Chile's state copper producer Codelco is slashing spending by $6 billion over the next five years in the wake of a steep fall in the price of copper, significantly reducing its targeted output, Chief Executive Nelson Pizarro said on Tuesday.

The world no.1 copper miner has previously said it would trim some $4 billion of budgeted spending from its key investment plan.

Added to other cost cuts, that implied around $6 billion spending cuts over the next five years - meaning a loss of 13 percent of planned output over the next 25 years, said Pizarro at the annual Cesco/CRU copper conference in capital Santiago.

Cooling demand in key buyer China has driven the copper price to over a six-year low in recent months, leading miners globally to reduce production, freeze operations and lay off workers. The cumulative effect of those cuts would likely lead the market to a deficit from 2018, said Pizarro.

Although the price slide had hit some small mining operations in Chile, the larger outfits could easily survive at the current market level, said Diego Hernandez, chief executive of London-listed copper miner Antofagasta, on the sidelines of the conference.

"There are no signs that the price will change this year...and we have to adapt ourselves to this reality," he said. Antofagasta had cash positive operations and "most large mining operations in Chile can resist current prices," he said.

But for Codelco, the copper price fall has come just as it was seeking to implement an ambitious investment plan to open new mine projects and revamp older ones.

Its spending cuts would mean 70,000 fewer tonnes of refined copper between 2015 and 2019, rising to 600,000 tonnes less in the next five years, Pizarro said.

Over 25 years, that would add up to 4 million tonnes, about 13 percent of the 44 million tonnes it had planned. Last year Chile overall produced around 5.76 million tonnes of copper.

Codelco returns its profits to the state and is funded by a combination of government financing and debt issuance. Pizarro said that 2016 was already financed and no more funds were needed, but that there remained a gap for 2017.

"Next year we have an investment plan of around $3 billion and probably we will need an additional loan injection," he said. When asked if the shortfall would be made up with a debt issue, he replied "yes"

http://www.reuters.com/article/chile-copper-codelco-idUSL2N1780L2

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The latest edition of the closely followed GFMS Annual Copper Survey forecasts primary production to continue to grow over next three years, albeit at a slower pace than in the recent past, as miners deliver on investments made during the boom years.

World mine production was up 3.5% or 652,000 tonnes in 2015 to just over 19 million tonnes, compared with a 2.1% increase in 2014, but down substantially from 2013's 8.2% clip. Peru led the pack with a 28% rise in production which saw it surpass the US in the global rankings to take third place behind Chile and China.

Given the well-publicized trend of falling grades and increasinglycontaminated concentrate at the world's biggest mines it's interesting to note that a full 722,000 tonnes of increased production came from higher yields, more than the additional supply from expansions, new mines and restarts combined.

According the Thomson Reuters GFMS study copper miners had a hard time driving costs down amid the falling price environment. Net cash costs for full year 2015 stood at an estimated $3,586 a tonne ($1.62 per pound), a modest 4% or $160 tonne decline year-on-year. However, total costs (a better proxy for sustaining production levels at mines) for the sector at $4,626 a tonne ($2.10 per pound) were only lower by a paltry 2% from levels in 2014.

The cost of mine closures, including labour retrenchments, environmental liabilities, and the possible souring of relationships with governments, all offer resistance to companies in taking the ultimate decision

While costs proved difficult to curb revenues declined steeply with the average copper price achieved in 2015 at $5,503 or $2.50 a pound. Average total costs at the world's copper mines are also painfully close to the ruling price which on Tuesday was $2.14 or $4,718 a tonne.

Despite these pressures, GFMS calculates that only 200,000 tonnes of production were cut back on an annualized basis last year with the bulk coming from Glencore suspensions of production the Katanga mine in the DRC and Mopani operations in Zambia. (GFMS also points out that these mines are due to come back on line next year following expansions and upgrades).

GFMS says one explanation for the muted impact of paper thin margins is that it was only in the third quarter of last year that the average copper price dipped below the 90th percentile.

The study points to further closures in coming years but the authors warn that "the scale of any new mine closures should not be overstated":

First, disinflationary pressures from a weak crude price, weak inflation expectations and a strong dollar could potentially shift the cost curve lower in the next three years. Furthermore, the cost of mine closures, including labour retrenchments, environmental liabilities, and the possible souring of relationships with governments, all offer resistance to companies in taking the ultimate decision of shutting a mine.

Source: Thomson Reuters GFMS

Primary supply growth will filter through to higher refined output, which was estimated to grow by an average of 2.1% in the next three years. With an estimated 400 000 t/y of copper smelting capacity ramped up towards the end of last year, GFMS expected a further addition of smelting capacity to enter the markets this year.

The copper world remains all about China, with the country's forecast global share to increase to 46% in 2018, a touch higher than 45.5% in 2015 according to the authors. China’s copper consumption growth however, was expected to slow down to an average of 3.2% per year.

