Power Shortage Hurts #Chile’s $100 Billion #Copper Push

Bloomberg News reports on Chile's power issues as it seeks to maintain its role as the home of the world's biggest copper mines. 

Power Shortage Hurts Chile's $100 Billion Copper Push

The biggest-ever pipeline of copper projects is under threat as Chile, the world's top producer, struggles to contain rising opposition to new power plants.

At least 5,000 megawatts of capacity, including a $5 billion coal-fired plant proposed by Brazilian billionaire Eike Batista, are facing delays or have been shelved as companies including BHP Billiton Ltd. (BHP) and Anglo American Plc spend as much as $100 billion on copper and metals projects in Chile.

The country, struck by a power blackout as recently as this week, needs to boost capacity by 47 percent within 8 years to keep pace with consumption. Protesters from fishermen to university students oppose the plants, prompting miners to consider their own projects to help meet China's copper demand.

"Chile will have to shelve many of the country's mining investments due to the high cost and scarcity of electricity," Joaquin Villarino, president of mining lobby group Consejo Minero, said in Santiago on April 19. Delays will jeopardize a "significant" part of the proposed mine investments, he said.

BHP Billiton, the world's largest mining company, may solicit offers to build a power station in northern Chile, Peter Beaven, head of the Melbourne-based company's base metals unit, said April 10. Teck is in talks with energy providers to build a power station in the Atacama Desert to supply its Quebrada Blanca mine, Santiago newspaper La Tercera reported April 21.

Chile needs to add 8,000 megawatts to its 17,000-megawatt power system by 2020, according to National Energy Commission estimates. The mining industry accounts for about a fifth of the country's energy demands.

Earthquake

Transmission lines damaged by an 8.8-magnitude earthquake on Feb. 27, 2010 also need investment. The grid will be prone to blackouts for years to come, Chile's former energy minister Rodrigo Alvarez said Feb. 17. The latest blackout struck this week as supply was cut from the capital Santiago to the southern region of Los Lagos on April 23.

Power prices on Chile's central grid rose from about $100 a megawatt hour at the start of 2010 to more than $150 a megawatt hour at the end of 2011, according to the Energy Ministry.

"It is a challenge that the government is well aware of the need to ensure that economic growth is not constrained by a lack of power," John MacKenzie, head of Anglo's copper business, said in an April 10 interview in the Chilean capital.

Alvarez resigned after a conflict related to fuel subsidies in the southern region of Aysen. President Sebastian Pinera then appointed Jorge Bunster on April 3 as his fifth energy minister in two years.

Environmental Opposition

Opposition from environmentalists and community groups are slowing construction of power projects, including HidroAysen in Patagonia that would become the country's biggest power generator, according to Villarino.

HidroAysen, which is being developed by Colbun SA (COLBUN) and Empresa Nacional de Electricidad SA, would generate 2,750 megawatts for Chile's central grid. State-owned Codelco, the world's largest copper producer, operates three mines in that region of the country. Last year's approval of the project sparked protests that led to hundreds of arrests and millions of dollars in damage in public infrastructure.

HidroAysen still requires approval to build a 1,900- kilometer (1,180-mile) transmission line.

MPX Energia SA (MPXE3), controlled by Batista, faces delays to its project after fishermen won an injunction to halt its development. The plant will provide power to new mines proposed by Freeport McMoRan Copper & Gold Inc. and Teck Resources Ltd. (TCK/B)

GDF Suez

In 2010 Pinera asked GDF Suez SA (GSZ), Europe's largest natural- gas network operator, to scrap plans to build a 540-megawatt coal-fired power plant on the coastal site of Barrancones after environmental opposition.

Xstrata Plc (XTA) has partnered with Australia's Origin Energy Ltd. (ORG) to develop its Energia Austral hydroelectric project in southern Chile.

"Energy risk is significant and we need to ensure that the risks are properly mitigated," Charlie Sartain, the head of Xstrata's copper business, said in an April 17 interview.

Liquefied natural gas imports can be increased to Chile through the two LNG terminals already operating in the country, BHP's Beaven said.

The government is taking a more prominent role in taking decisions to improve power supply in Chile, Codelco's Chief Executive Officer Diego Hernandez said in an April 18 interview in Santiago. Previously, the government limited itself to regulating the sector, he said.

Economic Growth

Pinera aims to achieve average economic growth of 6 percent during his four-year term as part of a goal for Chile to become a developed nation by 2018. That plan is contingent on approving power projects, according to a Feb. 28 speech.

