The World's Largest Copper Producer May Be About To Change Hands As Output Stagnates in Chile.

Bmo analyst Colin Hamilton warned on Thursday that Chile is putting its crown as the world's largest copper producer at risk by producing less copper than expected despite spending billions of dollars on new projects over the past 18 years.

Hamilton said he had received several questions in the past week about weak copper production in Chile this year, as mining companies with operations in the country released first-quarter production reports.

Chile is by far the world's largest copper producer, accounting for nearly a quarter of global supply. Chile produced 425,700 tonnes of copper in January, down 7.5 per cent from a year earlier and the lowest in 11 years, the data showed. Cochilco, Chile's national copper commission, cited declining ore quality, water shortages and other short-term problems as reasons for the slump.

Hamilton expects Chile's copper production in 2022 to be lower than in 2004, when the country produced just over 5.4 million tons, or 37 percent of the world's total.

After steady growth in the 1990s and early 2000s, Chilean copper production levels have stagnated, with production targets of more than 6 million tonnes per year never being met, Hamilton noted.

Diego Hernandez, president of Chile's national Mining association Sonami, remains optimistic, predicting that Chilean copper production will rise this year as Teck Resources' Quebrtada Blanca mine, which has been expanded, comes on line in the second half of the year.

However, Hamilton said the decline in Chilean copper production was not only a matter of investment in new projects and expansion, but also the aging of existing assets.

"Most notably, Chilean copper cathode production continues its inexorable decline and is now about half a million tonnes below its peak a decade ago," Hamilton said. From an investment point of view, Chilean production may continue to be less important than the short-term problem."

Chile is currently in the process of redrafting its constitution to include issues closely related to mining, such as raising mining royalties and funding expanded social programs. None is more damaging to the mining companies than a proposal to nationalise Chile's mines. Some mining companies have put investment decisions in Chile on hold because of the uncertain future.