http://www.businessweek.com/articles/2013-09-05/in-chiles-copper-boom-miners-spread-the-wealth

Commodities

In Chile's Copper Boom, Miners Spread the Wealth


The pay, excluding bonuses, for truck drivers working at the BHP Billiton mine in northern Chile: $80,000

Photograph by BHP Bilton

The pay, excluding bonuses, for truck drivers working at the BHP Billiton mine in northern Chile: $80,000

Since starting work at the Esperanza copper mine in northern Chile two years ago, Erick Moreno has tripled his salary and is preparing to buy his first home. The pay, he says, is so good that he’d never take another job. “I am going to die in this industry; I don’t see myself anywhere else,” he says. While Moreno finished his engineering studies at the University of Antofagasta, he says many fellow students dropped out to work in the copper mines. Most of them already own their homes and drive sports cars.

Spending by miners is spreading through Chile’s economy, fueling a consumer boom and driving unemployment down to 6.2 percent in the second quarter, the lowest rate since 1973. The nation has become the wealthiest in Latin America, according to the International Monetary Fund, with per capita gross domestic product rising to about $16,300 this year from $4,780 10 years ago. The growth of copper mining and shortage of skilled workers mean many miners earn bonuses in excess of $30,000 for signing new contracts every two or three years. Mining giant BHP Billiton (BBL) says truck drivers at its Escondida mine get paid the equivalent of $80,000 a year, excluding bonuses, more than their counterparts in the U.S.

Many workers from poorer cities in southern Chile work for weeks at a time in the mines up north before flying home for a few weeks off. Every day they fill Latam Airlines flights to the Atacama Desert, where state-controlled Codelco, the world’s largest copper company, Poland’s KGHM Polska Miedź (KGHA:GR), and Japan’s Pan Pacific Copper are expanding to meet Asian demand, which has helped quadruple copper prices over the past decade.

“I am going to die in this industry; I don’t see myself anywhere else.” —Miner Erik Moreno, whose salary has tripled in two years

Copper is essential for making power cables and electric wiring, and until recently, China’s appetite had been voracious. Copper prices averaged $7,952 a ton in 2012, since drifting down slightly to $7,245 a ton. As a result, Chile’s mining industry attracted $30 billion in foreign direct investment last year, according to the United Nations. Its economy expanded 5.6 percent last year, and the central bank projects 4 percent to 4.5 percent growth for 2013.

Spending by miners is so high that for each mining job created, three are generated elsewhere, says Mining Minister Hernán de Solminihac. Many of those additional jobs are in retail. Mariano Garcia, chief executive officer of Tais DFS, which sells luxury perfumes, watches, and cosmetics, has opened four stores in the tax-free zone of Iquique, close to mines run by Billiton, Anglo American (AAL:LN), and Glencore Xstrata (GLEN:LN). “Miners buy three to four perfumes when they come in, and they go for high-end brands like Carolina Herrera, Hugo Boss (BOSS:GR), and Paco Rabanne,” Garcia says. Ditec Automoviles, which represents Jaguar, Land Rover, and Volvo in Chile, plans to open its first Porsche (POAHY) showroom in Antofagasta in the heart of mining country within 12 months, says Eduardo Costabal, the company’s CEO. Supermarkets in Chile’s northern towns now sell caviar and spider crab, delicacies locals wouldn’t have recognized before, says Eduardo Catalano, president of the Miners’ Association of Copiapo.

Whether the boom continues depends on China’s economy. Weakening Chinese demand has pushed down copper prices this year, even as costs in Chile have risen sharply. The Mining Council, an industry group, estimates investment in copper mining will total $70 billion over the next decade—far short of the government forecast of $112 billion—as prices weaken, costs rise, and environmental regulations tighten. Codelco is considering a delay to its Andina copper mine expansion in an effort to reduce investments.

Costs for mining companies have increased 40 percent in the past five years, and the average amount of copper contained in ore mined in Chile has declined 14 percent, Joaquin Villarino, president of the Mining Council, said in an Aug. 6 speech. Even so, Chile will maintain its position as the world’s top copper producer simply because its deposits are the biggest in the world, says Paul Gait, a London-based analyst at Sanford C. Bernstein (AB). Chile should keep expanding its mines, he says, to ensure a sufficient global supply, since other countries with rich copper deposits such as Peru and Zambia are risky places to invest.

Moreno, the miner, is counting on the boom continuing as he saves up for his house. “Esperanza has production capacity for at least another 50 years,” he says. “The copper price is not relevant. Miners will stop making loads of money, but they will still make a lot. This industry is designed to bear price drops and keep miners making money.”

The bottom line: Chile is booming thanks to copper, but signs of a slowdown are emerging, and investment may level off or fall.

Craze is a reporter for Bloomberg News in Santiago.
Quiroga is a reporter for Bloomberg News in Santiago.

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