Mining sector in Chile

An Expert's View about Mining, Quarrying and Construction Machinery in Chile

Posted on: 2 Sep 2010

Latest overview of market potential for the mining sector in Chile.

Mining - Chile Sector Report MINING CHILE Produced by: Claire Rason, Commercial Section, British Embassy Santiago, Chile Last revised October 2009 Whereas every effort has been made to ensure that information contained herein is accurate, UK Trade & Investment, of the Foreign and Commonwealth Office (" the FCO") and the Department for Business, Innovation and Skills (?BIS?) accept no liability for any errors, omissions or misleading statements in such information and accept no responsibility as to the standing of any firm, company or individual mentioned. Published October 2009 by UK Trade & Investment. Crown Copyright © www.uktradeinvest.gov.uk Mining - Chile Table of Contents OVERVIEW 3 OPPORTUNITIES 3 CHARACTERISTICS OF MARKET 6 KEY METHODS OF DOING BUSINESS 7 MORE DETAILED SECTOR REPORTS EVENTS 8 CONTACT LISTS 8 www.uktradeinvest.gov.uk Page 2 of 8 Mining - Chile OVERVIEW Mining is crucial to the Chilean economy. It accounted for more than 60% of Chilean exports in 2008 of which copper alone was 51.8%. Chile hosts a wide variety of minerals including gold, silver, molybdenum, lithium, zinc, iron ore and, most importantly, copper. Chile is the world?s largest copper producer. It accounted for 36% of global production in 2008. It is also the world?s third largest producer of molybdenum. Figure 1 Millions of $US F.O.B % of total exports Total copper exports 2008 32,807.5 51.8 Total mining exports 2008 38,190.9 60.4 Total Exports 2008 63,281.7 100 Source: Banco Central de Chile, May 2009 Chile?s mining is largely surface mining, however companies are involved in deep mining and Chile boasts the largest underground copper mine in the world ? the El Teniente Mine belonging to Codelco (see page 5). OPPORTUNITIES Large multinational mining companies dominate the mining sector in Chile. There are a number of Chilean owned companies, the largest of these local players are Antofagasta Plc (a company listed in London) and Codelco (the State owned mining company). Set out below is an overview of future proposed projects from these large players. These projects provide opportunities for companies that support the mining sector (machinery suppliers, consultants, etc.). ANGLO AMERICAN Av. Pedro de Valdivia 291 Providencia Santiago Chile. Tel: (56 2) 230 6000 Website: www.anglochile.cl In response to the financial crisis Anglo American announced a reduction in capital expenditure on its base metals projects in 2009 to US$1.4 billion. This has affected the commissioning date of the Los Bronces Copper Expansion Project in Chile by eight months. The project aims to take production to an average initial level exceeding 400,000 tonnes per annum and reduce water use by 40% per lb of copper. First copper production is now expected in the fourth quarter of 2011. Investigations are taking place into Anglo American?s potential investment in phase 1 of the expansion of the Collahuasi copper mine. (As discussed in Xstrata?s section below.) ANTOFAGASTA PLC Av. Apoquindo 4001, 18th Floor Las Condes Santiago Chile www.uktradeinvest.gov.uk Page 3 of 8 Mining - Chile Tel: (56 2) 798 7000 Website: www.antofagasta.co.uk Antofagasta Plc?s largest future project is the Esperanza Project, which is estimated will produce around 195,000 tonnes of payable copper per year (in the first ten years) and represents a total estimated investment of US$1.9 billion. It is also expected to produce 230,000 ounces of gold from 2011 onward. Production is expected to begin in the final quarter of 2010. BARRICK GOLD CORPORATION th Av. Ricardo Lyon 222, 8 Floor Providencia Santiago Chile Tel: (56 2) 340 2022 Website: www.barrick.cl Barrick has an early stage project being the Pascua-Lama gold-silver project on the Chilean- Argentinean border. According to their annual report, the project has ?almost 18 million ounces of proven and probable gold reserves and more than 700 million ounces of Silver contained within gold reserves?. Significant progress has been made on securing the remaining sector permits and approvals for this project as well as on fiscal matters at the federal level including the cross-border taxation arrangements between Chile and Argentina. Barrick has also announced a US$30 million expansion of the Punta Colorado wind farm project near Pascua-Lama, increasing their investment to US$70 million and its generating capacity from 20 to 36 megawatts. BHP BILLITON Avda. Américo Vespucio Sur 100, 9th Floor Las Condes Santiago Chile Tel: (56 2) 3305000 Website: www.bhpbilliton.com BHP is supporting the construction of an LNG facility to supply gas to the northern grid system, that supplies its mines. This is scheduled to be completed in 2010. BHP have also signed off agreements underwriting the construction of a 460 mw coal-fired power station, which is scheduled for completion in 2011. At Escondida two projects are currently being undertaken: ¾ A pre-feasibility study into the building of a third concentrator plant. ¾ Extensive exploration of the Escondida lease, with an estimated US$327 million to be invested in drilling, assaying and metallurgical test work following early drilling results that suggested extensive additional mineralisation in close proximity to existing infrastructure and processing facilities. www.uktradeinvest.gov.uk Page 4 of 8 Mining - Chile CODELCO Huérfanos 1270 Santiago Chile Tel: (56 2) 6903000 Website: www.codelco.com During 2008 Codelco invested more than US$50 million into research and development and US$1,962 million for the development of projects that will permit the maintenance or enlargement of its production across all operations. 