New Market Research Report: Chile Mining Report Q3 2013

We forecast Chile's mining sector will grow in 2013, albeit at a more moderate pace than in previous years. Major miners will continue to develop several large projects, though rising costs and economic uncertainty will lead to more conservative expansion and acquisition plans. We forecast Chile's mining sector will expand by 1.3% in 2013. But because of weakening commodity prices, we forecast that Chile's mining industry will see average annual growth of 1.5% from 2013 to 2017.

. The Chilean mining sector will continue to rely on copper production for the foreseeable future. The 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 coming years, as well as slower Chinese fixed asset investment growth, will weigh on prices. Given our forecast that copper prices will be lower in 2013 and 2014, averaging US$7,300/tonne and US$7,000/tonne, respectively, we believe the Chilean economy will be heavily affected. 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. We forecast Chile's gold output will grow by an annual average rate of 3.0%, reaching 1.81moz (mn ounces) by 2017. Gold's share of Chile's mining exports in US dollar terms rose from 1.4% in 2007 to 3.5% in 2012. Though we recently downgraded our gold price forecasts, we believe prices will remain at elevated historical levels due to slow growth in the US, worries over the Chinese economy and continued eurozone troubles. Major companies, including Barrick Gold and Goldcorp, are developing large gold projects, although rising costs have seen several mines delayed. Barrick Gold, Codelco and Antofagasta have all reported rising labour, energy and water costs forcing the companies to increase preproduction expenditure estimates on mine projects.

Key Players

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 specialise 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 in 2013.

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