Will a dry spell in Chile curb a global oversupply of copper?

Chile’s dry spell to weigh on global copper oversupplyA raging seven-year drought affecting copper-rich Chile is making miners grow anxious as the dry spell is now affecting the supply of power necessary to sustain their operations, responsible for around a third of global copper output.

Companies such as BHP Billiton (ASX:BHP) and Anglo American (LON:AAL) have recently highlighted the impact of the country’s extreme conditions in their latest financial reports.

Output at BHP's Escondida, the world's largest copper mine, dropped 2% percent in the second half of 2014. Water scarcity at Anglos’ Los Bronces — the world's sixth-largest copper operation— may cost the company as much as 30,000 tonnes of lost production, equivalent to 4% of Anglo's overall copper output this year, Reuters reports.

To make things worse, a recent study by Chile’s copper commission Cochilco shows that the country’s mining industry will nearly double its electricity consumption between now and 2025, as multibillion-dollar investments come to fruition.

Electricity costs in Latin America’s wealthiest economy have climbed 11% per year in the last decade, making it one of the most expensive places in the world to secure energy for mining projects. In fact, Chile’s mines pay twice as much for their energy as their peers in neighbouring Peru. Fuel can account for up to a fifth of a mine’s operational costs.