Production, Development and Exploration
Robust production amid the pandemic and resuming exploration
Copper's anti-viral properties seem to have rubbed off on the Chilean mining industry, which managed to successfully navigate the pandemic disruptions that heavily impacted Peru, Mexico and Australia, resulting in a decrease in global copper supply by 1.2% in 2020, according to Cochilco, the Chilean copper commission.
"The mining sector showed great resilience and capacity to take care of the health and safety of workers, with contagion rates much lower than the average population," highlighted Juan Carlos Jobet, Bi-Minister of Energy and Mining. "That was complemented with business continuity, as we closed 2020 with a copper output in line with 2019 figures. For comparison, copper production in Peru fell by 30% in 2020, so the industry's performance in Chile was remarkable last year."
Global supply disruptions decreased inventories, exacerbating the copper demand and supply gap, which has been in deficit since 2015, and improving the metal's price outlook. According to Goldman Sachs, the copper price will climb to an average of US$9,175 per mt (US$4.16/lb) by 2022, fuelled by optimism over vaccinations worldwide and strong economic revivals.
"Even though mine development and maintenance activities were initially restricted, operations have adjusted to the new working conditions and resumed. These measures enabled us to continue operating during the past year."
Iván Arriagada, CEO, Antofagasta Minerals
In the long-term, analysts foresee demand for copper increase by 28% over the next decade, especially as electric vehicles (EV) use up to three and a half times more copper than an internal combustion engine vehicle, according to Wood Mackenzie, global research and consultancy group, who also anticipates over 20 million EV charging points to be deployed globally by 2030, consuming over 250% more copper than 2019.
Alastair McIntyre, CEO of Canada-based Altiplano Metals, a mineral exploration company focused on acquiring projects with short-term potential for rapid advancement and production, sees the Chinese fiscal stimulus packages fuelling the current record growth in copper demand. He is also optimistic about the future of copper: "The green energy movement requires copper to rebuild infrastructure. The supply shortages as a result of the pandemic and the forecasted increase in demand for copper will drive a bullish market for the metal," he explained.
Of the top 10 copper mines in the world, three are in Chile, namely BHP's Escondida, Anglo American's Collahuasi and Codelco's El Teniente. Major players and an upcoming mid-tier mining scene dominate copper production in Chile. According to Consejo Minero, the Chilean mining association for large scale operators, mining activity in Chile witnessed consistent growth in production until a decade ago, where it stabilized at 6 million mt/y, representing approximately 27% of the world's copper supply. In 2019, production stood at 5.6 million mt, a decrease of 44,000 mt relative to 2018, primarily due to falling ore grades at the country's biggest and oldest mines such as Escondida, the world's largest copper mine and Codelco's Chuquicamata and Andina.
2020 was an eventful year for producers in Chile, who were able to sustain production even as drastic measures were implemented. From January to May 2020, production increased by 3.5% from 2019. However, despite strong performances from El Teniente, Collahuasi and El Tesoro, overall production in 2020 stood at 5.73 million mt, signifying a 1% decrease from 2019 according to Cochilco, which is remarkable, considering that Peru and Mexico saw their copper production decrease by 14.5% and 4.5%, respectively. Jorge Cantallops, director of studies at Cochilco, credits the country's ability to sustain production to the rise in labour productivity, which increased by 24.9% year-on-year.
Cochilco's report on copper production in Chile from 2020 – 2031 forecasts a 23.8% increase in output by 2031, reaching 7.095 million mt, after peaking in 2028 at 7.35 million mt, as a result of the development projects under construction today. This implies an average annual growth of 1.96%. Between 2020 and 2029, Chile is to witness investment in its mining sector amounting to US$74 billion, including 49 projects mainly copper-related. 68% of these projects are brownfield, 34% are in the execution stage, and 64% are in the feasibility stage.
