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Chile Mining Report Q1 2011
Business Monitor International, Feb 2011, Pages: 70
The Chile Mining Report provides industry professionals and strategists, corporate analysts, mining associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Chile's mining industry.
Despite a number of obstacles in its path, in 2011 BMI expects Chile's mining industry to continue its strong recovery from the global economic downturn and forecasts a 9.34% increase in real growth with the sector reaching a value of US$43.61bn.
A series of challenges - not least a major earthquake and the San José mine disaster - threatened to derail the recovery of Chile's mining sector after the global recession. Instead 2010 provided to be a relatively fruitful year for the industry with many of the country's biggest players posting healthy year-on-year (y-oy) increases in revenues as well as production levels, boosted, in no small part, by a steady rise in global demand for copper and other raw materials.
More than any other power, China has had a major role to play in Chile's mining sector recovery with a host of Western and emerging market players vying to cash in on the People's Republic's long-term growth in demand for copper and other raw materials. Meanwhile, 2011 is also expected to see significant growth in domestic consumption of iron ore as the industry ramps up production to rebuild Chile's infrastructure, much of which was damaged by the earthquake. To date effort has concentrated on running emergency repairs, but as tenders for the major rebuilding are decided, steel production will rise by the end of the year with an increase on 2009 production rates - despite the quake halting production at a major steel plant for three months. Steel producers are expecting demand to peak in 2011 as projects get under way.
BMI expects 2010's strong showing (real growth is estimated at 9.22% y-o-y) to be repeated in 2011 with a real growth y-o-y forecast of 9.34% before growth slows to around 6% per year until 2015 by which time the value of the industry is expected to be upwards of US$80bn. The increases will largely be driven by copper, Chile's most important export. Exports of copper ores and concentrates predicted to increase by 9.14% to US$376.1mn in 2011, continuing the growth trend seen in 2010, though the possibility of a considerably downturn in Chinese economic growth and a subsequent downturn in demand, present a downside risk to our forecast.
While demand is expect to remain resilient, the industry has found itself facing new obstacles, most notably in the form of a fresh wave of industrial action across Chile's mine worker community which followed on from a series of short-lived strikes at Codelco and Collahuasi operations in H110. The most significant incident took place at the Collahuasi copper mine which, joint-owned by Xstrata and Anglo America, is the third largest producer in the world. The incident presents one of the major challenges facing the government of incoming president Sebastian Pinera who hopes to continue to attract foreign direct investment into the mining sector as Chile continues its recovery both from recession and from last year's quake.
The challenged faced by the new President with regard to the mining industry don't end there however. Initial plans for a voluntary increase of mining royalties to raise over US$1bn a year were scotched by the opposition in Congress leaving the industry free of additional costs for the moment but leaving a large hole in plans for raising the required reconstruction revenue. Since then the administration is thought to have reached an agreement with the opposition which will see fixed tax rates on mining operations fall for a period of six years before rising by up to 14%.
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