Update: Chile in for long haul with copper price protection, ENAMI says

Vancouver – The Chilean government’s national mining company responsible for assisting small and medium-sized copper producers, ENAMI, will likely pay US$1.99-per-lb. copper to those producers until 2010, says ENAMI sulfuric acid and futures market specialist Felipe Olivares.

 

The price protection, which is now in force, comes in the form of a loan, Olivares says.

 

So long as the London Metal Exchange (LME) price of copper remains below US$1.99 per lb. ENAMI will continue to pay a premium for copper.

 

But once the price of copper breaks above US$1.99 per lb. ENAMI will require small and medium-sized producers to pay back however much they benefitted from the program, Olivares says.

 

Given a 2009 copper price forecast of US$1.60 per lb. out of CODELCO, the Chilean government’s national mining company, Olivares says he doesn’t see the program ending until 2010 when CODELCO predicts copper will rise above US$2 per lb.

 

Although copper companies in other countries may envy the Chilean government’s assistance to its smaller producers, Olivares says agreeing on the US$1.99-per-lb. copper price wasn’t easy.

 

“Small and medium-sized producers are not so happy in this moment because they got used to higher prices (in the last few years),” he says. “It is not a comfortable situation for either of us.”

 

But, he says, more government assistance is coming. Although he couldn’t give specific details Olivares says a copper subsidy is in the works.

 

“We are having trouble on trying to agree on the levels of support (with producers),” he says.

   

The Chilean government is giving small and medium producers the incentives in order to protect jobs in Chile’s all-important copper mining sector.

                                                                                                           

“As a government we are determined in a big campaign to defend jobs,” Chile’s mines minister Santiago Gonzalez said in a statement detailing a meeting between him and Central Workers Union president Arturo Martinez

 

In the statement he warned that, despite the government’s help, trouble is brewing.

 

“In total, of the 30,000 jobs that we have in small and medium mining companies, we could have problems with about 4,000 jobs,” he said.

 

Unlike other less fortunate South American countries with thinner bankrolls, Chile is in the enviable position of having saved nearly $30 billion during the last half-decade, years that saw sky-rocketing copper prices.

 

At the Mining Council’s annual dinner in November Chile’s President Michelle Bachelet said she planned to use these savings to stimulate the economy as recession threatens.

 

“Because we have learned lessons from our history as a mining country,” Bachelet said in a statement, “we knew to take advantage of the window of opportunity that the high price of copper opened to us in recent years.”

 

As for Chile’s large copper producers, however, they should not expect the same kind of assistance the government is giving smaller and medium producers.

 

Gonzalez called larger producers the “least vulnerable” in the same statement as above and said that in his department’s analysis of larger producers, “up until now we haven’t seen difficulties.”

 

For smaller and medium producers, he said, measures the government has so far taken will represent a 55¢ bonus over the per lb. price of copper on the LME.