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Challenges mar copper projects in ’12

Keywords: Tags  BHP Billiton, Olympic Dam, copper, uranium, gold, Xstrata, Codelco, Shivani Singh

SINGAPORE — It has been a year of project delays and deferrals for the copper market, underlining the continued challenges in bringing supply up to speed with demand.

The latest of these has been at Xstrata Plc’s Tampakan copper-gold project in the Philippines, where output has been pushed back three years to 2019. The $5.9-billion operation was hit by a local government ban on open-pit mining and delays in getting environmental clearance, among other challenges.

Such bottlenecks are making investors wary of funding operations in the Philippines, the fifth-most mineralized country in the world and fourth for copper deposits.

Xstrata, a majority shareholder in the Frieda River copper-gold mine in Papua New Guinea, is considering selling its stake in the project as it reviews its projects.

Among the reasons behind producers’ delays or deferrals are high capital and labor costs; political legislation; bureaucracy; water or energy availability; environmental factors; and lower ore grades, among others. While these factors constrain supply and support copper prices, they can make project development a risky business.

In Chile and Peru, water availability is a big problem, while Australia has high labor costs.

Newmont Mining Corp.’s $5-billion Minas Conga copper-gold project has been postponed this year as local farmers in Peru protested, saying the mines would dry up water supplies.

Chile’s mines have been facing an energy shortage for years, and in October state-owned Corporación Nacional del Cobre de Chile (Codelco) said power shortages would hit new copper projects in Chile (, Oct. 17).

"We represent 33 percent of the world’s copper production, and China consumes 42 percent of the world’s copper, so it’s important for China that Chile solve its energy problems," Chilean Mining Council president Joaquin Villarino said in November.

Last month, Codelco chief executive officer Thomas Keller said its large projects were still on track.

Codelco invested about $4 billion in 2012—some $300 million lower than forecast—on the five major projects the Chilean producer is undertaking to develop its capacity.

"There have been some minor delays in the initial phases of construction, but the $4.3-billion figure was developed in August 2011, and the delays are nothing major," Keller told AMM sister publication Metal Bulletin. "Underground mines take six or seven years to fully develop, and really getting the phasing of spending right in the beginning is very difficult."

BHP Billiton Plc in August shelved an expansion at its $20-billion Olympic Dam copper-uranium project in Australia (, Aug. 22), citing lower metal prices and higher costs, again bringing the commodities supercycle debate to the forefront.

"As we finalized all the details of the project in the context of current market conditions, our strategy and capital management priorities, it became clear that the right decision for the company and its shareholders was to continue studies to develop a less capital-intensive option to replace the underground mine at Olympic Dam," BHP chief executive officer Marius Kloppers said.

The project delays announced so far this year are unlikely to immediately hit the market, but they will have a longer-term impact. Copper stocks are seen moving into a surplus in 2013.

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