Harris Gomez Group: Copper Project Pipeline Update Part 2
In the first part of our series we covered the copper project pipeline in Mexico, Brazil, Ecuador, Argentina. This week we will focus on Chile and Peru. Two countries with robust project pipelines.
A reawakening of Chile’s mining investment pipeline recently led Cochilco to increase its 2027 copper output forecast from 5.87Mt to 6.22Mt, with a further rise to 6.33Mt expected in 2028. That means an absolute increase of 480,000t, or 8%, from 2018 to 2027. But if all the projects in Cochilco’s latest forecast are carried out, they would add 3.5Mt. The difference would be lost to falling grades and depletion. Chile continues to host the world’s largest copper reserves at 170Mt, about 30% of the total, according to USGS.
In August, Cochilco launched its new investment forecast of US$65.7 billion in 44 new mining projects in the 2018-27 period, with 89.9% of this portfolio directed to- ward copper which has 32 projects worth just over US$59 billion.
Three new copper projects were added to the outlook: Collahuasi’s complementary facilities (US$302 million), Antofagasta Minerals’ operational continuity of its Zaldívarmine (US$100 million) and Nueva Unión phases I and II (US$3.5 billion and US$3.7 billion, respectively).
Recently or soon-to-be-approved copper projects in the portfolio include Teck Resources’ US$4.7bn Quebrada Blanca, Los Pelambres’ Incremental Expansion, Mantos Copper’s US$832mn Mantoverde Development, and BHP’s US$3.3bn Spence Growth Option.
Mining companies are approaching projects more cautiously than in the past, prioritizing optimization and rationalization over speed and volume. In Chile, in particular, the huge copper reserves are a blessing but there are specific challenges associated with the aging of its massive mines, such as ore grade decline, harder ore, impurities, depletion, growing tailings production, and water scarcity. Miners will continue therefore to focus on productivity and innovation. But it is an unavoidable fact that aging mines require investments of billions just to maintain production.
Over the last decade, Peru has been among the most important Latin American destinations for mining investment. The mines and energy ministry (MEM) is calling the period between 2008 and 2017 the decade of investment in mega projects with a total of US$51.8 billion invested in the mining industry.
Thanks to this, copper production doubled in just a few years, reaching output of 2.45Mt in 2017. This compares to production of just 1.27Mt in 2008. Peru’s mining exports, which account for over 60% of the country’s export revenue, rose 24.7% to a record US$27.2 billion in 2017, led by copper (US$13.8 billion). The country also has 13% of the world’s copper reserves (81Mt), according to USGS.
Peru’s biggest copper producers in 2017 were Cerro Verde with 501,815t, Las Bambas (452,950t), Antamina (439,248t) and Southern Copper (306,153t).
A new wave of investments is forecast to increase the production of the red metal in Peru by another 18% by 2022, according to MEM. Copper projects worth around US$9.7 billion are either under construction or due to start up this year, including four large projects: US$1.2 billion in the Toquepala expansion due for completion this year (Southern Copper – SCC), as well as US$5.3 billion at Quellaveco (Anglo American), US$1.6 billion in Mina Justa (Minsur) and US$1.4 billion in the expansion of Toromocho (Chinalco), all three of which are fully permitted. Two smaller polymetallic projects will also contribute to copper production: the US$116 million Pachapaqui(ICM Perú) expansion and the US$120 million Ariana (Southern Peaks Mining).
From 2019, Peru has another 21 copper projects in its near-term mining investment portfolio, of which four have their EIS approved. A number of early-stage midsize copper projects are in line for development in the next few years, according to the ministry, although none has investment approval to date, including Zafranal, Pukaqaqa, Rondoni, Cañariaco and Cotabambas.
Southern Copper has two large projects in its Peru pipeline. The US$1.4 billion Tía María copper mine would add 120,000t/year to output but the project was halted by environmental protests in 2011. SCC CFO Raúl Jacob said earlier this year that the company is hoping to obtain a construction license this year to start work in 2019, following investments in infrastructure and water in the local community.
Peru also has 54 active mining exploration projects, equivalent to US$307 million in new projects to be developed in 2018. Of the total, 29 projects are green eld and 25 brown eld. Copper has the most interest with a 68.6% share of the projects and planned investment of just over US$40 million.
Latin America’s importance in the future of copper production is evidenced by its share of upcoming projects. Despite a trend of lower grades and depletion at existing mines, Latin America is still set to contribute more new capacity than any other region in the years ahead.
Many miners are still waiting for the security of higher long-term copper prices before investing in new capacity as their continued focus on returns and wariness of cost inflation and price weakness has led to more stringent metrics in evaluating projects.
The looming deficit coupled with growing demand are strong fundamental indicators for the copper market. The future looks bright for Latin American copper producers.
Information provided by BNAmericas.
Harris Gomez Group is a Common Law firm, with offices in Santiago, Bogotá, and Sydney. Over the last 18 years, we have been supporting foreign companies with their growth in Latin America. Many of our clients are technology companies, service providers and engineering companies that focus on the mining, energy and infrastructure markets.
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