2012-10-29 13:46:47 - New Materials market report from Business Monitor International: "Chile Mining Report Q4 2012"
Risks Continue To Rise In the Face Promising Sector Potential
We maintain our expectation that Chile's mining sector will grow in 2012 and 2013 albeit at a slower pace than we previously forecast. Major mining companies continue to advance several large projects in the face of potential delays due to rising costs and economic uncertainty. In recent quarters, we have revised our industry growth forecasts due to rising risks which we believe will delay mine projects. We now forecast Chile's mining sector to grow at 6.8% year-on-year (y-o-y) in 2013. With several projects scheduled to come online in 2014 and 2015, we expect these years to account for the largest proportion of growth. Over our 2012-2016 forecast period, we forecast sector
growth to average 6.3% per annum.
The Chilean mining sector will continue to rely on copper production for the foreseeable future. The large pipeline of copper projects and the country's global dominance in copper production make this the most likely scenario despite falling ore grades and more modest production growth. The importance of copper mining to Chile's economy cannot be overstated and we believe increasing global supply over the coming years will weigh on prices as the market loosens, impacting the Chilean economy. At present however, copper prices remain elevated by historical standards, supporting Chile's external accounts and encouraging mine workers to seek higher wages.
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Precious Metals Key To Growth
Chile's mining sector will grow in part thanks to investment in gold mining, diversifying the sector away from copper. Slow growth in the US, worries over the Chinese economy and a deteriorating debt crisis in Europe will support gold prices and encourage new gold mine development.
Major companies, including Barrick Gold and Goldcorp, are developing large gold projects though rising costs have seen several mines delayed. Barrick Gold, Codelco and Antofagasta have all reported rising labor, fuel and material costs forcing the companies to increase pre-production expenditure estimates on mine projects. We forecast Chile's gold output will grow by an annual average rate of 1.9%, reaching 1.72moz (mn ounces) by 2016.
Chile's excellent business environment will continue to make it one of the most attractive mining destinations in the Americas region. A long history of mining and large proven mineral resources attracts mining companies both large and small, foreign and domestic. While mining taxes increased from 4-5% of operating profit to 4-9% in 2011, we believe Chile remains competitive with its regional peers as several other countries have moved to establish similar tax structures. Mining tax reform is either under way or recently approved in Brazil and Peru, where governments are eager to maintain high levels of investment while sharing some of the profits mining companies are reaping from elevated metals prices.
Chile's mining sector will remain dominated by state-owned copper miner Codelco. That said, other large global diversified miners, such as Xstrata and Anglo American, are developing and investing heavily in mine projects in Chile. The rest of Chile's mining sector is made up of mid-sized miners that specialize in the production of a single mineral such as copper or gold. London headquartered Antofagasta is a growing copper producer which is expected to continue ramping up production at one of its flagship mines in 2013. We expect the precious metals sectors to diversify as both global gold miners and junior resource companies vie for position. Junior silver miners such as Genesis Minerals and Laguna Resources are in the process of developing mineral deposits. Gold and copper production is likely to remain consolidated, with the largest companies continuing to dominate output and exploration.
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