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Chile Mining Report Q1 2013

Chile mining market dominated by Codelco

We maintain our expectation that Chiles mining sector will grow in 2013 albeit at a more moderate pace. Major mining companies continue to develop several large projects in the face of potential delays due to rising costs and economic uncertainty. In recent quarters, we have revised our industry growth forecasts due to rising risks which we believe will delay mine projects. We forecast Chiles mining sector to grow at 2.1% year-on-year (y-o-y) in 2013. With several projects scheduled to come online in 2014 and 2015, we expect these years to account for the largest proportion of growth. Over our 2013-2017 forecast period, we forecast sector growth to average 2.8% per annum.

The Chilean mining sector will continue to rely on copper production for the foreseeable future. The large pipeline of copper projects and the countrys global dominance in copper production make this the most likely scenario despite falling ore grades and more modest production growth. The importance of copper mining to Chiles economy cannot be overstated and we believe increasing global supply over the coming years will weigh on prices as the market loosens, impacting the Chilean economy. At present, however, copper prices remain elevated by historical standards, supporting Chiles external accounts and encouraging mine workers to seek higher wages.

Precious Metals Key To Growth

Chiles mining sector will grow in part thanks to investment in gold mining, diversifying the sector away from copper. Slow growth in the US, worries over the Chinese economy and a deteriorating debt crisis in Europe will support gold prices and encourage new gold mine development. Major companies, including Barrick Gold and Goldcorp, are developing large gold projects though rising costs have seen several mines delayed. Barrick Gold, Codelco and Antofagasta have all reported rising labor, fuel and material costs forcing the companies to increase pre-production expenditure estimates on mine projects. We forecast Chiles gold output will grow by an annual average rate of 1.8%, reaching 1.74moz (million ounces) by 2017.

Key Players

Chiles mining sector will remain dominated by state-owned copper miner Codelco. That said, other large global diversified miners, such as Xstrata and Anglo American, are developing and investing heavily in mine projects in Chile. The rest of Chiles mining sector is made up of mid-sized miners that specialize in the production of a single mineral, such as copper or gold. London headquartered Antofagasta is a growing copper producer which is expected to continue ramping up production at one of its flagship mines in 2013.

We expect the precious metals sectors to diversify as both global gold miners and junior resource companies vie for position. Junior silver miners, such as Genesis Minerals and Laguna Resources, are in the process of developing mineral deposits. Gold and copper production is likely to remain consolidated, with the largest companies continuing to dominate output and exploration.

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