Mining continues to rise in costs and increases gap with competitors
Peru is gaining strength as a competitor country, since their costs are about 30% more competitive than in Chile. In fact, in 2018 it will strongly increase its production, ranking as the second largest supplier.
The upward trend in domestic mining costs, has not been stopped completely as graphic a recent international report on this industry in Latin America, prepared by Scotiabank GBM. In its latest estimated C1 cash cost for the second quarter-on production costs, including wages, materials, energy, outsourced services, refining and sale costs and byproduct credits-, the whole mining group of the country increased by 12% this indicator, from U.S. $ 1.68 per pound of copper in the third quarter of last year, to $ 1.88.
This level is higher than that generally have the copper sites in the world, estimated will be located at $ 1.73 per pound for the second quarter. But leave the national operations faraway from average in Peru, which is U.S. $ 1.27, according to the document.
Anyway, the neighboring country has not been free of this upward trend. Between the two periods analyzed by the investment bank, its cash cost increased 23%, while worldwide was only 7%.
Operations
As the report states, using data from international consultancy Wood Mackenzie, the increase recorded in national mining affected the overall curve of this indicator. The negative is that the sites operating in the country have been moving towards the top of it (see graphs), contrary to where they are located Peruvian or Mexican mining companies who were part of the study.
In fact, the report highlights the case of Los Pelambres, which increased from U.S. $ 1.21 per pound to $ 1.37; El Teniente, from $ 1.16 to $ 1.40 ; Los Bronces of U.S. $ 1.41 to U.S. $ 1.62, and Escondida, $ 1.55 to $ 1.86 per pound of copper.
With these indicators change is observed in the trend that was in the competitiveness of domestic mining companies since 2007, when the average production cost in the country was at U.S. $ 0.64 per pound, 18% below the world.
In fact, since last year that several mining companies, such as Codelco, and Collahuasi, to name a few-implemented goals to stop and reverse the increases to catch up, which is not easy considering that the country has one of the highest energy costs in the continent.
When looking at the competitiveness of production, it states that Peru has 91% of its copper in the first quartile cost (cheap), while Chile has no mineral in that range. The country is divided in the second quartile (39%), third (33%) and fourth (27%).
Changes in the ranking
As production levels, the most significant changes will have Peru and Mexico. This is because the Inca country should increase by more than one million tons to 2018, totaling 2.4 million tons of copper produced. This would place it above China, which in 2013 ranked second in production with 1.7 million tons and which in the coming years should be maintained at that level, with a slight increase.
This will be by the entry of five major projects as Toromocho, Las Bambas, Constancia and extensions of Cerro Verde and Toquepala. And it could be more if they decide to build projects like Tía María, who was not considered for the report’s projections. Thus, Peru is approaching to Chile, though the distance will remain considerable.
Mexico, meanwhile, will take a major leap in the ranking, although it is on a smaller scale. According to the report, last year produced 453,000 tons of copper and should reach 899,000 by 2018.
In that year, Chile should be similar to last year’s production. This is because the increase to be recorded in the coming months, should start to decline from 2016. It is expected to peak in 2015, when the country produced 6.2 million tons of red mineral.
The report says that without the necessary investments, Codelco could experience a decline in production in the coming years.
Source: Diario Financiero