2008 saw the end of project Gaby and the start of operations of Codelco?s 100% owned Gabriela Mistral mine. The project was a US$1,268million investment. It has the capabilities to produce 150,000 tonnes of refined copper a year. Coldelco is currently undertaking, project Gaby phase II. This has the aim of increasing the capacity of production at the Gabriela Mistral mine to 170,000 tonnes of refined copper by 2011. At Codelco Norte a feasibility study has been started to evaluate the Chuquicamata Subterránea project. This will extract mineral resources located below the current pit, that will cease to be profitable in the next decade. The estimated investment for the project is US$ 2000 million and will produce approximately 340,000 tonnes of copper ore every year for the next 50 years. RIO TINTO Avda El Bosque Sur 130, 7th Floor Las Condes Santiago Tel: (56 2) 203 1122 Website: www.riotinto.com The Rio Tinto Group combines Rio Tinto plc, which is listed on the London Stock Exchange and headquartered in London, and Rio Tinto Limited, which is listed on the Australian Securities Exchange and has executive offices in Melbourne. In Chile Rio Tinto has a 30% interest in Minera Escondida (described in the BHP section above). XSTRATA COPPER Mariano Sanchez Fontecilla 310, 4th Floor Las Condes Santiago Chile Tel: (56 2) 478 2200 Website: www.xstrata.com At Collahuasi Xstrata has secured US$183 million to aid in phase 1 of the expansion plans. This is intended to increase annual copper production capacity to 600,000 tonnes from the second half of 2010. At Lomas Bayas a US$70 million budget was approved in November 2008 for an expansion project to increase production by 15% to 75,000 tonnes per annum. A diamond drilling campaign totalling 6,000 meters was also approved for initiation in 2009. www.uktradeinvest.gov.uk Page 5 of 8 Mining - Chile At Altonorte phase IV expansion to 1.2 million tonnes per annum of smelter feed was successfully commissioned in October 2008, comprising the construction of the new no.1 acid plant that will increase annual acid capacity to 1.1 million tonnes. BUSINESS OPPORTUNITIES IN THE MINING SECTOR UKTI publishes international business opportunities gathered by our network of British Embassies, High Commissions and Consulates worldwide. These opportunities appear in the Opportunities portlet on the relevant sector and country pages on the UKTI website. By setting up a profile you can be alerted by email when relevant new opportunities are published. New or updated alert profiles can be set in My Account on the website. CHARACTERISTICS OF MARKET Chile has 36% of the total global reserves of copper, being the largest known copper reserve in the world. Codelco, Chile?s state owned copper company, has 170 million tonnes in its active reserves, including known and suspected deposits. Figure 2 Mineral Chilean Reserves World Reserves base Chilean % of base1 (thousand (thousand metric World Reserves metric tonnes) tonnes) Copper 360,000 1,000,000 36% Lithium 3,000 11,000 27.3% Gold 3.4 100 3.4% Molybdenum 2.5 19 13.2% Source: U.S. Geological Survey, Mineral Commodity Summaries, January 2009 Chilean mining consists primarily of open pit, hard rock mining. Most of the large-scale mines are located in the Atacama desert in the north of the country. Some, close to the Andes Mountain range, are at altitudes exceeding 4,000 metres, which makes exploitation difficult, particularly in winter months. Contracts for large-scale projects are invariably placed with international consulting engineering companies for ?fast track? exploitation. These projects are usually Engineering, Procurement, Construction and Management. Companies who typically obtain this work are Bechtel, Fluor Daniel and Kvaerner Metals. Even up to 15 years ago the mining industry in Chile was dominated by the state owned company Coldelco, however with the introduction of new laws in the 1980s Chile began to see more and more foreign investment. Mining laws in Chile are more geared towards foreign investment than those of other Latin American countries. The Organic Constitutional Law on 3 Mining Concessions (1982)2 and the Mining Code of 1983 together with environmental directives comprise the key regulatory mechanisms for mining activity. 1 The reserve base is the in-place demonstrated (measured plus indicated) resource from which the reserves are estimated. 