Mining costs in Chile 350% higher than a decade ago: report
Once the darling of mining investors venturing in Latin America, world’s top copper producer Chile is becoming one of the most expensive countries to explore and mine.
While less costly than Mexico, the cost of producing a pound of copper went —according to data from the country’s copper commission—from US$0.63 per pound in 2004, which was half of Africa and well below the world average at the time, to US$2.50 last year. It means it now costs about 3.5 times more (350%) to produce a pound of the red metal in Chile, compared to a decade ago, and the figure is also higher than global average of $2.38 per pound registered last year.
The same study shows that only two mining jurisdictions last year were more expensive than Chile: Europe and Asia.
Between 2004 and 2013, production costs in Chile — measured in dollars per year— went up by 295%, representing an annual average of 30%. Measured in dollar value for 2012, cost jumped by 186%. In comparison, global average production cost increase went up by 267%.
The problem of rising costs is not limited to Chile; it is a trend affecting the mining industry worldwide.
However, the South American country is also struggling with high cost of energy, which threatens the competitiveness of the country's copper industry and poses a major challenge for new developments.
Electricity costs in Latin America’s wealthiest economy have climbed 11% per year since 2000, making it one of the most expensive places in the world to secure energy for mining projects.
And while the nation has the world's richest reserves of copper, grades are falling at its massive but aging copper mines, making it difficult to maintain output and putting pressure on costs.
High wages don’t help the situation. Chilean mine workers produce less than half of their North American counterparts, while getting paid more, told Bloomberg in April Peter Beaven, BHP Billiton (ASX:BHP) base metals head in the country.
Chilean mines' production costs could come down, however, if miners scale back planned expansions because of falling copper prices and energy suppliers are forced to offer more competitive prices.