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The mining industry in Chile: Trends and economic contribution

by | Aug 19, 2023

Industries have faced many challenges during the last two years. Among these, the latest trends are related to the so-called energy crisis, the conflict between Russia and Ukraine, elevated global inflation, and the tightening of monetary policy that has slowed economic growth.

However, mining is one industry with the best know-how to adapt to changes. The mining industry in Chile is an example of this, thanks to factors such as resilience, adaptation, and exploitation of its main product, copper.

Despite a significant price swing, the price of copper has held up well. It is currently trading around USD 4.1 a pound. This price is supported by very low inventories and increasing supply disruptions. In this context, the mining industry in Chile continues to generate comparatively strong cash flow, which Fitch Ratings expects to remain at similar levels towards the end of 2023.

This vision is shared by institutions such as the National Mining Society ( Sonami ), which predicted growth in the sector between 6 and 7%, with a copper production close to 5,700,000 tons.

Undoubtedly, the mining industry in Chile is experiencing an important reality, which must be strengthened with the best talent, a vision of growth, and strategic allies that help strengthen the value chain through liquidity.

The mining industry in Chile’s approach for 2023

According to data from the Chilean Ministry of Mining, the current mining portfolio consists of 51 projects, which implies investments of the order of US$68 billion.

Data like this make us understand even more why mining is essential for the development of Chile; it significantly contributes about 12% of gross domestic product (GDP), 60% of exports, and 20% of the country’s tax revenue.

That data is encouraging, but there are other things the mining industry in Chile is doing to ensure growth. The mining sector in Chile seeks to promote “green hydrogen” during 2023. This effort is currently limited to pilot projects for autonomous machinery but is showing excellent prospects.

Note: Green hydrogen refers to hydrogen obtained through the use of renewable energy in its production, which makes it a clean, sustainable fuel with a zero pollution index that can be key not only as an energy vector but also as a material.

Currently, the exploitation of this resource identifies a potential of more than 1,800GW for renewable energy generation in the country. According to the Chilean hydrogen association, this figure represents 70 times more than the current capacity. This approach points directly to 2030 when the sector expects the green hydrogen market to reach more than US$30 billion annually in Chile.

Along with the use of best practices, mining concessions constitute another vital topic for the sector this year. Currently, the mining industry in Chile operates under annual payments for the right to explore and/or exploit minerals; Although these rates are low compared to other countries and some concessions are indefinite, it is a reality that the model has not been able to encourage the exploitation of mineral resources as much as is desired.

The idea is to improve practices towards more environmentally friendly exploitation so that companies can respond to responsibility criteria that help enhance the eligibility of scalable projects.

Another major project seeking consolidation in 2023 is the use of technology focused on making processes more efficient and the consequent savings attractive to any investor. An example is the Chilean mining companies that are already beginning to use, for example, automated drillers in the mines, which reduce the excavation costs per ton by approximately 30%.

Undoubtedly, this year’s focus is to recover the rhythm lost during 2020-21, but with a view to a more environmentally responsible industry made stronger by Chile’s best talent.

The labor force is critical to the growth of the sector

The mining industry in Chile views the workforce based on a nine-year plan: 2021-2030. The idea is to compare what is currently available against what is expected to be required in 2030.

From this perspective, the estimates for 2030 suggest that companies will have to attract more than 25,000 workers due to the combination of retirements and the creation of new jobs.

On the current distribution of talent, the Chilean Mining Skills Council (CCM) details in its study “Workforce of the Chilean Large Mining Industry 2014-23” that the most significant demand for human capital is in mechanical engineers, electrical engineers, and equipment operators (mobile and fixed), which as a whole represent an accumulated demand of around 18,472 workers. This figure is equivalent to 73% of the total.

Another relevant fact about the labor force in the mining industry in Chile is that, although during 2021, a slight contraction was observed in the proportion of workers residing in the same region where they are employed, the local labor force continues to predominate, representing close to 73 % from the workers. It should be noted that in 2020 the mining industry increased local hiring by more than six percentage points compared to 2018, a difference that rises to 15.7 points in the case of supplier companies.

Today, local employment already appears as a highly relevant factor for obtaining the social license to operate mining operations, and it turned out to be a critical factor in maintaining operational continuity during mobility restrictions resulting from the COVID-19 pandemic.

Participation of women in the mining industry in Chile

Something to highlight within the mining industry in Chile is that although mining has been seen as a job almost exclusively for men, little by little, the gender gap in the sector has decreased.

According to the CCM, 91% of the companies in the sector in Chile indicate as a priority having policies aimed at promoting the participation of women. In comparison, 52% already have explicit goals for hiring females over the next five years.

The results of these policies are already beginning to be felt. For the first time in the decade, the participation of women in the industry exceeds 10% at a general level, while this reaches 6.4% in the industry’s main value chain.

Regarding this last point, it is essential to point out that development strategies are being formulated that make it possible to increase female participation in the industry and have more women in decision-making positions. Efforts are also being made to ensure more young women are interested in studying careers related to the mining industry in Chile.

Growth and liquidity of mining companies

One of the main problems that the mining industry in Chile must face is the constant need for suppliers of working capital to develop projects. The long terms of approval and cancellation of delivered work (up to 120 days) generate steady cash flow lags that weaken the sector financially.

Along with this, aspects such as price fluctuations and the need for expensive investments in infrastructure and technology put constant pressure on liquidity, putting the operation at risk and the life of any mining company.

For this, factoring, or advance payment of invoices, becomes a solution for financial challenges, the basis of any operation. The idea is to allow any company in the sector to obtain financing quickly and efficiently without compromising growth.

Factoring works in different ways, either as a secure source of financing with shorter response times than in other financial products or even strengthening the company-supplier by helping to manage payments to suppliers, allowing optimization of administrative and operational expenses. Factoring can effectively solve Chile’s mining industry’s cash flow challenges.

The mining industry holds significant importance for Chile, playing a crucial role in its economy and development. It has a central place in Chile’s economic and social fabric. Its contributions extend beyond the extraction of minerals, influencing various sectors and aspects of the nation’s development. The ongoing efforts to balance economic gains with environmental sustainability will likely shape the industry’s trajectory in Chile.

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