11/19/13

Chile loses allure for copper projects - FT.com

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April 9, 2013 2:51 pm

Chile loses allure for copper projects

By Jack Farchy in Santiago

Chile risks losing its position as the leading destination for investment by the copper mining industry as runaway cost inflation makes new projects uncompetitive, global mining executives have warned. The warning highlights how the fortunes of resource-rich countries are shifting. The boom mentality of the past decade which led miners to overspend, workers to demand higher wages and service providers to increase prices has eroded competitiveness just as prices for the commodities they produce have fallen. The competitive advantage of the copper industry here is declining, said Peter Beaven, head of base metals at BHP Billiton, owner of Escondida, the worlds largest copper mine. Business as usual will not be pretty. Chiles difficulties could benefit other destinations, the traditional ones such as Peru and the US and new areas including Zambia and the Democratic Republic of Congo in the African copper belt, and Mongolia. But Chile is unlikely to be overtaken as the worlds top producer of copper: it currently accounts for a third of supply, with a similar share of global reserves. Mining executives meeting in Santiago for the annual Cesco week gathering of the copper industry said miners were reluctant to approve new investments in Chile because the past decades investment boom had pushed up the cost of labour and equipment, while energy and water were in increasingly short supply. On Tuesday copper miners across the country staged a one-day strike, seeking job security. The supercycle for Chile is over because the costs have caught up, said Gustavo Lagos, professor of mining at Santiagos Universidad Catlica. At the same time, copper prices are down more than a quarter from their 2011 peak as Chinese demand slows and production rises as a result of past investments. Once the projects that are in construction now are completed, its not true that the other projects will come according to announcement, said Diego Hernndez, chief executive of London-listed Antofagasta. Costs are already increasing dramatically at Chilean mines, mirroring the situation in other resource-rich nations such as Australia. Codelco, the worlds largest copper miner, owned by the Chilean state, reported a 57 per cent increase in costs last year. Antofagasta forecast a 36 per cent rise in costs for this year. A large part of the increase in costs is a result of the falling quality of ore at ageing mines. At Chuquicamata, one of Chiles oldest mines, costs jumped 78 per cent last year, largely because of falling grades. Thomas Keller, chief executive of Codelco, said it was implementing a very aggressive programme of cost reduction. We have to find ways to regain competitiveness, he said. The increase in costs in Chile was making other countries more attractive for investment, miners said. Chileans...are looking northwards to their neighbours in Peru, and thats where a lot of the projects are going to come from, said Richard Wilson, chairman of metals at Wood Mackenzie, a consultancy. Mr Hernndez said the US would benefit from falling energy costs and high labour productivity. North America could be still attractive for new projects, he said.

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11/19/13

Chile loses allure for copper projects - FT.com

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