BHP Billiton Ltd, the world's largest mining company, said yesterday it expected output at its Escondida copper mine in Chile to drop as much as 15 percent because the quality of ore was declining.
"For the next two years, we've got a 10 to 15 percent production decline, and then we'll resume the trajectory it was on earlier," BHP Chief Executive Officer Marius Kloppers told Bloomberg News in an interview in New York. Supplies from Escondida, the world's biggest copper mine, increased 18 percent in 2007.
Declining mine quality, insufficient power supplies and labor unrest have curbed copper production and boosted prices for the metal used in pipes and wires.
Copper more than tripled in the past five years as mining companies struggled to keep up with demand from emerging economies, including China.
Copper lost US$75, or 1.1 percent, to US$6,875 a metric ton as of 9:58am yesterday on the London Metal Exchange. The metal, up 3.2 percent this year, touched a record US$8,940 on July 2.
"Despite demand being somewhat softer, supply side is also going to lag," Kloppers said. "We're going to see some resilience here" for commodity prices.
BHP fell 22 pence, or 1.5 percent, to 1,463 pence (US$25.50) on the London Stock Exchange, taking its decline for the year to 5.4 percent.
BHP said in July that output at Escondida would drop through the 2009 fiscal year, which ends on June 30. The Melbourne-based company owns 57.5 percent of the mine. Rio Tinto Group, the target of a hostile US$121 billion bid by BHP, owns 30 percent.
Supply slump
Production at Escondida, which represents almost 10 percent of world supply, fell to 725,177 tons in the first 6 months of 2008 from 758,696 tons a year earlier, BHP said.
Supplies would fall as the company extracted ore from areas that yielded less copper, part of a sequence of mining needed to keep the pit intact, Kloppers said. BHP plans to "put more mining capacity in Chile" in the long term as the company tries to boost production to take advantage of higher prices, Kloppers said. Copper on the LME is in its seventh consecutive year of gains.
Kloppers said he wasn't worried about the two-month decline in prices for raw materials and that BHP would maintain its long-term outlook for copper, coal and iron ore.
A stronger dollar coupled with a diminished global-growth outlook has led traders to shun metals, energy and commodities as alternative assets. The Reuters/Jefferies CRB Index of 19 raw materials plunged 22 percent since reaching a record in July, sending the gauge into a bear market.
Kloppers said increasing consumption in China, the world's biggest metals buyer, would buoy prices as supplies remain constrained.
"The inflationary pressure in China has diminished and there is a huge amount of fiscal capacity there," Kloppers said.
