.000 10.000
TOTAL 1.559.313 293.313 90.000 55.000 35.000 50.000 1.036.000
Trafigura gets 90,000dmts from Catalina Huanca (own mine) and 35,000 DMT from SIMSA that
is a Long Term for the life of mine against a financing that took place in 2011. On the other
hand, Louis Dreyfus has 50,000 DMT contract with “El Brocal” that was linked to the 130,000 DMT
contract of Marcapunta Cu Concentrates that are shipped to Namibia (very complex
concentrate).
Finally, approximately 1mio tons per year are negotiated on the spot market through tenders
or private negotiations. Approx 250,000dmt are from Antamina and that are negotiated by its
shareholders and approximately 800,000DMT are negotiated on the spot market in Peru with
the domestic offices of trading companies. Most of them are delivered on monthly basis in a
nominated warehouse in order to speed up the payments to miners and avoid cash flow issues.
Glencore and Trafigura are by far the most active traders in this segment. Glencore is more
active with Volcan, but Trafigura is more active with medium and small size mines. Trafigura
leverage its strong balance sheet to provide quick payments, uses its warehouse to provide a
real logistic solution to the miners and use its technical team to provide advice to the miner
and “move fast” if the miner has good potential (offering financing against an off-take). Louis
Dreyfus is the third largest trader in Peru. They own a warehouse too, but smaller as it is its
position. Other traders are more opportunistic and buy mostly Volcan and Casapalca material.
As they don’t have warehouse, the concentrates are shipped mainly in containers.

Net For Direct Shipments Delievered in Warehouses
figures in DMT Spot Trading No Blending Glencore Trafigura LD Transamine MRI OP Mercuria Cliveden Others
Large Mines 480.000 250.000 100.000 0 20.000 20.000 20.000 20.000 20.000 20.000 10.000
Cia Minera Antamina 250.000 250.000
Cia Minera Milpo 0
Volcan Cia Minera 230.000 100.000 20.000 20.000 20.000 20.000 20.000 20.000 10.000
Medium Mines 463.000 0 110.000 205.000 50.000 25.000 10.000 50.000 0 0 13.000
Trevali Perú S.A.C. 0
Catalina Huanca 0
Cia Minera Minera Casapalca 70.000 20.000 20.000 10.000 10.000 10.000
Cia Minera Raura SA 100.000 30.000 40.000 30.000
SIMSA 0
Cia Minera Santa Luisa 0
Minera Los Quenuales SA 0
Minera Argentanum S.A. 33.000 10.000 10.000 10.000 3.000
Pan American Silver Huaron 35.000 10.000 10.000 10.000 5.000
Minas Buenaventura S.A.A. 45.000 10.000 15.000 10.000 5.000 5.000
Small Mines 83.000 0 30.000 57.000 1.000 1.000 1.000 1.000 1.000 1.000 0
Cia Minera Kolpa S.A. 18.000 12.000 6.000
Contonga Peru S.A.C. 0
Brexia Gold Plata Peru S.A.C 6.000 6.000
Cia Minera Quiruvilca S.A 2.000 2.000
Amapola 5 S.A.C. 1.000 1.000
Others 0 4.000 1.000 1.000 1.000 1.000 1.000 1.000
Total 1.026.000 250.000 240.000 262.000 71.000 46.000 31.000 71.000 21.000 21.000 23.000
2017 Total Trading Market Trading Position Market

Position Share Excluding own Share
DMTs % Mines %
Glencore 588.312,50 45% 295.000,00 32%

Trafigura 387.000,00 30% 297.000,00 32%
LD 121.000,00 9% 121.000,00 13%
OTROS 213.000,00 16% 213.000,00 23%
TOTAL 1.309.313 100% 926.000 100%
Finally, approx. 1,2mio of Zinc concentrates were shipped out of Callao in bulk in 2017 and
500,000 wmt in containers. The shipment in containers includes approx. 300,000wmt of “Doe
Run Ferritas”. This is a by-product stocked at Doe Run Zinc Circuit smelter which has 20-25% Zinc
and 200-250grs of Silver. The material has been sitting in DR for year, but now that the Zn price
has recovered, this product has a commercial value and has been sold to give liquidity to the
company that is in liquidation process (Peruvian Chapter 11 process).

