Copper miners dig deeper to cover rising costs
Wed Mar 28, 2007 8:42pm ET15
yahoo.reuters.com
By Antonio de la Jara
SANTIAGO, March 28 (Reuters) - Buying a truck should be asimple thing, but in the copper industry it's no mean feat. Delivery can take up to two years -- and even then there are no guarantees it'll have tires when it arrives.
Even worse, the mining monster trucks cost four-times more today than they did three years ago.
"It's very hard to get certain kinds of equipment, such as tires for large trucks. They're almost nonexistent in the world. It's a serious issue," Patricia Mohr, vice president of Scotiabank Group and an expert in commodities, told Reuters by telephone from Toronto.
That message was echoed by copper industry leaders gathered at the 6th annual World Copper Conference (CRU) in Chile's capital, Santiago, this week.
"The costs of lorries have risen enormously. Today, they cost $5 million or $6 million, whereas before they cost something like $1.5 million or $3 million," said Marcelo Awad, executive president of Chilean copper miner Antofagasta Minerals, the main unit of Antofagasta Plc (ANTO.L: Quote, Profile , Research).
"As well as paying that amount, you have to wait between 18 and 24 months for it to be delivered and to cap it all, they send it to you without tires," he added.
Such bottlenecks in the supply of essential machinery are affecting miners as they rush to get new projects on line and meet soaring global demand for metals from booming world economies like China.
"The difficulties related to access to supplies are critical for the mining sector," said Juan Carlos Guajardo, executive director of Santiago-based Center for Copper and Mining Studies (CESCO).
UPSIDE
No mining firm is immune to such problems. Even Chilean state-controlled miner Codelco -- the world's biggest copper producer -- recognizes the issue.
"The delivery times for equipment are longer than they were in the past when the market wasn't so active, and prices are higher," Jose Pablo Arellano, Codelco's executive president told reporters at CRU.
"The main problems are related to the supply of specialized equipment needed to advance large-scale projects," he added.
Mining company chiefs say costs have risen steadily in the industry in recent years, and jumped nearly 19 percent in 2006 from the previous year.
As well as the equipment issue, higher energy prices have added millions of dollars to companies' operating expenses.
"Such significant increases in costs are key to deciding how much money is invested in moving forward on new production or mine expansion," CESCO's Guajardo said.
However, copper mining has its upside.
The strong demand for the red metal has driven prices up to record levels. Copper traded at an average price of $3.05 per pound on the London Metals Exchange in 2006 -- some 83-percent more than in 2005, according to official Chilean figures.
"A lot of the cost increases in the mining industry, including ours, are due to our own prosperity. At the same time as raw materials go up, our costs increase," said Diego Hernandez, president of BHP Billiton's (BLT.L: Quote, Profile , Research)(BHP.AX: Quote, Profile , Research) base metals division.
"We can't complain. We should be concerned about controlling what we call structural costs, increases in costs that won't go down again if the price scenario shifts," he added. (With additional reporting by Manuel Farias and Pav Jordan) |
