Copper exploration will get riskier

April 17, 2012

The search for copper is likely to become riskier and harder for the world’s leading copper mining companies, this according to Michael Chender, chief executive of Metal Economics Corp. who recently spoke at the CESO exploration forum in Santiago, Chile.

As copper deposits in mining friendly locations grow closer to becoming exhausted the hunt for copper will lead to riskier locations with higher political risk. It will also mean the large companies will have to do more of the work as juniors will become less capable of caring out the work.
Small- and medium-sized mining companies have typically done the work of drilling and discovering new deposits, often in risky countries, and often are later bought out by the larger players who have the financial clout to bring a project into production.

But conditions are ever more challenging with costs rising and junior mining companies facing severe trouble in securing funding for projects.
This is a dramatic about-turn for the industry, which has seen juniors outspend the majors since 2004, Reuters reported.

“We need to take more political risk,” Chender, told the CESCO exploration forum in Santiago, adding that while risk tolerance had recovered after plunging in 2008 and 2009 it had not returned to 2007 levels.

Chile’s state copper giant Codelco, the world’s No.1 producer, said it was interested in getting into exploration in both Mexico and Colombia, as it looks to expand beyond its local stable of world class deposits.

“We decided to start with exploration activities in Brazil, which we have been doing for a while now,” Codelco CEO Diego Hernandez told foreign correspondents. “Now we are beginning exploration in Ecuador, and we would like to be in Colombia too and eventually in Mexico.”

Colombia’s government said it expects to sell exploration rights to its large untapped mineral resources next year as part of its effort to attract foreign investment to develop its gold, coal and silver mining sector.

The Colombian government’s new national mining agency will coordinate the sale of rights to develop the country’s unexplored mineral wealth as it aims to boost its income from mining, which only accounts for 2 percent of the country’s economy.

Some of the biggest names in commodities have already expressed interest in taking part in what the government hopes will turn into an exploration boom, deputy mining minister Henry Medina told Reuters.

Medina said his ministry aims to lure foreign investment by clamping down on illegal mining, tightening up regulation and establishing a formal mining code. However the government will not participate directly in any of the projects, he said.

"We don't want to scare off investors. We want to be as predictable as possible" Medina said.

This is particularly important given the turmoil seen in other Latin American countries in recent years from Peru and Chile, which both made dramatic changes to mining taxes, to Argentina, where the government on Monday unveiled plans to seize control of leading energy company YPF.

Mining only accounts for 2 to 3 percent of Colombia's gross domestic product, which is small compared with oil, which makes up 83 percent of total royalties, according to Claudia Jimenez, who is head of the association created a year ago to promote private investment in large-scale mining projects in Colombia.

The country aims to raise coal output 35 percent to 115 kt/a (126,000 stpy) by 2014 from last year's level of 85 kt (94,000  and gold output by 30 percent to 73 t (80 st) from 56 t (62 st) last year.


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