BMI View: Chile's mining sector will be supported by the country's stable political and business environments, combined with its significant mineral reserves. However, output growth will decline due to aging mines , while subdued copper and precious metal prices will limit sector growth and miners' expansion plans .
Chile's mining sector will be dominated by copper production over our forecast period to 2019. The sector's pipeline of copper projects and the country's global dominance in copper production will ensure the country maintains its lead despite falling ore grades and lagging productivity. In 2014, copper accounted for approximately 92% of mining exports as measured in dollar terms and nearly 55% of the country's total exports. However, the latter represents a decline from 2010, when copper accounted for slightly over 58% of the country's total exports. Moreover, lower oil prices and a weaker Chilean peso on the back of US dollar strength will cap growth in input costs, providing a boon to miners facing subdued metal prices.
Over the long term, the mining industry will be hit by lower copper prices, which we expect to only recover modestly up to 2019. We forecast copper prices to average USD5,775/tonne over 2015-2016, significantly lower than the average USD6830/tonne in 2014.
|Mining Share Of Exports In Decline|
|Chile - Mining Exports As Percent Of Total Exports|
|Source: Central Bank of Chile, BMI|
Further Investment, But Only Modest Sector Growth
State-owned Codelco will remain Chile's largest copper miner as measured in output, and indeed the largest copper miner globally, through 2019. The company recently pushed back its forecast for 2.0mnt of copper output annually to 2025 though, from its earlier target of 2020, due to disagreements with the Chilean government over annual investment levels. While the Chilean government recently agreed to provide USD4bn of financing to 2018, the firm also issued USD980mn worth of 30-year unsecured bonds in Q414 to raise additional funds for investment.
Other large global diversified miners, including Glencore Xstrata, Anglo American, BHP Billiton, and Rio Tinto, are active in the copper space and are either developing new projects or investing heavily in current ones. 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 that is expected to continue ramping up production at one of its flagship mines, and is targeting 2015 production of 710kt. However, its total 2014 copper production came in at approximately 705kt, a decline from 2013 output of 721kt.
|Global Share Of Copper Production To Stagnate|
|Chile - Share & Rank Of Global Mining Output, 2014|
|Source: USGS, BMI|
We expect several precious metals producers to increase the diversity of the mining sector. 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 though, with the largest companies continuing to dominate output and exploration. Much of the country's gold and silver will be produced as by-products in larger copper mines, though various stand-alone projects are also in development. Still, Chile will remain predominately a copper play, as evidenced by the fact that gold and silver exports in 2014 only made up 3.0% of the country's mining exports, and 1.7% of the country's total exports, as measured in dollar value.