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Miners in Copper Colossus Chile to Beat Crisis
By Pav Jordan
Reuters
Wednesday, February 18, 2009

SANTIAGO - World No. 1 copper producer Chile is stumbling as crashing prices for the red metal force lay-offs, fan protests and delay billion-dollar projects, but its miners are seen surviving the global economic crisis.

Burning tires and long-lines of honking horns have accompanied sporadic protest marches since the global slowdown sunk copper prices, hitting higher-cost mines the hardest and forcing redundancies and shutdowns at smaller operations.

Flush with savings from the price boom of recent years, the government has stepped in with a $4 billion fiscal stimulus program meant to protect jobs and avoid recession in one of Latin America's most stable economies. Coming off an extended supercycle of prices that hit more than $4 per pound last July, copper now trades at about $1.50 per pound. That means Chile will now likely deplete, rather than add to, a copper savings pile of more than $20 billion.

The stimulus package includes a $1 billion capital injection for state copper giant Codelco, and analysts bet that that, combined with geology, geography and demographics will help Chile weather prices culling mining jobs in other districts.

At a time when most global miners are suspending projects and selling assets to offset debt, Codelco, which churns out 25 percent of the nation's annual output, will invest about $2 billion in expansion projects this year.

"Chile will be far less impacted than some other districts, like some African countries, for example," said Juan Carlos Guajardo, executive director of CESCO, the Santiago-based think-tank that runs one of the world's largest annual copper industry gatherings.

"Chile is a proven district, it has the reserves, projects that are doable, good infrastructure, services," Guajardo said. Most of Chile's copper is produced at mines in the desert north, a zone often referred to as the Chilean mining cluster where most mines ship metal in the form of crushed rock, or concentrates, and sheets of metal known as cathodes, through the port city of Antofagasta.

Chile produced 5.33 million tonnes of copper in 2008, down 4.1 percent from a year earlier. That compares with global annual output of about 18 million tonnes. Other mining regions in Latin America have also been hit hard by the global economic slowdown, in part because they have less developed infrastructure.

Last week, Mexico's mining industry chamber estimated investment in the industry may fall as much as 40 percent in 2009 from a year earlier.

In Brazil, towns in mining-rich Minas Gerais state are canceling plans for the nation's most celebrated holiday, Carnival, as the global financial crisis takes a toll on public coffers and local employment.

In Africa, plummeting prices have hit copper-rich Congo so hard that some firms have simply stopped copper mining and 24,000 jobs are on the line in South Africa, where mining accounts for nearly 7 percent of the gross domestic product and is a cornerstone of the economy.

IN CHILE, SMALLER MINERS VULNERABLE
Higher ore grades and economies of scale make Chile one of the world's lowest-cost copper producers, but costs are higher for smaller players, and some have been forced to shut.

At least 12,000 jobs have already been lost in Chile's mining industry since copper prices plummeted, but the government hopes some of those can be saved.

Last week, it announced new credit to small miners to make up for prices so low they aren't covering costs. It said the measure may save up to 3,000 jobs.

Last month, global diversified miner BHP Billiton Ltd/Plc said it was axing 2,000 jobs at Chilean operations as it deferred expansion projects. Those were part of 6,000 job cuts worldwide for the miner.

Home-grown copper miner Antofagasta Plc said around the same time it would lay off workers as it closed a small mine that was no longer viable at lower prices.

For Ana Isabel Zuniga, head of research at Chile state copper think-tank Cochilco, the dust is starting to settle after prices crashed in September and October as global economic turmoil bit.

"I think we've gone now from the euphoria of high prices to the deep depression of a vertiginous fall in prices to a more serene standpoint," she said. "I think we'll continue to see readjustments in small- and medium-sized miners much more than in big mining."

The fall in prices is squeezing profits for all miners, but while many put off expansion plans or downshift output rates, they free-up tight resources for others. Prices for fuel, sulfuric acid, steel and tires for monster trucks have already come down and some companies are renegotiating with suppliers.

"I believe this crisis will lead to new opportunities in the mining industry, giving birth to an industry that is more solid and more efficient and balanced," said Edmundo Tulcanaza, president of a special government commission licensing professionals in Chile to classify mineral resources.