Peruvian Lead Concentrates Market
Lead concentrates are a by-product of the Zinc mines in Peru. Therefore, it’s a much smaller
market than that of zinc, but it is almost a “pure” spot market. Only Volcan Cia Minera has a LT
contract with Korea Zinc for approx. 30,000DMT.
Direct Contact Own Mines Long Term Contracts Net for spot
2017 FMT 2017 DMT with Smelters To Trade Glencore Trafigura Trafi LD GL Spot Trading
Large Mines 114.202 225.000 30.000 195.000 0 0 0 0 0 195.000
Medium Mines 112.869 225.500 0 225.500 0 7.500 0 0 10.000 208.000
Small Mines 25.540 52.000 0 52.000 0 0 0 0 0 52.000
Total 252.611 502.500 30.000 472.500 0 7.500 0 0 10.000 455.000
In the Pb concentrate market, there are 02 types of products, the “low” and “high” silver
concentrates, being 3,000 grs/dmt is the trigger point. The concentrates above that level of
silver, can be imported as silver concentrates in China, in which case, has more flexibility on
impurities. The CIQ restriction for Pb concentrates and Silver concentrates, as follows:
As % Hg %
Pb Concentrates 0,7 0,05
Ag Concentrates 2
Peru produces approximately 500,000 dmt of Lead Concentrates. As the exposure to lead is
harmful for human beings, Peru has a strict regulation regarding the handling of lead
concentrates. So far, Only Trafigura and Glencore’s warehouses have the permit to handle
lead concentrates in the country. Both concentrates are in Callao, basicaly to handle the lead
concentrates produced in the mountains of Peru. This gives Trafigura and GL a unique
advantage to monopolize the trade of lead concentrates in Callao.
2017 Total Trading Market Trading Position Market

Position Share Excluding own Share
DMTs % Mines %
Glencore 180.000 38% 180.000 39%

Trafigura 232.500 49% 225.000 48%
LD 20.000 4% 20.000 4%
OTROS 40.000 8,5% 40.000 8,6%
TOTAL 472.500 100% 465.000 100%
Trafigura controls almost 50% of the tradable units, while Glencore participation accounts to
almost 40%. The balance 10% goes to the other trading companies. This balance tonnage is
handle through containers directly from the mines and deliver directly to the XXXX zone. The
movements of Lead concentrates in containers from the mines have 02 important limitations.
First, not all roads in the mountains are suitable for truck carrying a container due to the location
of the mines and second, it’s a very expensive exercise that some miners prefer to do in order
to diversify its productions or to not rely 100% on Glencore and Trafigura.

Due to the lead market is a smaller market worldwide too, most of the shipments are in bulk in
lots of 5,500wmt or in containers. Last year approximately, 250,000 wmt of Lead concentrates
were exported in containers.
Net For For Blending

figures in DMT Spot Trading No Blending Glencore Trafigura LD Transamine Ocean Partners Mercuria Cliveden Others
Large Mines 195.000 0 86.000 69.000 15.000 10.000 7.000 7.000 0 1.000
Cia Minera Antamina 35.000 10.000 15.000 5.000 2.000 2.000 1.000
Cia Minera Milpo 90.000 36.000 54.000
Volcan Cia Minera 70.000 40.000 10.000 10.000 5.000 5.000
Medium Mines 208.000 0 75.000 114.000 5.000 1.000 7.000 3.000 1.000 2.000
Trevali Perú S.A.C. 0
Catalina Huanca 0
Cia Minera Minera Casapalca 15.000 4.000 3.000 3.000 1.000 1.000 1.000 1.000 1.000
Cia Minera Raura SA 40.000 18.000 18.000 4.000
SIMSA 2.500 2.500
Cia Minera Santa Luisa 15.000 8.000 2.000 2.000 2.000 1.000
Minera Argentanum S.A. 7.500 3.500 4.000
Pan American Silver Huaron 18.000 9.000 9.000
Minas Buenaventura S.A.A. 15.000 7.500 7.500
Small Mines 52.000 0 9.000 42.000 0 0 1.000 0 0 0
Cia Minera Kolpa S.A. 15.000 7.500 7.500
Others 5.000 1.500 3.500
Total 455.000 0 170.000 225.000 20.000 11.000 15.000 10.000 1.000 3.000

