Miners Buying Hugo Boss Perfume as Chile’s Copper Booms
Since starting work at the Esperanza copper mine in northern Chile two years ago, Erick Moreno has tripled his salary and is preparing to buy his first home. The pay, he says, is so good that he’d never take a job elsewhere.
“I am going to die in this industry, I don’t see myself anywhere else,” Moreno said by phone from Antofagasta, a city on the edge of the mineral-rich Atacama desert. “When you start working in a mine, everything changes and in a very little period of time.”
While Moreno, 27, completed his engineering course at Antofagasta University, he says many fellow students dropped out to start work at the mines without graduating. Most of them already own their homes and drive sports cars, while many older miners have five or more houses, some far from the mines that litter the northern desert, he said.
Spending by high-earning miners is spreading through the economy, fueling a consumer boom and driving unemployment to its lowest since 1973. The nation, squeezed between the Andes Mountains and the Pacific Ocean, has become the wealthiest in Latin America, according to the International Monetary Fund, with gross domestic product per capita rising to about $16,300 this year from $4,780 ten years ago. World Bank President Jim Yong Kim last month congratulated the country on earning “high-income” status.
The rapid growth of mining and the consequent shortage of skilled workers means many workers earn bonuses in excess of the equivalent of $30,000 for agreeing to new contracts once every two or three years. BHP Billiton Ltd. (BHP) says truck drivers at its Escondida mine get paid the equivalent of $80,000 a year, excluding the bonuses, more than their counterparts at mines in the U.S.
Moreno, who works in the maintenance department at the Esperanza mine owned by London-based Antofagasta Plc, says he feels sorry for friends who worked hard to get degrees and don’t work at the mines. Miners earn more than workers in any other industry, according to the pensions’ regulator.
The benefits aren’t limited to those living in the north. Many workers from poorer cities in the south work for weeks at a time in the north, before flying home for a few weeks off. Every day, they fill Latam Airlines Inc. (LAN) flights to the Atacama, where Codelco, the world’s largest copper company, Poland’s KGHM Polska Miedz SA and Japan’s Pan Pacific Co. are expanding to meet growing demand over the past decade from Asia. Chile exported $2.4 billion of copper to Asia in July, compared with $300 million 10 years earlier.
Latam has increased flight frequencies from Santiago to the mining town of Calama to as many as 14 a day from eight in 2012, said Gonzalo Undurraga, the airline’s Chilean commercial director. Passenger traffic between the two cities leaped 51 percent to almost half a million in the first half of this year, he said in an e-mailed response to questions.
Chile’s mining boom has been fueled by surging copper prices, which quadrupled in the past 10 years to average $7,952 a ton in 2012. Based on production of 482,252 tons in June, that signifies $2 billion in additional exports every a month.
As a result, Chile’s mining industry attracted $30 billion in foreign direct investment last year, according to the United Nations.
Miners flush with cash have stoked consumer spending, with annual retail sales growth averaging 11.8 percent over the past three years, according to the National Institute of Statistics. Car sales rose 20 percent in July from a year earlier and have averaged more than 30,000 a month in 2013, compared with 7,335 a decade ago.
“Mining investment explains the economic dynamism of the past three years,” said Felipe Alarcon, an economist at Banco de Credito & Inversiones in Santiago. “The current high wages of unskilled miners are not comparable to their peers in any other industry.”
Chile’s economy expanded 5.6 percent last year and 6 percent in 2011.
Spending by miners is so high that for each job created in the industry, three are generated elsewhere, Mining Minister Hernan de Solminihac said in an interview in Santiago last week. Many of those additional jobs are in retail.
Mariano Garcia, chief executive officer of TAIS DFS, which sells luxury perfumes, watches and cosmetics, has opened four stores in the tax-free zone of Iquique, close to mines run by Anglo American Plc (AAL), BHP Billiton and Glencore Xstrata Plc.
“Miners buy three to four perfumes when they come in, and they go for high-end brands like Carolina Herrera, Hugo Boss and Paco Rabanne,” Garcia said in a phone interview.
Ditec Automoviles, which represents Jaguar, Land Rover and Volvo in Chile, plans to open its first Porsche showroom in Antofagasta within 12 months, said Eduardo Costabal, the company’s chief executive officer.
With 48 years’ experience in mining, Eduardo Catalano, 64, says northern towns have transformed completely in the past two decades. Supermarkets now sell caviar and spider crab, delicacies locals wouldn’t have recognized before, he said.
“Miners now dress, live and eat better,” said Catalano, president of the Miners’ Association in Copiapo, a town near Codelco’s Chuquicamata mine.
As mining expands, unemployment has fallen, with the national rate dropping to 6.2 percent in the second quarter after peaking at 11.6 percent in July 2009, according to statistics institute data. A study by the Universidad de Chile shows the jobless rate in Santiago fell to 5.2 percent in December, the lowest since 1973.
Nominal annual wage growth has exceeded 5 percent every month since January 2011. After being adjusted for inflation, wage growth accelerated to 5.1 percent in April before dropping to 3.8 percent in June.
Mining growth has opened the door for women to take jobs traditionally performed by men. At Codelco’s new Gaby mine in the Atacama, women work in all areas, including driving the giant trucks that take the mineral out of the open pit. Female employees now account for 7.8 percent of the state-owned company’s workforce compared with 5.8 percent in 2000, according to a company statement.
Mining investments may total $112 billion by 2021, requiring an additional 40,000 workers, de Solminihac said. The industry currently employs 235,000 of Chile’s 8.3 million workforce.
Still, weakening demand from China has seen copper prices decline this year, while costs in Chile soar. The metal slid as low as $6,670 a ton on June 24 from a high of $8,380 on Sept. 14 last year. It closed at $7,306 yesterday.
The Mining Council estimates investment in the industry will total $70 billion over the next decade, less than the government forecast of $112 billion, as prices weaken, costs rise and environmental regulations tighten. Barrick Gold Inc. faces delays at completing its Pascua Lama gold mine because of environmental disputes, while Codelco is studying delays to its Andina copper mine expansion as it looks to reduce investments.
Costs for mining companies have increased 40 percent in the past five years, while the average quantity of copper contained in ore mined declined 14 percent, Villarino said.
Labor costs can be 188 percent more in Chile than in other mining nations, Joaquin Villarino, president of Chile’s Mining Council, which represents major mining companies, said in an Aug. 6 speech.
For the first time in six years, wages in the mining industry appear to be stabilizing, according to Rodrigo Alonso, a risk manager at Anglo American’s and Glencore’s Collahuasi mine. Alonso’s salary jumped 20 percent when he moved two years ago to his present job from a similar position at Escondida.
Even so, Chile will maintain its position as the world’s top copper producer, simply because its deposits are the biggest in the world, said Paul Gait, a London-based mining analyst at Sandford C. Bernstein Ltd.
“Chile’s got to grow, it’s a third of the world’s final production,” Gait said in a phone interview.
Moreno is counting on the boom continuing as he saves up for his house.
“Esperanza has production capacity for at least another 50 years,” Moreno said. “The copper price is not relevant. Miners will stop making loads of money, but they will still make a lot. This industry is designed to bear price drops and keep miners making money.”
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