April 9, 2013 / 5:21 AM / 4 years ago

CORRECTED-CESCO-Joint ventures seen boosting Chile's copper exploration

3 Min Read

(In April 8 story, corrects figure for Chile's 2011 copper exploration spending to 16 percent of global total, instead of 18 percent, paragraph 9)

By Julie Gordon

SANTIAGO, April 8 (Reuters) - Chile could boost copper exploration by encouraging state-owned giant Codelco, the world's biggest producer of the metal, to partner with private mining companies, industry executives said on Monday.

Chile sits on the world's largest copper reserves and is also the world's largest producer of the metal, but aged, tired deposits dragged Codelco's output last year to its lowest level since 2008, while costs soared 40 percent on the year.

Codelco, and its smaller peer ENAMI, own large swathes of land with copper reserves which they are not currently exploiting.

To capitalise on these properties, the state-owned companies should form joint ventures with smaller firms to explore these assets, said Cristian Quinzio, a director of the Centre for Copper and Mining Studies (CESCO).

"We should encourage state-owned companies to put more mining properties into private company hands through partnerships," Quinzio told an exploration forum in Santiago.

"Those companies should be leaders in promoting joint ventures - directly calling tenders or taking actions to invite mainly junior companies to explore, while still maintaining the buyback option - just in case."

Hochschild Mining Plc, a mid-sized silver producer based in London, has succeeded in developing some of its South American assets using a similar model, said Isac Burstein, vice president for business development.

"It lowers development time and it lowers your risk, because you're not investing in a very early stage project where you don't know what the outcome is going to be," he said.

The Next Generation

Last year, Chile's spending on copper exploration fell to 15 percent of the global total from 16 percent in 2011, according to a report by industry analysts SNL Metals Economics Group.

The group's Chief Executive Michael Chender said companies should spend more on grassroots exploration to find the next generation of projects.

"Grassroots is where new supply to the industry comes from," he said. "You can make an acquisition, but that's just reshuffling assets as far as the overall industry is concerned."

To encourage exploration work, the government can also raise the cost of patents it requires mining companies to pay to maintain their concessions, CESCO's Quinzio said.

Companies pay these patents if their properties remain idle, but they obtain tax breaks from the government if they develop these concessions.

Higher patent costs may encourage larger companies to either start developing properties or divest them, Quinzio added.

"We need a more aggressive attitude by companies," he said. "Companies keep large properties, but they are not working on them. If we boost the patent, maybe it will make those companies question why they aren't working." (Editing by Miral Fahmy)

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