Latest / The Productivity Podcast with Fexingo: Output, Efficiency, and Long-Term Economic Growth / How Chile Built Latin America's Most Productive Copper Mines
Transcript
- Lucas: Chile produces about 28 percent of the world's copper. That's roughly five million metric tons a year, more than double the next biggest producer, Peru. But what's really interesting isn't how much copper Chile has in the ground — it's how efficiently it gets that copper out. Luna: And that efficiency matters beyond just mining profits, right? Copper is something like 10 percent of Chile's GDP and over half of its exports. Lucas: Exactly. So when we talk about productivity in Chile, we're really talking about the engine of the entire economy. And the numbers are striking. Between 2015 and 2025, total factor productivity in Chile's copper sector grew by about 1.8 percent annually, while global mining productivity actually declined. Luna: How did Chile manage that when ore grades are falling everywhere? I mean, the average copper grade in Chile has dropped from about 1.2 percent in 2000 to below 0.7 percent today. Lucas: Right, lower grades mean you have to move more rock to get the same amount of copper. That should push costs up and productivity down. But Chile's miners found ways to offset that. The biggest lever has been water. The Atacama Desert is the driest non-polar place on Earth, and mining uses enormous amounts of water. In 2018, Codelco, the state-owned miner, used about 1,200 liters of fresh water per ton of ore processed. By 2025, that number dropped to 720 liters. Luna: That's a 40 percent reduction in seven years. How? Lucas: Desalination plants on the coast and massive water recycling systems. Codelco built a desal plant at its Radomiro Tomic mine that supplies 90 percent of its water. BHP's Escondida mine, the world's largest copper mine, now gets almost all its water from the ocean. That's capital intensive upfront, but it frees the mines from depending on increasingly scarce freshwater aquifers. And it keeps production running during droughts. Luna: So water efficiency became a productivity driver. But what about labor productivity? I've seen numbers suggesting Chilean mines have some of the highest output per worker in the industry. Lucas: They do. Output per worker in Chilean copper mines is about 150 metric tons per employee per year, compared to a global average of around 90. A big part of that is automation. Codelco and BHP have deployed autonomous haul trucks and drills at their largest operations. At Escondida, over 100 autonomous trucks move ore around the clock with no drivers in the cab. Each truck operates about 20 percent more hours per year than a manned truck. Luna: And that's not just a marginal gain — that's a structural shift in how the mine operates. You don't have shift changes, you don't have breaks, you don't have safety incidents from driver fatigue. Lucas: Exactly. And the same logic applies to the processing plants. Chile has pioneered what's called 'bioleaching' — using bacteria to extract copper from low-grade ore that would otherwise be waste rock. Antofagasta PLC, a Chilean private miner, has been using this at its Centinela mine since 2021. It's increased recovery rates from about 65 percent to nearly 80 percent for certain ore types. That's pure productivity gain: more copper from the same rock. Luna: And this has real macroeconomic effects. Higher productivity in copper means Chile can produce more with the same inputs, which supports the peso and gives the government fiscal space for social programs. Lucas: Right. The Chilean government's budget is heavily tied to copper revenues. In 2025, Codelco alone contributed about $3 billion to the state treasury. And because its cost per pound has stayed competitive — around $1.40 per pound — it generates healthy margins even when copper prices dip. That's the productivity dividend. Luna: But there's a cloud on the horizon. Ore grades are still declining, and many of Chile's major mines are aging. Chuquicamata, one of Codelco's flagship mines, started open-pit operations in 1915. It's now transitioning to an underground mine, which is incredibly complex and expensive. Lucas: That transition has been painful. Codelco's output fell from about 1.7 million tons in 2020 to 1.3 million in 2025, partly because of the underground shift. And costs have risen. Some analysts worry that Chile's productivity gains are plateauing. The low-hanging fruit — water efficiency, basic automation — has been picked. The next steps, like full mine electrification or ai driven ore sorting, require even bigger investments. Luna: And there's a political dimension too. In 2023, Chile's constitutional convention proposed changes to mining royalties that would have raised taxes significantly. The final reforms were more moderate, but the uncertainty spooked some investors. Resource nationalism is a real risk for productivity, because it can reduce the incentive for companies to invest in long-term efficiency improvements. Lucas: That's a great point. If miners aren't sure they'll capture the gains from productivity investments, they might hold back. But so far, the major players have stayed committed. BHP just approved a $7 billion expansion at Escondida in 2024, including a new concentrator plant that will boost processing capacity by 30 percent. That's a bet that Chile's productivity story isn't over yet. Luna: So what's the one metric listeners should watch to track whether Chile's copper productivity is still improving? Lucas: Watch total factor productivity in the mining sector, which the Chilean central bank publishes quarterly. If it stays positive, the industry is still innovating. But also watch Codelco's cost per pound. If that starts rising faster than inflation, it's a sign that the geological and technical challenges are starting to outweigh the efficiency gains. Luna: You know, this episode reminds me why we keep this show ad-free. It's so we can dig into these specifics without having to worry about pleasing sponsors or selling you something. If you've been walking through the economy with us and finding it useful, the best way to support the show is over at buy me a coffee dot com slash fexingo. It's what keeps us independent and lets us spend time on stories like this one. Lucas: Honestly, those contributions make a real difference. A listener recently wrote in saying they used our episode on Dutch logistics to improve their own supply chain — that's the kind of impact that keeps us going. And it's all listener-supported, no ads. Luna: Alright, back to Chile. I want to ask about something specific: the role of state-owned versus private miners. Codelco is often seen as less efficient, but the data seems to show it's actually kept pace with BHP and Antofagasta in productivity terms. Lucas: That's a nuanced point. Codelco's total factor productivity growth from 2018 to 2025 was about 1.5 percent annually, compared to BHP's 2 percent at Escondida. But Codelco is working with much older mines and lower grades. Given those constraints, 1.5 percent is impressive. And Codelco has been an innovator — it was the first miner in Chile to deploy autonomous drills back in 2017. Luna: So the state-owned model isn't necessarily a drag on productivity, at least not in this case. But it does face different pressures. Codelco can't walk away from unprofitable mines the way a private company might. Lucas: Exactly. Codelco is required by law to maintain production levels for national strategic reasons. That means it sometimes keeps operating mines that a private firm would close. That drags down its average productivity. But it also means it has a longer time horizon — it's investing in technologies like bioleaching and desalination that pay off over decades, not just quarters. Luna: That's a useful lesson for any industry: productivity isn't just about cutting costs today. It's about building systems that can adapt to changing conditions over time. Chile's copper sector seems to have done that, at least so far. Lucas: And the global implications are huge. As the world electrifies — more EVs, more solar panels, more grid infrastructure — copper demand is projected to grow by 3 to 4 percent annually through 2035. Chile's ability to produce that copper efficiently will affect prices for everyone. If Chilean productivity stalls, copper could become a bottleneck for the energy transition. Luna: So Chile's productivity isn't just Chile's problem. It's a global issue. And the next five years will tell us whether the easy gains are exhausted or whether there's another wave of innovation coming. Lucas: I think there is another wave. Look at what's happening with ore sorting technology — using sensors and AI to identify high-grade rock before it even enters the crusher. That can reduce energy use by 15 to 20 percent per ton. And it's just starting to be deployed at scale in Chile. So I'm cautiously optimistic. Luna: Cautiously optimistic — I like that. It's a good note to end on. For The Productivity Podcast, I'm Luna. Lucas: And I'm Lucas. See you next time.