Chile Faces Challenges In Keeping Top Copper Spot

SANTIAGO, CHILE — After a heart-stopping couple of quarters at the start of the year, Chile’s mining industry is back on its feet and preparing for a decade of unprecedented investment and expansion.

But while Chile remains rich in minerals waiting to be tapped, other resources are in short supply.

When copper prices slid from almost US$4 a lb. to less than US$1.50 in a matter of weeks late last year, Chile’s mining executives suddenly found themselves staring into the abyss.

“The supercycle is over,” Jose Pablo Arellano, the executive chairman at state-owned Codelco, the world’s largest copper producer, told journalists last October.

As demand for copper dried up, companies moved rapidly to slash production costs and halt once-promising investment projects.

By January, Alfredo Ovalle, president of national mining association SONAMI, was warning of the loss of around 12,000 jobs throughout the sector, 6,000 of them from mines operated by BHP Billiton (BHP-N, BLT-L).

But 2009 has turned out to be a pleasant surprise: record demand for copper from China, spurred by an enormous economic stimulus package, has seen prices climb steadily back to pre-crisis levels above US$3 per lb.

Hundreds of small operations have reopened since the start of the year and many large mine projects, tossed aside just 12 months ago as unfeasible are being looked at again.

According a study by the Chilean Copper Commission (or Cochilco), which monitors the industry on behalf of the government, companies are planning to spend more than $43 billion on new mines and expansions over the next six years.

This is even more than was spent during Chile’s 1990s mining boom, when foreign investment flooded in under stable investment laws and the return of democracy and major new mines like Escondida, Los Pelambres and Escondida consolidated the country’s position as the world’s largest copper producer.

But while the 1990s boom was led by foreign mining companies, state-owned Codelco is expected to lead investment over the next decade, with projects worth just over $20 billion either in development or in the pipeline.

Much of the money will be dedicated to revamping the company’s aging fleet of mines.

At the century-old El Teniente operation, the company plans to build the underground mine’s first new level in more than 40 years.

An even bigger underground operation is planned for Chuquicamata as Codelco’s flagship mine becomes too deep to exploit as an open-pit operation: production is due to begin in 2018.