Logistic Mineral Export Ports in Perú
Puerto Salavery
The port is located in the department of La Libertad,

approx. 560 kms north from Lima. Salaverry is a small port
with a draft of 10 mts and 25,000 dwt.
Regarding minerals, only load Goldfields-La Cima

production (apprx 150,000 wmt per year). Salaverry usually
receives Supramaxes, but is always the first call of the vessel
and then she goes to Callao or other port to complete the
vessel.
There is no warehouse for mineral at the port. The only

warehouse for minerals is approx. 6-8,000 m2 and can stock
up to 20,000 wmt. The warehouse belongs to “Rodrigo
Carranza” transportation company and is rented to
Golfields-La Cima. The warehouse is located approx. 5 kms
away from the port.
Puerto Punta Lobitos. No possibilty to develop a blending facilty in Salaverry in the
short term, unless a new warehouse gets the permits, but it
Punta Lobitos port is located 300kms north of could take several years. Additionally, the amount of
Lima. Its an exclusive facility for loading zinc concentrates produced in this area is very limited now,
and copper concentrate in bulk produced by although exist several proyects that can be developed in
Compania Minera Antamina SA. the next few years. If those proyects are developed, its very
likely another port in the area will be develop to load
Punta Lobitos port is connected to the mine
minerals
through a pipeline. The pipeline is 304kms long
and the voyage takes approx. 50 hours. The
concentrates arrives to tanks at the port and
then they are transported to the filters plant to
reduce the moisture to 8,5-9,5%. The port has
a warehouse (for Cu and Zn) with a capacity
of 160,000 mt. The port has a draft of 14mts
and can receive Supramax vessels up to
60,000 wmt dwt.
There is no possibility to develop a blending

facility at Punta Lobitos

Puerto Callao Callao is the main seaport in Peru. Its located in the
central Coast of Peru, 15kms from the center of Lima.
Callao has 03 main wharfs (North, Central and South)
and can handle shipments in containers and bulks. The
“North” pier is granted to APM Terminals (won a 30 years
concession in 2011). The “South” is granted to DP World
Callao for 30 years, subsidiary of Dubai Ports World that
started operations in 2010. The “Central” pier, the only
one for bulk shipments of minerals, is granted to
Transportadora Callao SA (TCSA) till 2031 (20 years
concession). The shipment of concentrates in bulk are
done through a tubular conveyor belt system, which is
connected only to Impala, Perubar and Louis Dreyfus
warehouses.
The central pier at Callao port has 13mts draft and has a
restriction of ships up to 60,000 DWT.
Transportadora Callao (TCSA).
TCSA provides the service to transport and ship the concentrates of minerals through a conveyor belt from an
“open access” area, close to the mineral warehouses in Callao, to the vessels. TCSA shareholders are Impala Perú
S.A.C. (31,5%), Perubar S.A. (31,5%), Sociedad Minera El Brocal S.A.A. (7%), Minera Chinalco Perú S.A. (5%) and
Santa Sofía Puertos S.A. (25%).
The covered conveyor belt has a length of 3,14 kms, a diameter of 40cms and a loading capacity of 2,000 mtph.
The actual rate is usd7,75/wmt (+ VAT) and only 03 mineral warehouses (Impala, Perubar and Louis Dreyfuss) are
connected to the “open Access” area of TCSA.
Mineral Warehouses.
Perubar (100 % Glencore) callo

Perubar has a warehouse of approx. 80,000 mts 2, which includes the lead warehouse of 12,000 mtrs 2. Perubar
has a static capacity of approx. 85,000 mt in its Pb warehouse and in total a capacity for approx. 300-350,000
mt.
100% of Perubar area is under a 30 years concession that will finish in 2031. Perubar rarely provides warehouse
services to other companies due to very often they are short of space.
Perubar has 02 feeders with a capacity of 1,000mt per hour.

