Abstract
Chile is the global copper capital, accounting for about 35% of world output.
Besides copper, the Chilean
geology also hosts other significant metals
and minerals including gold, silver, molybdenum, lithium,
zinc and iron
ore. In fact, gold exploration and mining in the country have picked up steam
in recent
times, widening the prospects of the Chilean mining industry.
Moreover, the mining industry highlights
its importance to the economy by
contributing in double digits to Chilean GDP.
The fall in commodity
prices, and especially copper, has had a severe impact on the Chilean
economy,
causing exports to fall by almost 25% in December 2008. As a
result, in January 2009, according to
BNamericas, Chile’s government
announced that it will invest US$1bn in the state-owned copper
company
Codelco as part of an economic stimulus package. The government’s
decision to invest US$1bn
in Codelco will provide a large number of
exploitation opportunities which, in turn, will generate
additional
employment opportunities in the country. Chile generates as much as 35% of the
world’s
copper. Undoubtedly, the mining industry is vital to the
country, contributing more than 20% to the
economy. Industrial growth up
to 2012 is likely to be supported by an increase in copper mining
throughout Chile.
Although a Chilean government report claims that copper
production in Chile will rise by 3.7% in 2009,
industry thinktank Centro
de Estudios del Cobre y la Minería (CESCO) takes a far more pessimistic
view.
As reported by Reuters in January 2009, CESCO believes that copper
output will stand at around 5.3mn
ounces in 2009, representing either
stagnation or a marginal decline. With prices for copper falling to half
the levels seen in September 2008, there are some grounds for CESCO’s
assessment. Indeed, copper
miner Antofagasta has recently announced the
closure of its Lince mine in northern Chile, citing lower
prices. Also,
out of the leading 19 copper mines in 2008, 10 saw production fall. Meanwhile,
a study by
CESCO claims that investments in the copper sector have fallen
by 25% since September 2008. Of the
postponed investments, approximately
US$7bn is attributable to the world’s largest miner, BHP Billiton,
which owns the largest copper mine in the world at Escondida, Chile.
A new
Chilean mining law is on the anvil, aimed at further streamlining processes to
improve the
management of natural resources. Under the new law, mining and
exploration companies will have to
declare their reserves and resources,
and report drilling results. The law also aims to facilitate funds for
mining projects across the country. Besides the mining law, the Organic
Constitutional Law on Mining
Concessions (1982) and the Mining Code of
1983 are the two key mechanisms governing mining
activities in the
country.
Global overview
On page 9 of this report, BMI examines the
phenomenon of increased Chinese activity in the global
mining sector and
what this means for the industry moving forward.
Industry Forecast
In
2008, BMI estimates that the mining sector in Chile contracted by 5% in real
terms, although we
expect the market to return to marginal growth in 2009.
Indeed, the CEO of Codelco now believes that
copper prices are close to
bottoming out. China, the world’s largest consumer of copper, is
launching a
large stimulus package, which will help rejuvenate demand.
Beyond 2009, BMI believes that government
subsidies, including tax cuts
and a capital injection of US$1bn to Chile’s state copper giant Codelco,
will
help the mining sector return to strength. These measures will also
help improve consumption levels in
the country, allowing for a moderate
recovery of the economy in 2010.
According to BMI forecasts, Chile’s
mining industry will reach a value of US$63.49bn in 2013, up from
US$34.18bn in 2008. However, these revised forecasts have been downgraded
owing to lower prices for
most mineral commodities, especially copper.
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