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Copper output in Chile, the world’s top producer of the metal, is expected to increase 2% by the end of the year and continue to grow steadily during 2019 due to stronger performance from major mines, upgrades to existing operations, and lower risk of labour strikes.
According to the latest report by Fitch Solutions Macro Research, the main possible obstacle to the forecast production growth in Chile is the fact that grades continue to fall.
Declining grades pose the main long-term risk to forecast growth in the country’s copper production.
Mining companies operating in the country have seen production costs rise as they need to dig deeper and process larger amounts of rock to obtain the same amount of copper they used to a decade ago.
“Mines who saw production decreases over recent quarters cited declining ore grades as one of the main contributing factors,” the report says. “This issue presents an attractive opportunity for miners to invest in new technology or upgrade equipment to improve operational efficiency,” Fitch notes.
Yet, major copper miners active in Chile have managed to boost or at least maintain production this year. For instance, while Antofagasta (LON:ANTO) posted a decrease of 21,000 tonnes in the first nine months of 2018, it expects “particularly strong” production volumes in the final quarter of the year.
Source: Fitch Solutions Macro Research.
Anglo American reported an increase of 54,100 tonnes in the first three quarters of 2018, a 13% year-to-date growth over the same period of 2017.
Chile-owned copper miner Codelco, in turn, showed a slight overall production increase of 2% to 813,000 tonnes of the metal in the first half of 2018, when compared to the same period of 2017, despite declining ore grades.
Fitch highlights that the Chuquicamata underground mine will offer support to Codelco’s copper mine production levels. The new portion of “Chuqui” — as locals call it — is expected to extend its life by another 50 years. This will allow the world’s No.1 copper producer to keep production rates, despite falling ore grades and increasing costs at its assets.
Additionally, production from the Escondida copper mine, jointly owned by BHP (ASX:BHP) and Rio Tinto (ASX, LON:RIO), was not hampered by a strike that hit it earlier this year. From January to September, in fact, output from the mine hit 950,900 tonnes or 57.8% more than in the same period last year, when another, longer strike when a strike halted operations for more than 40 days.
The decrease in ore grade in Chile has been higher than the world average. (Courtesy of Chilean copper commission Cochilco.)
In terms of labour unrest, Fitch anticipates a lower risk of strikes impacting 2019 copper production. Chilean miners received numerous threats of union actions over contract disputes in 2018, which is on the back of 2017 legislation giving miners more negotiating power.
Owing to this, many contracts were negotiated and agreed to this year, some with expiration dates of 36 months, which means workers have at least a couple of years to go before renegotiating the contracts signed this year.
3 Comments
Pat Woods
“Chile-owned copper miner Codelco, in turn, showed a slight overall increase to 1.7 million tonnes of the metal produced in the first half of 2018, with the first half of 2017, of 2.8%, despite declining ore grades.”
This is incorrect. Codelco only produced 813k mt thru June 2018.
Disagree with Fitch’s assessment of forward copper production in Chile.
Falling grades will bedevil the supermines of Chile.
Chuqui underground won’t be ramped up until 2025. Until about 2022, grades fall at that site. Same for R/T. Same for MHM.
Los Bronces and Collahuasi are running flat out and currently processing ore that is 24% and 33% richer than average PP reserve grade. So those grades will revert back to their reserve mean in time. They cannot take their high-grading up another notch as the deposits are large, highly diseminated porphyrys. There are no “rich veins” to mine vs. other locations in the mine that are any richer than what they are high-grading.
Escondida, while beyond the 2017 “strike-action” reduced output, will see grades fall -15% per BHP out to FY2022. Furthermore, it will lose the sulfide leach circuit feed, as this material is re-routed to the newly refurbished Los Colorados or OGP1 concentrators for a doubling of recovery rates. They don’t have the capacity to mine, and move lower-grade ROM sulfide material to feed the former sulfide leach operation. The decrease in that processing line’s output is evident in quarterly reporting by BHP. Two steps forward, one step back, and oh yeah, -15% falling grades on all of it. Even BHP is telegraphing 1,150k mt next year, down from an expected 1,250k to 1,280k mt. There is a reason for that……
Ongoing ramp-ups at Sierra Gorda and Caserones, are inconsequential. KGHM will not be doing Sierra Gorda Phase II, as that was killed by partner Sumitomo in April 2017, much to the relief of KGHM’s Polish management I suspect given that project has been a bloody disaster since start-up. In 2016, both KGHM and Sumotomo wrote off almost 100% of their combined investment in Sierra Gorda, so if that doesn’t spell D-I-S-A-S-T-E-R, I don’t know what does.
New mining projects at Spence (Sulfide) won’t be online until 2022, at the earliest. This project replaces the existing Spence oxide operation. Two steps forward, one back, please spend $3bb or BHP takes a stiff kick on the shins.
New mining project at Quebrada Blanca won’t be online until 2024, at the earliest, if Teck can find a partner willing to kick in at least $2.5bb. They’ll find a partner, but the project won’t break ground until late 2019. Meanwhile, the existing operation at Quebrada Blanca is shut down (for lack of oxide ore) mid-2019 per Teck. Scratch another 30k mt output from Chile.
Proposed sulfide conversion of slowly dying El Abra is about seven years away. FCX isn’t permitted, has to negotiate with Codelco on parterning on the R/T Sulphide II water pipeline, and has to get El Abra Sulfides thru Chilean permitting before they can built a mill and process sulfide ore. Maybe they break ground in 2024, with a construction completion target of 2028. Maybe FCX won’t choke on the $5-$8bb price tag. Right now, I’m sure they are, esp. in lieu of the fact they have headaches at Grasberg that redefine the defination of ‘headaches’.
All new Chilean mines have to source water from the sea, using either salt water in floatation, or desalinate that water first. New law. Regardless, pipelines must be built. Takes time and money, and permits, and more money, and time.
Which leads me to R/T Sulphides II, which won’t break ground until 2024 as a scalable 100k tpd mill, as Codelco is tapped out with getting Chuqui UG, El Teniente Level 7 (start up in 2023), and Andina ore transport upgrades completed. R/T II is a replacement operation, as R/T oxide operation dies (exhausts oxide ore supply worth a bucket of spit) well before 2024.
Meanwhile, those grades keep on a fallin’……………..across the board.
Fitch is dreaming. Like Goldman Sachs was dreaming two years ago (‘Tidal Waves of Copper’).
There is less growth in Chilean copper output than meets the eye. It’s a mirage in the hot Atacama desert.
Only Africa (DRC + Zambia) can grow copper output rather painlessly, and only if their respective gov’ts quit chasing off miners with various kleptokrat harrassment. Grades in the Copperbelt are wicked.
In 5-7 yrs., Peru’s output will take another jump as the following projects are complete, in order of nearest start-up date:
-Toquepala expansion (2018 – firm): +100k mt per annum
-Toromocho expansion (2019-2020): +55k mt per annum
-Quellaveco build (2023 est.): +250k mt per annum first five years, under optimum construct. circumstances)
-Michiquillay build (2024 est. +225k mt per annum first five years, under optimum construct. circumstances)
-Tia Maria (project not permitted, and may never get across that ‘finish line’): SCCO contemplating writing investment-to-date, off by YE 2018.
Los Bambas, completed in early 2016, peaked output in 2017, and is already on the back side of its declining production profile for the next 30+ years.
Regardless, in the next decade, a little more copper will come out of Peru.
But Chile has real problems.
MINING.com Editors
Interesting points. Thanks for sharing them here.
Pat Woods
Thank you for fixing C
Good article by the way.
While I disagree with Fitch, these articles keep me coming back to Mining.com.
Thanks.