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.
According to the heads of
Chile’s two leading copper companies, the copper industry in Chile is
doing
well despite the financial downturn. They stated that the industry
has been able to sustain itself during the
recent period of low metal
prices and is likely to continue being able to do so if economic conditions
do
not worsen. Diego Hernández, the president of BHP Billiton’s
base metals division, stated that more than
95% of Chile’s producers
were probably operating with positive margins at the prevailing copper
prices
of roughly US$1.80/lb. However, it did not mean that the profit
margins were the same as in H108, he
added. The news supports our view
that the Chilean economy could potentially be among the best
positioned in
the region to experience a prompt economic recovery by 2010, in large part due
to the
substantial fiscal ammunition at the government’s disposal.
The build-up of solid public finances over the
past five years has been
the result of prudent fiscal policy at a time of soaring global metals
prices,
including copper – in stark contrast to the region’s
other large commodity exporters, such as Venezuela.
However, in the
short-term the mining sector is still facing difficulties. According to data
from the central
bank, the value of copper exports fell by 61%, y-o-y, to
US$1.5bn in March 2009. These poor figures
helped to drive down the
country’s trade surplus by 63.7%. Chile’s Mine Minister Santiago
Gonzalez
claimed in April 2009 that copper exports would most likely stay
at around the same level as 2009.
However, the dismal figures for March
suggest that this prognosis may be overly optimistic, as global
demand is
still in a deep trough. BMI believes that as the major stimulus package in
China kicks in, the
global copper market will recover, however, the
effects are not being seen in the sector at present.
On a positive note,
in May 2009, Canadian mining company Barrick Gold announced that it was
proceeding with its Pascua-Lama gold project after a deal was struck with the
Chilean and Argentine
authorities regarding tax issues. BMI views this is
a positive development for the mining sector in Chile,
as the global
economic crisis has recently caused a number of companies to re-evaluate major
capital
intensive projects in the country. The construction estimate on
the mine is US$2.8bn-US$3.0bn, while the
project could be operational by
2012-2013.
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.
Chile Mining Report Q3
2009
In 2008, BMI estimates that the mining sector in Chile contracted by
5% in real terms, and we expect the
market to also post negative growth in
2009 before returning to strength in 2010. The CEO of Codelco
now believes
that copper prices are close to bottoming out. Another key factor will be the
impact of the
fiscal stimulus package in China, which is the largest
consumer of copper in the world. If the Chinese
economy can get back to
pre-crisis levels of growth it will have a positive upside for Chile’s
mining
sector.
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