2 Link for English version http://www.cochilco.cl/english/normativa/descarga/organic_constitutional_lawon_mining.pdf 3 This implemented a reliance on market mechanisms for the allocation of land use. In effect, concession holders have private rights which are transferable and transmittable, liable to mortgage and other real property rights, and in general, are subject to the same civil laws applying to real property. www.uktradeinvest.gov.uk Page 6 of 8 Mining - Chile The UK is the fourth largest foreign investor in Chile and the majority of this investment has been in the mining sector. Mining and quarrying represent 73.15% of the UK?s materialized investment in Chile between 1974 and 2008. The major UK investors in the Chilean mining sector are Anglo American, BHP Billiton and Rio Tinto PLC. As a result of the financial crisis, a study by CESCO states that investments in the Chilean copper sector have fallen by 25% since September 2008. According to Business Monitor International?s 2009 Chilean mining report, approximately US$7bn of this postponed investment, is attributable to the world?s largest miner, BHP Billiton, the majority holder of the largest copper mine in the world at Escondida. CHALLENGES: In addition to the challenges facing the mining industry through the global economic downturn, one local problem affecting the industry is the unstable supply and pricing of power and water. Referring to Chile, Anglo American stated in its 2008 annual report that; ?power supply constraints were a major inhibitor of the mining industry?s ability to expand to meet demand levels?. These comments are echoed by other major international mining players. In several cases the companies have undertaken projects to help alleviate the problem. For example Barrick Gold is working to improve the Punta Colorado wind farm project near its Pascua-Lama site to increase its generating capacity. The problem of water supply, a result of Chile?s geography, has been generally handled by careful management of its use by individual companies. The Luksic Group, majority shareholders of Antofagasta plc, announced plans in March 2009 to become directly involved in the supply of water in the north (around the city of Antofagasta). Through their subsidiary Aticama, Agua y Tecnología Luksic have acquired the water supplier Desalant for US$52 million from Spanish company OHL Inima and have plans to expand and supply, not just Desalant?s current domestic consumers, but also the local mining industry. This will be achieved through building one large desalination plant. A report on the Power sector in Chile is available by registering as a user on the UK Trade and Investment website (www.uktradeinvest.gov.uk). KEY METHODS OF DOING BUSINESS Other background information on doing business in Chile can be found on UKTI?s website. Simply go to the Chile country page where you will find information on: ? Economic background and geography ? Customs & regulations ? Selling & communications ? Contacts & setting up ? Visiting and social hints and tips MORE DETAILED SECTOR REPORTS Research is critical when considering new markets. UKTI provides market research services which can help UK companies doing business overseas including: ? Overseas Market Introduction Service (OMIS). Bespoke research into potential markets, and support during your visits overseas ? Export Marketing Research Scheme. In-depth and subsidised service administered by the British Chambers of Commerce on behalf of UKTI Contact your local International Trade Advisor if you are interested in accessing these services, or for general advice in developing your export strategy. www.uktradeinvest.gov.uk Page 7 of 8 Mining - Chile EVENTS There are two main mining exhibitions in Chile: ExpoMin (www.expomin.cl) and ExpoNor (www.exponor.cl). ExpoMin is held biannually in Santiago. The next ExpoMin will be held within the context of the Bicentennial celebration of Chile?s Independence from 13th to 16th April 2010. ExpoNor is the country?s second largest mining trade fair, held during the off-year of ExpoMin in Antofagasta. The next exhibition will held in 2011. This is a smaller event than ExpoMin, however, it has been growing in importance given its key location. UK Trade & Investment?s Tradeshow Access Programme (TAP) can help eligible UK businesses take part in overseas exhibitions. Attendance at TAP events offers significant benefits: ? possibilities for business opportunities both at the show and in the future ? a chance to assess new markets and develop useful contacts ? grants are available if you meet the criteria ? UKTI staff overseas will be available to assist delegates Find out more about the support UKTI can offer. Details of TAP events can be found in the Events portlet. Other Market Visit Support may be available via your local International Trade Advisor. CONTACT LISTS Tom Warwick Head of UKTI Chile Santiago Chile Tom.warwick@fco.gov.uk Claire Rason Commercial Officer Santiago Chile Claire.rason@fco.gov.uk UKTI?s International Trade Advisers can provide you with essential and impartial advice on all aspects of international trade. Every UK region also has dedicated sector specialists who can provide advice tailored to your industry. You can trace your nearest advisor by entering your postcode into the Local Office Database on the homepage of our website. For new and inexperienced exporters, our Passport to Export process will take you through the mechanics of exporting. An International Trade Adviser will provide professional advice on a range of services, including financial subsidies, export documentation, contacts in overseas markets, overseas visits, translating marketing material, e-commerce, subsidised export training and market research. www.uktradeinvest.gov.uk Page 8 of 8
Posted: 02 September 2010

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