Chile produces approximately 35% of the global output for copper, and though many major players are still producing positive profit margins despite the economic downturn, the industry’s performance was naturally in stark contrast to the previous year at the peak of copper prices. The value of copper exports was down significantly in the first half of 2009 when compared to the previous year. Reduction in export values were seen in March, April, May and June as a direct result of tumbling copper prices and the global economic climate which has been affecting the market since summer of last year.

The government is expecting some form of stabilisation of the price of copper around USD$2 per lb, a recovery from the recent slump, but still only half of its peak price in 2008. Major copper mining companies Codelco and Antofagasta saw profits and turnover slump in the first quarter of the year; despite Codelco’s production increasing by 6.9% in Q109 compared to Q108, profit fell to US$97mn rather than US$2.023bn of the previous year. In May 2009, state copper commission Cochilco forecast a rise in copper production for the nation by 1.4% for 2009.

The expected increase to an estimated 5.4Mt of copper is primarily attributed to higher capacity at the Collahuasi mine, the ramping up of operations at Codelco’s Gaby mine and improved production levels at the Escondida mines. As the effects of the economic downturn are still being played out, demand for copper is expected to fall globally by 4.2% to 17.2Mt, but grow in 2010, with an expected recovery of the market; by 6.4% to 18.3Mt. As the world’s biggest consumer country of copper, China is keen to get access to the raw materials and China Minmetals announced they were considering coming together with Codelco to work on a number of global mining projects.

Though plans were in their infancy, China Minmetals is interested in Codelco’s vast experience in copper mining, and Codelco is interested in developing new supply chains for their commodity. The economic downturn has presented some opportunities to new projects, and in June 2009 CEO of Canadian mining company Barrick Gold, Aaron Regent, stated that he expected to take advantage of cost savings from the falling prices of steel and freer labour markets with the Pascua-Loma gold project.

He expected significant savings to be made on required materials such as steel reinforcing bars which had fallen 50% in price from the previous year to just US$500 a tonne. As other projects and mines face suspended operations, the availability of third-party labour suppliers is also expected to create significant savings. However, Regent was hesitant to revise the initial cost estimates of the project stating that: ‘if you get some gains here, you’re probably going to give them up somewhere else.’

Global overview

On page 10 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, 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.