Impala (100% Trafigura) callo
Impala handles an area of more than 180,000 m2. Approx. 100,000m2 are under concession till 2031, 25,000m2 in
rent till 2024 and the balance, belongs to Impala. Additionally, approx 65-70% is the space used for stocking
material and blending. The balance is parking for trucks, administrative offices, laboratory, etc.
In total, Impala Warehouse has a capacity to stock up to 700-800,000 wmt of concentrates at one point in time
(static capacity) considering the fact that Impala stocks the concentrates in lots of different sizes due to the
complexity of each quality (facilitates blending).
Impala has 2 separate warehouse inside its facility. First, the lead concentrates warehouse with an area of
12,000m2 of area, which allows them to stock up approx. 80,000-85,000mt at one time. Secondly, Impala has
another separate warehouse of 12,000 m2 for Minera Chinalco, which allows Chinalco to stock up to 120,000 tons
in 02 grades.
Impala moved approx. 2,5mio tons in 2017, which represents more than 60% of the concentrates exported through
Callao.
Impala provides warehouse service to miners and other traders. With miners, Impala agrees annual contracts and
rates are between usd10-15/wmt, but with traders the service is provided only on spot basis and always with very
opportunistic rates (much higher than miner’s rates)
Louis Dreyfus
Louis Dreyfuss has a warehouse of 16,000m2 in Callao. They do not have the license to handle Pb Concentrates,
therefore only handle Cu and Zn. It has a static capacity for approx. 50,000tm
Logisminsa, subsidiary of MISCON Group.
Warehouse is located in Ventanilla (Callao), 14kms away from Callao port. Total area of the warehouse is 120,000
m2, but only 50,000m2 is built so far. Of this area, 10,000 m2 is a bonded warehouse for containers. Another
10,000m2 is exclusive for Transamine and the balance is for third parties. Total static capacity is approx. 150-200,000
mt.
Licenses to stock and handle Cu and Zn Concentrates, but are working on the license for stocking Pb
concentrates. They handles ONLY containers.
The shipments in containers are done mainly through APM Terminals, DP World and LOGISMINSA. Impala, Perubar
and Louis Dreyfuss can ship in containers too, but due to the lack of space in these warehouse and/or its high
rates, Logisminsa has become the preferred alternative by third parties in the last few years. Also the increase of
freight rates has generated more shipments in containers.
In summary, Callao is the location in Peru that presents more opportunity to trade concentrates as stand alone
qualities or blends. The infrastructure is there, but the entry barriers are very high as one needs warehouse space
and connect to TCSA or pay a high warehouse fee to Glencore, Dreyfus or Trafigura (approx. usd20-30/mt from
warehouse to the vessel).

Matarani. Tisur.
TISUR is the second largest port in Peru (after Callao), but the largest port for minerals. It is located in in the Province
of Islay, in the Department of Arequipa (aprox 950kms south of Lima). The port was granted in 1999 for 21 years to
Romero Group and the concession could be extended for additional 30 years.
Actually, TISUR has 02 piers for moving concentrates. Pier “C” and Pier “F”, which started operations in February
2016, with and investment of usd280mio.
Pier “C” has a loading rate of 1,500 mtph and a warehouse of 55,000m2 that allows to stock approx 150,000mt.
This pier is being use by Constancia (Hudbay Minerals) and by traders that blend concentrates and/or that export
Bolivian Zn Concentrates. Pier “C” has a draft of 10mts and can take vessels up to Supramaxes, but they can not
load the full vessel (max 20,000wmt).
Pier “F” has a 260-meter-long pier and a natural draft greater than 14 meters. Tisur built 03 warehouses in this area.
Cerro Verde’s warehouse with a capacity of 150.000 mt, Las Bambas’ warehouse for 100.000 mt and
Antapaccay’s for 50.000 mt. Pier F, has a capacity to ship 4.0-4.5mio per year and a loading rate of 2,000tmpd
(30,000 mtpd due to most of the time they have to switch shipments from different warehouses). The concentrates
arrive by rail for Cerro Verde and Las Bambas and by truck for Antapacay. Pier “F” can receive vessels up to
58,000 DWT.
Hochschild Warehouse.
Mining company Hochschild owns a 14,000m2 warehouse that is 1,5Km away from Tisur port. Hochschild manages
the warehouse and provide warehouse service to traders like Mercuria and Ocean Partners.
After Callao, Matarani area is the one that presents the best opportunities for developing a blending business. On
the Cu side, Matarani has plenty of clean concentrates (Cerro Verde, Las Bambas, Antapaccay and Constancia)
which could be blended with “complex” concentrates coming from the central Andes or high PM concentrates.
On the Zn side, some Bolivian concentrates could be exported and/or products from some other mines located
in the south of Peru, like Caylloma.