"If we don't win this battle to have cheap, clean and safe energy, we won't become a developed country," Pinera said.

Chile will seek to "substantially" increase hydroelectric generation to solve the country's shortages, Juan Manuel Contreras, executive secretary of the National Energy Commission said April 19. Chile has 9,000 megawatts of untapped hydroelectric power generating capacity, he said.

Chile's gross domestic product expanded 6 percent last year and 6.1 percent in 2010, the fastest in more than a decade. Economic growth will slow this year to 4.1 percent as the euro- zone crisis reduces demand for exports, according to the median estimate of economists surveyed by Bloomberg.

The South American country can reduce consumption by 12 percent through power-saving measures, according to Deputy Energy Minister Sergio del Campo.

Renewable Energies

The country is considering a law that would set Latin America's highest renewable energy goal and spur $10 billion of investments in clean power projects. Dozens of companies have applied to the environment regulator to build solar farms in the Atacama Desert, the driest place on earth.

The extra yield, or spread, investors demand to hold Chile's bonds due in 2021 has fallen to 94 basis points from 116 basis points at the end of 2011. The country's credit-default swap, a measure of the cost of insuring against default for five years, fell to 97 basis points from 132 basis points on Dec. 30. The benchmark equity index has gained 9.3 percent this year.

Mining companies are considering $100 billion of projects in Chile, home to the world's largest copper reserves, according to data compiled by mining association Sonami. Peru, the world's third-largest copper producer, may get $50 billion in mining investments over the next decade, according to the country's energy and mines ministry.

Lower Quality Ore

More energy is needed as mining companies develop deposits with lower quality ore, as they need to move more earth to extract the same amount of copper.

Chile's copper output has slumped this year due to declining ore at mines including Codelco's flagship Chuquicamata that is a century old.

Codelco needs to spend more than $20 billion to boost output to 2.1 million metric tons by 2020 from about 1.7 million now, Hernandez said. Without those investments, Codelco's output will slump to 800,000 tons a year in that timeframe as the company exhausts profitable ore at its mines.

China's copper demand will probably grow more than 8 percent annually in the next five years, Andrew Harding, the head of Rio Tinto Group's copper division, said in an April 17 interview.

Copper for three-month delivery rose 0.6 percent to $8,197.50 a metric ton on the London Metal Exchange by 10:42 a.m. local time, as all six main metals traded on the exchange gained. The metal has advanced 7.8 percent this year.

To contact the reporter on this story: Matthew Craze in Santiago at mcraze@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

As investors lose faith in dollar gold will win out - #GOLD ANALYSIS - Mineweb.com

It remains unfathomable to me just how the United States economy can sustain a healthy recovery accompanied by falling unemployment broadly defined and rising consumer spending in the face of election-year uncertainties, a depressed housing sector with foreclosures continuing apace, cutbacks in state and local government spending and more public-sector layoffs ahead, and a heavy burden of private and public-sector debt.

What America needs for long-term health is more saving by households and government - not more spending by consumers and a dysfunctional federal government unable to control its addictive spending habits.

From mineweb.com, Yesterday's Top Story: As investors lose faith in dollar gold will win out

Gold is currently treading water but Jeff Nichols believes that the chances of a breakout to the upside are significantly greater than the probability of a breakdown with the gold bull having five to ten years of life ahead

Author: Jeffrey Nichols
Posted:  Sunday , 22 Apr 2012
NEW YORK - 

Gold has been somewhat of a disappointment to many analysts and investors who, as of a few months ago, were still anticipating higher prices again this year.  But the year is not over, nor is gold's long-term secular bull market.

With eleven years of advancing prices already chalked up on the scoreboard, the long-term secular upswing has five-to-ten years of life still ahead - and maybe more.  Along the way, expect continuing volatility, periods of consolidation, and occasional corrections, corrections sometimes so severe that some will prematurely and incorrectly call the game over.

We are now in one of those periods of consolidation when the market takes a breather and adjusts internally, preparing for the next major move.  So far this year, the yellow metal has traded well beneath its all-time high of $1,924 an ounce recorded this past September 6 and well above its subsequent low near $1,520 in late December.

Instead of forging new ground, the price in recent months has been merely treading water, seemingly stuck in a trading range between $1,620 and $1,696, awaiting some external news or internal market development to push the price beyond these temporary technical barriers.

Although I believe the odds of an upside breakout are significantly greater than the probability of a breakdown, I caution that a fall back to $1,520 - or even lower - is certainly possible before gold resumes its long-term ascent.

