Supplies from Escondida, the world’s biggest copper mine, increased 18 percent in 2007.

BHP Chief Executive Officer Marius Kloppers said “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.”

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 $50, or 0.7 percent, to $6,950 a metric ton yesterday on the London Metal Exchange. The metal, up 4.1 percent this year, touched a record $8,940 on July 2.

BHP fell 3.2 percent to A$36.40 at 1:23 p.m. in Sydney trading, taking its decline for the year to 9.3 percent.

BHP said in July that output at Escondida would drop through the 2009 fiscal year, which ends June 30. The Melbourne-based company owns 57.5 percent of the mine. Rio Tinto Group, the target of a hostile $121 billion bid by BHP, owns 30 percent.

Production at Escondida, which represents almost 10 percent of world supply, fell to 725,177 tons in the first six months of 2008 from 758,696 tons a year earlier, BHP said Aug 14.

Mine Risk

Supplies will fall as the company extracts ore from areas that yield 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 isn’t worried about the two-month decline in prices for raw materials and that BHP maintains its long-term outlook for copper, coal and iron ore.

A stronger dollar coupled with a diminished global-growth outlook had 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, will 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. “Why would they let that economy slow down beyond a certain rate if they have the fiscal means and they’ve got the inflationary headroom?”

Copper prices also will be boosted by tight supplies as mining companies face power constraints in Chile, Brazil, New Zealand and Western Australia, Kloppers said.

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