Ilo Port
The port belongs to Southern Copper and is used

exclusively to load and unload all goods related to
Southern Copper smelter and mines (concentrates,
sulphuric acid, cathodes, etc).
The port has a draft of 10mts and can receive
Supramax vessels, but can load 30,000 mt up
33,000wmt and then has to go to another port to
complete the vessel. They can receive Handy vessels,
but they load maximum 28,000wmt.
As the city is next to the port and the port es exclusively
for Southern Copper es very unlikely to develop a
trading blending business through this port. As Southern
Copper is a custom smelter, any imbalance they have
in the production, provides a trading opportunity.

IV: Final Remark
•Commodity traders are all essentially in the business of transforming commodities in space
(logistics), in time (storage), and in form (processing). Their basic function is to perform physical
“arbitrages” which enhance value through these various transformations.
•The functions of physical trading as logistics business based on arbitrage and is based on
identifying an eliminating market inefficiencies and pricing based in “when, where, and what”.
•In engaging in these transformation activities, commodity traders face a wide array of risks,
some of which can be managed by hedging, insurance, or diversification.
•The profit margin for trading companies is very thin, so to be, competitive they need to trade
big volume. Companies to grow or survive the need to diversify risk among commodities.
•Usually most commodity trading firms do not speculate on movements in the levels of
commodity prices. Instead, as a rule they hedge these “flat price” risks, and bear risks related
to price differences and spreads—basis risks.
•Risk management is an integral part of the operations of commodity trading firms. Some major
risks are transferred to the financial markets, through hedging in derivatives or the purchase of
insurance. Other risks are mitigated by diversification across commodities traded, and across
the kinds of transformations that firms undertake. Remaining risks are borne by equity holders,
and controlled by policies, procedures, and managerial oversight.
•New technologies, less proprietary information, more info transparency and market
liquidity have increased efficiency and reduce arbitrage opportunities.
•People talent and managing good/real/on-time market information is key to be profitable in

physical trading business.
•Developing strategic business relationship with key selected counterparties is essential to be

profitable on the long term. (both side supplier/consumer)
•Traders provide financing off-stake agreements and risk management services to their clients,
offering these services to customers exploits trading firms’ expertise and risk management.
•Physical trading in Chile is relative small compare to Peru. Chile is a very old market and
principally in copper concentrates. The strategic advantage is volume. Copper producers are
big international corporations with global exposure with strong balances.
•Physical Trading in Perú have is more diverse and present more business opportunities. The
mine deposits are more diverse and polymetallic, presenting more profitable/blending
opportunities. Metal mine production have been growing on faster rate compare to Chile.
•The most active and competitive physical traders in Chile/Peru are Glencore and Trafigura.
Louis Dreyfus IXM and Chinese traders becoming active. There some niche players concentrate

markets. Japanese traders market participation is mainly through equity ownership with offs-
take agreement (heavy assets). Glencore becoming more like a producer profile. Trafigura
and the others are more logistic and asset lights business. (“Merchants”)
•Copper Concentrate Port capacity well provide in Chile. Potential spare coal unloading
capacity. Peru present more infrastructure business opportunities.