While physical demand from the key Asian markets - China and India - and from the official sector (that is from central banks) may fuel gold's long-term secular advance, it is developments in the macroeconomic and world financial sphere that are most likely to influence gold in the days, weeks, and months immediately ahead.

U.S. ECONOMIC NEWS AND EXPECTATIONS OF FED POLICY

Good news for the U.S. economy - news that diminishes expectations of further U.S. central bank monetary accommodation - hurts gold at least among institutional traders and speculators on Wall Street and at financial institutions around the world.  This has been the group that has been most responsible for last September's swift correction and the subsequent ups and downs in the metal's price.

As I have written frequently in the past, these players betting in futures and other derivative markets collectively may have great sway - but only for so long.  Ultimately, it is the physical market - real world supply and demand - that determines the long-term price trend.  And, developments in the physical world have been and will continue to be propitious for the yellow metal.

Perhaps the most important reason gold has not been able to move higher in recent months - despite relatively firm physical demand - has been signs of an early springtime for the U.S. economy, particularly the improving employment, output, and consumption statistics.  As a result, talk of another round of quantitative easing (QE3) has diminished - and the short-term speculators trading paper gold, having earlier this year preferred the short side of the market have in recent weeks begun to lose interest.

Despite the political imperative to dress up the economic statistics ahead of the November elections, I think the economic news will likely be disappointing to those envisioning a rosy scenario.  The positive signs of recovery result not from any fundamental improvement or return to health in the American economy but from faulty seasonal adjustments affected by the unusually mild winter and early spring across much of the United States as well as the unusual economic performance itself in the past several years that have overpowered seasonal influences.

It remains unfathomable to me just how the United States economy can sustain a healthy recovery accompanied by falling unemployment broadly defined and rising consumer spending in the face of election-year uncertainties, a depressed housing sector with foreclosures continuing apace, cutbacks in state and local government spending and more public-sector layoffs ahead, and a heavy burden of private and public-sector debt.

What America needs for long-term health is more saving by households and government - not more spending by consumers and a dysfunctional federal government unable to control its addictive spending habits.

In the meanwhile, odds favor additional monetary accommodation, if not before the November elections, then soon thereafter . . . and as financial markets take note of the still anemic economy and rising probability of Fed easing, gold will respond with a major move to the upside.

EUROPE'S FESTERING SOVEREIGN-RISK CRISIS

The crisis still festering - and likely to worsen - in Europe is a long-term positive for gold although, as in the recent past, the short-term consequences could be quite the opposite.

The European Central Bank (the ECB), along with other European national banks, remains under great pressure to provide financial market liquidity and keep a lid on interest rates.  This is not an easy task with institutional investors unwilling to accept more sovereign debt unless the perceived risks are offset by higher rates of return.

Unfortunately, higher interest rates push borrowing countries - like Spain, which has been much in the news lately - into untenable fiscal deficits and strengthen the case for default among their citizenry.

Default by one or another country on its sovereign debt would probably initiate a wave of defaults among the fiscally weaker European economies - and could trigger a "Lehman-like" moment as major banks and other financial institutions holding European debt suddenly find themselves insolvent and in need of government bailouts once again.

In any event, further ECB monetary creation will debase the euro and most other European currencies - eventually producing higher rates of inflation, not just in Europe but globally, while encouraging central banks around the world to hold more gold in lieu of euro-denominated assets.

Unfortunately for gold investors, the euro-crisis may have just the opposite effect on gold prices in the short run as flight capital seeking a safe harbor in turbulent seas gives the greenback a false appearance of strength not only against the euro but against gold itself.

But, ultimately, as inflation accelerates and lenders - particularly emerging nation central banks and other institutional investors around the world - lose faith in the dollar as a store of value, gold will win out.

Jeffrey Nichols is Managing Director of American Precious Metals Advisors www.nicholsongold.com and Senior Economic Advisor to Rosland Capital - www.roslandcapital.com


Read the story online here: Yesterday`s Top Story: As investors lose faith in dollar gold will win out - GOLD ANALYSIS - Mineweb.com | The world's premier mining and mining investment website Mineweb

Some Miner & Not-So-Minor Issues | Resource Investor

The latest CFTC positioning reports indicate that hedge funds have slashed their bullish bets on commodities by the largest amount in four months in the week that ended on the 17^th of the month. Such speculators appear to be exhibiting concerns that relate to the possibility that a synchronized global economic slowdown may be underway. The situation prompted one money manager to conclude that “conditions just aren’t favorable for a commodity rally.”

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Some Miner & Not-So-Minor Issues | Resource Investor