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Chile Sees Unrest In Its Gold And Copper Sectors

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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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No.1 Copper Mining Nation Still Churning Out A Profit

The government of world-leading copper nation Chile did something this week it’s never done before.

It published data on copper production costs for nearly its entire mining industry.

The government was quoted in local press Monday announcing the first-ever report from its newly-formed “Observatorio de Costos” or costs observatory on copper mining.

Mining minister Aurora Williams noted that the observatory gathers data on production costs for 19 mining operations across Chile, representing 91% of the country’s total copper output — and makes cost data for these major operations public for the first time ever. Related: Are Solar Panels Lifespans As Long As Industry Claims?

So what did the numbers show?

A surprising cushion of profitability.

The maiden costs report identified an average cash cost of $1.625 per pound copper produced for Chile’s mining sector during the second quarter of 2015, to June 30. With this amount said to be down from an average $1.655/lb during the same period of 2014. Related: Competition Within OPEC Set To Intensify Amid Low Oil Prices

The government said miners were benefiting from lower fuel and energy costs, which saved 4.9 cents per pound during Q2. Also lower rates for salaries and contractors, which cut 4.6 cents per pound from costs.

Such figures are at odds with reports from Chile’s mining sector last month that the industry is nearly unprofitable at prevailing copper prices. With the government’s numbers suggesting the majority of copper production should still be making money with copper over $2.

The cost figures of course don’t take into account higher-level costs like sustaining and expansion capital for mining operations. But these are the sorts of expenses largely getting reduced or deferred completely across the global mining sector amid the current downturn. Related: America’s Top Shale Gas Basin in Decline

Chile’s government did point out there’s a considerable lag in the data — with the above cost figures being from six months ago. But with crude prices having fallen nearly 40% since the end of June, it’s unlikely mining cash costs have risen substantially to now.

We’ll see what the next report (for Q3 2015) shows. Going forward, this new data set will be a critical one to watch for the global mining investment sector.

Here’s to penny-wise, pound-wise

By Dave Forest

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