Copper Physical Trading and Supply Chile and Perú JLC

Caricato da

Informazioni sul documento

Descrizione originale:

Copyright

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Copper Physical Trading and Supply Chile and Perú JLC

Caricato da

Copyright:

Copper Physical

Trading and Supply

I. I. Executive Summary ................................................................................ 2

II. II. A Brief Guide to Physical Trading and

III. III. Physical Traders Operations in Chile

IV. IV: Final Remark ........................................................................................ 49

COPPER PHYSICAL TRADING AND SUPPLY CHAIN – JUNE 2018 2

The basics of commodity trading

This notion of transformation is key. Commodities undergo a variety of processes to transform

Commodity traders add value by identifying and optimizing transformations in commodities

The 3 arbitrages opportunities in the transformation process

COPPER PHYSICAL TRADING AND SUPPLY CHAIN – JUNE 2018 3

COPPER PHYSICAL TRADING AND SUPPLY CHAIN – JUNE 2018 4

COPPER PHYSICAL TRADING AND SUPPLY CHAIN – JUNE 2018 5

The leading firms

COPPER PHYSICAL TRADING AND SUPPLY CHAIN – JUNE 2018 6

Value Propositions Customers Relationships

COPPER PHYSICAL TRADING AND SUPPLY CHAIN – JUNE 2018 7

Trafigura Business Model

Value Propositions Customers Relationships

COPPER PHYSICAL TRADING AND SUPPLY CHAIN – JUNE 2018 8

The most important trading houses

Company Founding Commodities Traded Revenues Employees Countries Corporate

Copper, cobalt, zinc, lead, nickel, coal,

Crude oil, condensates, gasoline, fuel oil,

Oilseeds, rice, sugar, grains, juice, freight, coffee,

Petrochemicals, biofuels, environmental products,

Crude and refined products, LNG, coal, copper,

Ferroalloy, copper, lead, zinc and energy

Cliveden Copper, lead, zinc and precious metals

Copper, lead, zinc and precious metals

COPPER PHYSICAL TRADING AND SUPPLY CHAIN – JUNE 2018 9

COPPER PHYSICAL TRADING AND SUPPLY CHAIN – JUNE 2018 10

Margins vs Volume, nowadays physical trading business is characterized by “thin” margins, so

The way to operate: talent and good information are essential

Considering physical trading as a logistics business based on arbitrage opportunities. To find

COPPER PHYSICAL TRADING AND SUPPLY CHAIN – JUNE 2018 11

COPPER PHYSICAL TRADING AND SUPPLY CHAIN – JUNE 2018 12

2 Geopolitical developments Conflict International sanctions can have a major impact on

COPPER PHYSICAL TRADING AND SUPPLY CHAIN – JUNE 2018 13

COPPER PHYSICAL TRADING AND SUPPLY CHAIN – JUNE 2018 14

COPPER PHYSICAL TRADING AND SUPPLY CHAIN – JUNE 2018 15

COPPER PHYSICAL TRADING AND SUPPLY CHAIN – JUNE 2018 16

• TC/RC: Market convention terms to trade copper concentrates. Treatment Charges in

Sell Terms: 65/6,5 CIFFO Nantong

(*) assumption. There is no other cost involved in the operation.

After this purchase, the MTM for trader is the following.

Sell Terms: 65/6,5 CIFFO Nantong

COPPER PHYSICAL TRADING AND SUPPLY CHAIN – JUNE 2018 17

(*) assumption. There is no other cost involved in the operation.

A) Trader buys – Sierra Gorda sells.

B) Sierra Gorda buys – Trader sells.

Therefore, the swap fee is 10/1 for trader.

1) Allocations and Freight Allowances:

2) Q/P declarations and hedge adjustments:

To Sierra Gorda (outright purchase…lot at 75/7,5 CIFFO China).

COPPER PHYSICAL TRADING AND SUPPLY CHAIN – JUNE 2018 18

a. Andina at 60/6,0 to Sierra Gorda at 85/8,5 Minimize

Therefore, the PnL for those 3 shipments will be as follows:

1) Andina to Sierra Gorda (minimized to 9,000dmt)

Sell Terms: 85/8,5 CIFFO Niihama

(*) assumption. There is no other cost involved in the operation.

2) Sierra Gorda (purchase) to Smelter “A” (maximized to 11,000dmt)

Sell Terms: 65/6,5 CIFFO Nantong

(*) assumption. There is no other cost involved in the operation.

3) Sierra Gorda (swap) to Smelter “A” (maximized to 11,000dmt)