Mining investment in Chile and Peru, the world's two largest copper producers, is expected to pick up this year as global financial turbulence eases and metals prices start to climb.
Investment dropped dramatically after commodity prices plummeted on the economic crisis in the last year. Several large mining projects planned for Chile and Peru -- major producers of copper, zinc, silver, and gold -- were delayed or canceled.
But after months of uncertainty, some analysts are betting the world economy will start to improve soon, lifting metals prices along with it.
Prices for copper are currently hovering between $1.50 and $1.80 per lb, less than half what they were in July, but they are expected to end this year near $2.
With prices above $2, the industry perception is that we will be able to justify sustainable development. And with this, I'd say there are very few projects that are not viable, said Juan Carlos Guajardo, executive director at industry think-tank CESCO.
Prices and the fundamentals behind them will dominate debate at the annual CRU/CESCO conference in Chile next week, which will bring hundreds of market players and executives to the capital Santiago.
A long-term price recovery depends in large part on China, the world's largest consumer of the red metal.
If demand from the Asian giant continues to rise, and the crisis in the United States weakens, Guajardo said it would be possible to see price increases as early as mid-2009.
But he cautioned a recovery will only happen if there is a sense of the economy being under control. Something which hasn't happened yet, he said.
CHILE: A MIXED INVESTMENT BAG
In Chile, the world's top copper producer, the $50 billion mining investment forecast for the next 10 years has fallen 38 percent since last year.
Of that amount, some $37 billion was set to go to the copper sector, which has seen $10 billion worth of projects either postponed or canceled.
If we look at the situation from another point of view, three quarters of the projects projected for the end of last year went ahead, said Guajardo.
Other companies that have canceled or delayed investments in Chile because of financial troubles are: BHP Billiton (BHP.AX: Quote), the world's largest diversified miner, Antofagasta Plc (ANTO.L: Quote), which shut its small Lince mine, and Anglo American (AAL.L: Quote), which delayed its Los Bronces expansion project for eight months.
PERU: CONTINUED OPTIMISM
In Peru, which is the world's top producer of silver, No. 2 in copper and zinc and often ranks fifth in gold, optimism runs high despite the crisis.
Investment in Peru's mining sector is expected to hit $2.78 billion this year, nearly double the 2008 total, according to estimates from the mining ministry. Spending in 2010 is forecast to reach $4.25 billion.
Two of the largest projects moving ahead are Toromocho, the massive copper development of Chinalco (601600.SS: Quote), and Galeno, controlled by Minmetals. Both firms are from China, which is working to control more of the metals it consumes.
There are also new projects, said Hans Flury, president of Peru's National Society for Mining, Petroleum and Energy, an industry group.
Given the circumstances, these may advance a lot, or not much -- quickly or slowly. We hope they advance a lot and at an adequate pace, he said. (Additional reporting by Pav Jordan) (Writing by Dana Ford; Editing by Pav Jordan)
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