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Chile's copper mining woes take the spotlight

While the global copper market is nervously eyeing signs of slowing demand in China, tumbling ore grades, energy protests, extreme weather and labor unrest in top miner Chile were the focus of the annual CESCO conference.

SANTIAGO (Reuters)  - 

    The global copper market may be nervously eyeing signs of sagging demand in top metals consumer China, but the annual CESCO week copper conference has put No.1 producer Chile's woes firmly back in the spotlight.  

    There are no easy fixes for tumbling ore grades at massive mines in northern Chile, protests over key energy projects that are threatening mining expansions and possible disruptions from extreme weather and labor unrest.           

    While Chile continues to produce a third of the world's copper supply and holds an estimated 28 percent of global reserves, the once investor-darling needs to fight on multiple fronts to boost annual output to the over 7 million tonnes it aspires to produce by the end of the decade.        

    "We're frankly at a very delicate moment, especially in terms of energy," Joaquin Villarino, head of the country's Mining Council that represents Chile's biggest miners, said on Thursday during a forum on energy.   

    "If we're not able to solve several problems, mining isn't going to develop in the country or it will develop less than we would like."  

    However, supply constraints are good news for prices. Chilean state giant Codelco and global miners Anglo American, Xstrata and Rio Tinto all told Reuters they see strong demand in the copper market.

    But traders cite a worrying stockpile in China, persistent euro zone debt woes and an uncertain U.S. economic recovery for their increased bearishness. One called miners' optimism "myopic."          

    But with no significant deposits slated to come on-line this year, so-called "strike season" yet to kick off in Chile and both Xstrata and Rio predicting ebbs in their production in the first half, Chilean miners are predicting tight supply will offset any Chinese slowdown.     

    "If we project ourselves towards 2017, we (Chile) will probably drop a few percentage points in market share," Codelco CEO Diego Hernandez told Reuters this week.       

    Codelco has an ambitious plan to boost its annual output to 2.1 million tonnes by 2020, but forecasts a slight ebb in production this year. Chile is seen attracting $1 billion in mining investment through 2020, but some analysts have questioned that figure as overly upbeat.          

    Last year, Antofagasta Minerals with pomp launched its flagship mine Esperanza, or "Hope" in Spanish, one of the few promising deposits to come online in a red metal market defined by its scarcity of new projects.          

    But Esperanza's harder-than-expected mineral has disappointed, contributing to Antofagasta missing its 2011 copper output target and factoring into their veteran CEO Marcelo Awad's abrupt resignation earlier this year.           

    Few deposits are more emblematic of Chile's potential decline than its massive but tired, water-short and energy-strapped copper mines in the mineral-rich Atacama desert.          

    Codelco's century-old, behemoth Chuquicamata mine has seen its output drop from 528,000 tonnes in 2010 to 443,000 tonnes last year, chiefly on grade woes.     

    World No. 3 copper mine Collahuasi's output dipped in the first quarter of the year due to weather disruptions and grades, Anglo reported on Thursday, while the world's No. 1 copper mine Escondida saw its output plummet 25 percent last year due to a shock two-week strike and ore grade slips.   

    Chuquicamata is set to undergo massive transformation to become an underground operation while major expansions are planned at both Collahuasi, owned by Anglo and Xstrata, and Escondida, which is majority owned by global miner BHP Billiton.

    Their success or failure will be crucial in determining whether Chile is past its copper heyday or if the mining powerhouse can tackle its challenges and remain at the head of the pack.

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