Chile: World Class Copper Jurisdiction

- March 6th, 2018

Mining is one of Chile’s largest industries, with copper exploration and production at the forefront of Chile’s mining industry.

In a country like Chile, where lithium and copper resources abound, it is no surprise that mining is one of the largest industries. In fact, mining, manufacturing and oil and gas make up 35 percent of the country’s GDP. Within that, it is copper production and exploration that sits at the forefront of the country’s mining industry.

If one were to ask where the homestead of copper production is located, all fingers would point to Chile. The top copper producer in the world, the country hosts many notable copper miners, including Antofagasta Minerals (LSE:ANTO) and BHP Billiton (ASX:BHP,NYSE:BHP,LSE:BLT), and there has been significant exploration and production in the region for decades.

Chile’s copper production is mostly based in the northern region of the country, and comes primarily from porphyry copper deposits that are rich in molybdenum, gold and silver by-products. In 2016, despite strikes and protests at key mines, as well as disruptive weather, Chile was still able to produce 5.5 million tonnes of copper. Meanwhile, in 2017, the country saw production levels of 5.3 million tonnes, indicating the consistency of the country’s resource.

In the midst of rising copper prices and predictions of an upcoming deficit in the market, Chile is still considered a primary target for exploration, and the country expects $65 million in mining-related investment over the course of the next decade, with 90 percent of that dedicated to copper projects. Several new projects will be exploration initiatives conducted by junior companies like Chilean Metals (TSXV:CMX,OTCQB:CMETF,SSE:CMX,MILA:CMX,FWB:IVV1,BER:IVV1).

“We believe that for copper, Chile is the number-one spot on the planet to explore and develop a copper mine,” says Chilean Metals Chairman Terry Lynch. “The country has a historical track record of being the best spot to explore copper in the world.”

Chile is the most favorable jurisdiction in South America. It has a long history of strong mining laws and is mining friendly, especially to foreign companies. It is the best area to explore for IOCG copper-gold deposits, says Patrick J. Cruickshank, MBA, who is president and CEO of Chilean Metals. You just have to look at the Atacama Desert IOCG Belt.

The current state of the copper market

Following the steady fall of copper prices between 2012 and 2016, the end of 2016 saw a resurgence, bringing the price up to approximately $3.25 per pound by February, 2018. This shift has been associated with a number of different catalysts, particularly significant growth in demand.

One factor associated with the rise in prices is increased demand from China. Despite being the second-largest producer of copper, China has a smaller resource than Chile, and its ever-developing infrastructure means that it still needs to import copper from other jurisdictions. To that effect, China makes up 40 percent of the world’s copper demand.

Another source of rising demand was linked to US President Donald Trump’s election win, as he came into the presidency with the promise of multiple infrastructure projects within the US that would require more copper. That also had an impact on copper prices, which started climbing significantly in November 2016, the month of the election.

The third — and perhaps the most impacting — of the factors is rising demand stemming from the production of electric vehicles. With environmental concerns playing a larger role in global policy, there are several countries looking to ban fossil fuel cars in the relatively near future. This shift would affect personal vehicles on the one hand, but would also transform entire transport infrastructures as fleets become electric. Some reports predict that there will be 140 million electric vehicles by 2035, representing a significant portion of the global automobile industry.

This noted increase in demand is fuelling concerns and predictions around a possible deficit in the copper market within the next few years. David Lilley, co-founder of RK Capital Management and one of the world’s top copper investors, believes the market is headed for a shortfall this year; he is also calling for a significant copper deficit in 2020. As questions are raised regarding how the copper market will be sustained, companies are looking to Chile for its exploration potential and mining-friendly environment.

Benefits of working in Chile

Chile’s popularity as a sophisticated mining region is tied to a number of factors that make it a positive and profitable environment for mining companies. On the resource side alone, Chile boasts large, high-quality copper reserves that are located in regions of the country supported by energy infrastructure, transportation networks and several goods and services providers. The country is also rich in skilled labor and is home to a number of mining specialists with deep knowledge of the industry.

Regulated by both domestic and international bodies, Chile prides itself in having a long history of stable legal frameworks that support both the government and the resource companies, protecting miners from any instances of corruption and questionable transactions that might disrupt projects in other jurisdictions.

“The whole country has a deep mining tradition,” says Lynch. “Miners are perceived as good corporate citizens, not as environmental destroyers. Chile has environmental protections with teeth, but they don’t see us as the enemy where many jurisdictions do.”

Overall, Chile is a mining-friendly jurisdiction that has put a lot of effort into developing the industry and maintaining a high standard for copper production globally.

What’s next for mining in Chile?

As the copper market faces a looming deficit within the next five years, there is an opportunity for junior explorers to determine new sources of copper that might support the market while the larger players work on unearthing their resources. Due to its abundant copper resources, Chile is still considered a primary location in which to conduct this exploration, and this is proven by the anticipated $65 million to be invested in the mining space over the next 10 years.

Even with the country’s long mining history, Lynch believes that further discoveries will emerge in Chile with the use of more modern subsurface exploration techniques, spurring further production in some of the already established mining jurisdictions in the country. “Just as in Canada we have seen a resurgence in old mining towns like Timmins and Val-d’Or because of new geophysics approaches that allowed mining companies to see beneath bogs and marshes, we believe the same will happen in Chile beneath the sand,” adds Lynch. 

Additionally, there are further discovery opportunities that might be identified as large databases are processed and analyzed. As data analysis programs become more sophisticated, 3D resource modeling will help miners further understand the potential of their discoveries.

Finally, says Lynch, the Chilean government has recently begun to reevaluate the potential value of its land holdings and is discovering that it has a surplus of land that needs exploring. “I believe we will see some interesting land packages become available for exploration to third parties and that this will also benefit exploration and development in Chile.”

This article was written according to INN editorial standards to educate investors.

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