"Even so, there is no doubting that the current low price environment is sowing the seeds for the next boom as projects are shelved, delayed, sold or abandoned completely"

Moderating demand growth and the robust supply picture will see surpluses through the end of the decade according to the study. Following last year's 363,000 tonnes surplus – the largest in several years – for 2016, GFMS expects the copper market to experiences a surplus of at least 150 000 tonnes, with the same again expected for 2017, as improving demand growth offset rising mine and refined production.

Given the unbalanced picture GFMS predicts the copper price would suffer its fifth year of declines in 2016.  The authors forecast prices to improve from 2017 onwards as the global economy picks up some momentum, to gain by 5% year-on-year to reach $5,100 a tonne ($2.31 per pound). Coupled with shrinking surpluses, GFMS expects prices to see a much stronger upswing of 12.5% in 2018 to reach $5,738 a tonne ($2.44).  In real terms (2015 prices) however, GFMS expects the price to remain below $5,000 a tonne in 2016, and will only see a positive turn by 2018 according to the study.

“Bearing in mind demand growth consistently below 3% compared with circa 4% as recently as 2014, the transition to a sustained deficit market will now extend beyond our three-year forecast horizon to around the turn of the decade. “Even so, there is no doubting that the current low price environment is sowing the seeds for the next boom as projects are shelved, delayed, sold or abandoned completely.

http://www.mining.com/copper-miners-game-of-chicken-continues/

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Dealers of used mining equipment, from the United States to Chile and Australia, are making a risky bet that an end to the industry's four-year slump may be in sight, stocking up on a glut of crushers and conveyors.

Inventory is piling up as mines close or production slows. Buyers are especially scarce for highly specialized mineral-processing equipment, dealers say.

"We're being flooded with machinery," said Eduardo Bennett, business manager for Chilean used equipment seller Copal.

The equipment glut is depressing prices as much as 20 percent, Bennett said.

A used 20-ton Komatsu Ltd bulldozer that sold for nearly $130,000 a few years back, now leaves the lot for $100,000, for example.

Executives from across the global copper industry are meeting in Chilean capital Santiago this week for the annual Cesco/CRU conference, where concerns about China's slowing growth and subdued global metal demand are prevalent.

But some veterans of the used equipment industry, who have survived decades of commodity booms and busts, note that such deep pessimism tends to mark the bottom of the cycle. They expect the closing of high-cost mines and cuts to exploration budgets to tighten supply and reverse falling metals prices.

Used mining machinery dealers tend to be small and privately held, and some also deal equipment for construction and agriculture. Much of the equipment goes straight to auction, where it is sold to the highest bidder by companies including Ritchie Bros Auctioneers Inc and Iron Planet.

At half a dozen abandoned mines and several warehouses, California-based Machinery & Equipment Company Inc, established in 1938, owns more mining equipment than at any time in the last seven years.

While the company's results are private, the last such boom generated record sales for the company in 2007-09, said president Mike Ebert, who predicted another rebound may only be a year away.

"I wish we had unlimited capital to invest in this equipment - everything we did have in stock (those years) was sold at full price," Ebert said. "It is starting to feel better out there with an increase in inquiries."

Evans Equipment, a Missouri-based reseller of Caterpillar Inc equipment, is carrying twice its normal inventory.

Co-owner Bryce Evans, who is banking on a mining rebound in 2018, said the fact that many struggling miners have delayed replacing equipment as commodity prices fell will also help.

"There is pent-up demand worldwide," he said.

BAD TIMING FOR MANUFACTURERS

For now though, the glut of used mining machinery, an approximately $23 billion sector according to Ritchie Bros Auctioneers, has made for bargain shopping.

While cheaply bought used equipment offers potential profit for re-sellers, it limits future sales upside for manufacturers like Joy Global Inc and Caterpillar. They are part of a $70 billion to $75 billion global new mining equipment industry, according to S&P Global Market Intelligence.

"Their customers don't have nearly as much money as they used to and so I think customers will be fairly cost-conscious for the next several years," said Morningstar analyst Kwame Webb of the new equipment makers, which have already cut staff and curtailed operations.

Marcello Marchese, chief executive of Finning-CAT's South America unit said Chile's mining industry used to buy 280 to 300 units of large-scale equipment each year.

"Last year there were 90 total sold," he said.

The soft used equipment market is also bad for miners hoping to recover some costs from failed projects. Barrick Gold Corp , which suspended its Pascua-Lama gold and silver project in 2013, is trying to unload equipment originally earmarked for the mine.

Supplies are likely to expand in coming months as some of Australia's biggest projects reach completion, said Frank Lee, general manager of Ross's Auctioneers and Valuers, in Western Australia.

"Exploration and drilling has pretty much dried up, but the big thing has been the wind-down in expansions," Lee said, citing iron ore projects owned by Rio Tinto , BHP Billiton and Fortescue Metals Group .

The longer the mining slump drags on, the more likely that equipment available today will fail to meet future specifications on mine sites, Lee warned.

"Some of this stuff will just be scrapped."

http://www.reuters.com/article/chile-copper-equipment-idUSL2N1750CH

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