Despite strong copper prices, growing investment demands are offsetting much of the gains posted by mining companies in Chile, Moody’s said in a report on Thursday.
Chile, the world’s largest producer of the red metal, is undergoing an investment cycle focused largely on maintaining production levels and replacing depleted reserves as large deposits age.
Moody’s said that the current investment cycle in the industry favors reserve replacement and strengthens long-term competitiveness, although it requires substantial financing at a time of rising costs and operational risks.
“High copper prices support profits, but capital expenditures absorb much of that profit and leave high-cost producers exposed to a price correction,” the report said.
Copper prices are up 9% so far this quarter on the London Metal Exchange.
Moody’s said that projects linked to desalination plants and complementary infrastructure have helped to resolve relevant operational constraints, especially those related to access to water in the north of the country.
However, the industry continues to face pressures stemming from declining ore grades and increased operational complexity, factors that have raised production costs along with the rising cost of labor, energy, and other inputs.
The report noted how recent tax and permitting system reforms could gradually support the development of new projects.
Chile’s state-owned Codelco operates in the country alongside global players such as BHP (ASX: BHP), Glencore (LON: GLEN) and Anglo American (LON: AAL).
(Reporting by Fabian Cambero, writing by Paolo Laudani. Editing by Lucinda Elliott)
