By Laura Clarke
SANTIAGO, Chile--North America offers an increasingly competitive opportunity for copper producers while current top global producer Chile continues to be dogged by declining ore qualities, increasing power costs and water shortages, the chief executive of Antofagasta PLC (ANTO.LN) said Wednesday.
In an interview with Dow Jones Newswires, CEO Diego Hernandez said although the company's growth strategy is based on organic growth within Chile--including brownfield expansions and plans to triple output at its Esperanza operation within 10 years--at the same time it is looking to external exploration ventures, particularly in North America, to ensure long-term growth.
"We believe that North America is again a more competitive area for copper production. The reason why [the region] lost the position that it had as one of the major copper producers was mainly related to dropping ore grades," said Mr. Hernandez.
"Now and longer-term, the grades in North America are not too different from the grades that we have in Chile. Chile is still better on average but that will not last forever and in less than ten years we will be at similar grades," he added.
Chile is unlikely to reach its goal of upping copper mine production to 8.1 million tons by 2020 from around 5.6 million tons at present in a current ten-year $100 billion investment program, due to escalating costs, currency factors and the problem of falling copper ore qualities, Mr. Hernandez sees.
Antofagasta's "substantial" exploration budget is focused on boosting reserves at its Los Pelambres operations and the Centinela district in Chile, as well as on opportunities overseas, the CEO said. The company spent $31.8 million in 2012 on exploration and evaluation activities within Chile, as well as $33.5 million in international exploration and activities such as strategic alliances and agreements in Finland, Zambia, Australia, Canada, Peru and Brazil.
In North America the group already has a 40% controlling stake in the Twin Metals Minnesota LLC mining development, a joint venture with Duluth Metals Limited (DULMF, DM.T). A pre-feasibility study is expected to be completed at Twin Metals during 2014. The project incurred expenditure of $71.0 million during 2012.
"There we have proved that we have a tier-one deposit of copper, nickel and platinum group metals," said Mr. Hernandez.
"In North America you also have competitive power costs and labor costs with high productivity. So overall I believe that North America is again something that we should be looking at," he added.
Scandinavia is another interesting production region, according to Mr. Hernandez. At a presentation at the London Stock Exchange last month, Mr. Hernandez noted Finland, Australia, Zambia and Canada as other potential areas for production expansion. The company has also said it may take an "opportunistic approach" to acquisitions. Last month, CFO Alejandro Rivera said if necessary, Antofagasta could make a $10 billion acquisition by tapping the financial markets to supplement its large cash reserves.
Antofagasta achieved record output of around 710,000 tons of copper last year, and plans to keep production at this level in 2013 and 2014, Mr. Hernandez said Wednesday. Demand should grow at a steady pace, from key clients in Japan, China and Korea, and the U.S. housing sector should also support copper consumption, he said. Antofagasta sees a small surplus in the global copper market balance by the end of this year, which will potentially grow into 2014 and 2015, before the market tightens again in 2016, the Antofagasta CEO said.
-Alex MacDonald and Carolina Pica contributed to this article.
Write to Laura Clarke at firstname.lastname@example.org
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
April 03, 2013 17:09 ET (21:09 GMT)
Copyright (c) 2013 Dow Jones & Company, Inc.