Chile's mining industry, and in turn its economy, is dominated by copper. But following a period of fast production growth as large new mines entered production - 9.2% annually in 1990-2004 - a changing market landscape and increasing domestic and geological difficulties conspired to put the brakes on growth.
In 2005-16, Chile's copper production grew at just 0.21% per annum despite capital investment of around US$48bn, 20% more than spent in the 1990-2004 period, according to figures from state copper commission Cochilco. The situation owes in part to the need to invest in continuity projects and also to major cost inflation during the price super cycle.
Mining companies in Chile and across the industry have made significant progress in improving margins through productivity enhancements and in reducing debt, but this only takes care of the super cycle bad habits that were largely self-inflicted to begin with.
The underlying struggles in Chile's large-scale mining industry are twofold. First, miners must face growing scrutiny of projects and the legal uncertainty that has resulted - particularly in the face of recent labor reform and upcoming water reform, environmental evaluation reform and presidential elections. Second are the sinking ore grades and more complex ore that are pushing up operating costs and requiring bigger investments and plants just to maintain production levels, let alone grow.
The opportunity is in Chile's large copper reserves, the world's biggest. And make no mistake: the above challenges are just that, challenges. The world's biggest copper mining companies will continue to do what it takes to make the most of their existing assets, and many greenfield deposits continue to advance at the hands of juniors and majors alike, meaning investment will continue. The timing, however, will depend greatly on metal prices.
Chile also has significant growth opportunities in its large scale gold-copper deposits, where yellow metal-focused firms are leading the charge, and in its vast lithium reserves, though legal changes will likely be necessary to fully tap the potential.
(Cover photo: Inside the El Teniente plant. Credit: Codelco)