Boston, MA -- (SBWIRE) -- 07/16/2012 -- Mining Sector Set For Growth But Risks Looming

We expect the mining sector will recover from the lower production of 2011 (caused by strikes and falling ore grades) as several mining projects begin initial production in 2012. We forecast Chile's mining sector growth to come in at 9.1% year-on-year (y-o-y) in 2012. We have revised our industry growth forecasts due to rising risks which we believe will delay mine projects. We expect the bulk of the industry growth to come in 2014 and 2015 as multiple projects come online around the same time. We forecast average annual growth over our 2012-2016 forecast period to be 6.8% with the mining industry reaching a value of US$46.5bn in 2016.

Chile's mining sector centers around copper production and we expect this to remain the case given the large pipeline of copper projects in the country. Although 2011 output was lower than 2010, BMI expects companies to increase production by 3.0% in 2012. The importance of copper mining to Chile's economy cannot be overstated and we believe increasing global supply over the coming years will weigh on prices as the market loosens. Copper prices remain elevated by historical standards, supporting Chile's external accounts and encouraging mine workers to seek higher wages.

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Gold Sector To Support Growth As Copper Comes Under Pressure

One area of the mining sector that we feel will support growth and attract investment is gold mining. We expect significant growth in Chile's gold sector as slow growth in the US, worries over the Chinese economy and a deteriorating debt crisis in Europe support elevated gold prices. Major companies, including Barrick Gold and Goldcorp, are developing large gold projects, such as Goldcorp's El Morro mine, which is expected to begin construction in September 2012. However, Barrick Gold, Codelco and Antofagasta have all reported rising labour, fuel and material costs forcing the companies to increase pre-production expenditure estimates on mine projects. We forecast Chile's gold output will grow by an annual average rate of 4.7%, reaching 1.97moz (mn ounces) by 2016, with the bulk of the growth occurring between 2013 and 2014.

Regulatory Environment

Chile's excellent business environment will continue to make it an attractive destination for mining investment over our forecast period. The country's long history of mining and large proven mineral resources will attract mining companies both large and small. While mining taxes increased from 4-5% of operating profit to 4-9% in 2011, we believe Chile remains competitive with its regional peers as several other countries have moved to establish similar tax structures. Mining tax reform is either under way or recently approved in Brazil and Peru, where governments are eager to maintain high levels of investment while sharing some of the profits that mining companies are reaping from elevated metals prices.

Key Players

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