CHILE (Commodity Online): Mining output in Chile has recovered from recessionary trends and posted a growth of 7.7% in August 2009 with copper production accounting for a major part of the growth.

Copper output rose in August 2009 by 7.8% based on the previous year and this, in turn, was mostly due to production increases from Chile's state-owned Codelco and Australian-based BHP Billiton. The copper market experienced a noticeable recovery largely due to increased demand from China which also boosted the price of the commodity, according to an analysis by Research and Markets titled Chile Mining Report.

In the first half of the year, however, production increases were unable to successfully offset the effects of the downward trend of commodity prices. Codelco's production was up to 783,100 tonnes in January- June up from 675,000 tonnes in the same period of the previous year. Despite this, the company still posted a fall in profits of 82.4% to US$722mn although this was higher than a previous estimate of US$500mn. Antofagasta had a similar decline in net earnings to US$235.7mn for H109, a 70.3% decrease based on H108 levels. Both companies, however, remain cautiously optimistic and have announced a number of expansion plans and production targets for 2010 which highlight a belief that the sector is poised for growth once more.

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In September 2009, it was reported that the government was working with securities regulators and the stock exchange to propose a system framework which would boost investment in junior exploration firms. The author believes that Chile needs to develop its venture capital segment if it is going to encourage junior mining companies to break into the country's lucrative mining market. As the world's largest copper producer, Chile still has a vast expanse of deposits that have yet to be explored. The proposed system would encourage mining companies to sell shares on the stock exchange to raise investment and would offer incentives to investors such as capital gains tax breaks. Consultants are expected to present their recommendations for the framework by October or November this year. Currently, the mining market is dominated by a few large companies and would benefit from attracting investment to this small but dynamic sector of junior firms.

In September 2009, it was finally announced that the current Copper Reserve Law would be repealed with Chilean President Michell Bachelet stating that it would 'reinvigorate it [Codelco] as an actor in the international mining industry'. In addition to removing the need for Codelco to pay 10% of its profits to the military, the new bill also overhauls the financing of the military. Replacing the old financing structure would be a more stable funding programme from the state general fund. The new funding plan would be based over 12 years, breaking down into four-year segments. This is more satisfactory to commanders in the army and navy who believe the new form of financing will provide better peace of mind rather than the year to year (y-o-y) funding that used to occur. Between 2006 and H109, Codelco earned US$23.3bn, of which approximately US$4.2bn was paid to the military.

Chile's mining industry will reach a value of US$55.99bn in 2014, up from US$29.8bn in 2008, accoridng to Chile Mining report of Research and Markets. (Courtesy: Businesswire)

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