It also highlights a significant change in the country's production profile, shifting from hydrometallurgical copper production towards concentrates production, which will represent 54.9% of the total copper output by 2031. Optimism about a balanced copper market for Chile this year is reinforced as major Chilean projects such as Codelco's El Teniente and Rajo Inca, BHP's Spence and Teck Resources' Quebrada Blanca II enter the commissioning phase, coupled with the development of Antofagasta Minerals' Los Pelambres and Capstone Mining's Santos Domingo project.
"We rely on a sophisticated monitoring system to control the caving. This is vital to achieving a uniform decrease in the columns of ore over the extraction points, so technology is key to the operation's success."
Luis Vega, CEO, Minera Tres Valles
Majors' production and brownfield expansion updates
Production rose in some mines in Chile over the course of 2020, while Anglo American reported a steep fall in production of 17.9% year-on-year in the first five months of 2020 as a result of water shortages at Los Bronces. Across its Los Bronces, El Soldado and Collahuasi joint venture, Anglo American produced 647,400 mt in 2020, which is a 1% increase compared to 2019.
On the other hand, Lundin Mining's Candelaria saw production fall 14.9% to 126,702 mt amid conflicts with trade unions that forced it to suspend operations in October of 2020 until both parties reached an agreement by the end of November. However, Candelaria's production is expected to rebound to 172,000 – 182,000 mt for 2021. Many major mining companies struggled to maintain smooth relationships with their workforce, and this issue was identified as the seventh risk facing mining companies globally in EY's Global mining and metals top 10 business risks and opportunities report for this year. While companies moved rapidly to protect their workforce from the outbreak, labour unions criticized them for taking advantage of the crisis to reduce jobs.
To cope with the pandemic, Iván Arriagada, CEO of Antofagasta Minerals, explained that the company shifted to working from home and operated with two-thirds of personnel on key sites. "Even though mine development and maintenance activities were initially restricted, operations have adjusted to the new working conditions and resumed. These measures enabled us to continue operating during the past year, allowing us to achieve our full year production guidance for 2020 and lower cash costs than in 2019," he commented.
The British multinational's total production in Chile in 2020 stood at 733,900 mt. "We expect a solid performance in 2021, with copper production of 730-760,000 tonnes at a net cash cost of US$1.25/lb as ore grades increase at Centinela and operating efficiency at our mines remains high," highlighted Arriagada.
Output at Zaldívar, the 50/50 joint venture between Antofagasta Minerals and Barrick Gold, decreased 16.9% to 96,500 mt.
Meanwhile, the expansion of Los Pelambres, which accounts for half of the company's copper output, is one of the projects to keep an eye on in 2021. Due to the pandemic, the US$1.3 billion expansion project was suspended for 120 days starting in April, but resumed in August of 2020 and should be complete in H2 2022. It will increase capacity by 60,000 mt/y and includes a US$500 million desalination plant. Using desalinated water and renewable energy, the company aims to extend the mine life to 2050 as opposed to 2035. The company is also investing in expanding Centinela, with plans to construct a second US$2.7 billion concentrator in early 2022.
Another major expansion project that was temporarily put on hold as a result of Covid-19 restrictions is Teck Resources' Quebrada Blanca Phase II (QB2), of which 40% was complete by February of 2021. This project will contribute 316,000 mt/y of copper for the first five years to Teck's annual production of 276,000 mt, with an initial mine life of 28 years, using only 25% of the total reserves and with significant expansion potential. The company aims to become carbon-neutral by 2050. To enable this transition, 118 MW for QB2 will be sourced from AES Gener's renewable portfolio of wind, solar and hydroelectric energy. In total, more than 50% of QB2's total operating power needs are expected to be from renewable sources.
Teck Resources also operates Quebrada Blanca, Carmen de Andacollo and Nueva Unión, a 50/50 joint venture with Newmont that is said to be one of the largest underdeveloped copper-gold-molybdenum projects in the Americas. It is awaiting the submission of the Environmental Impact Assessment (EIA) to begin the drilling campaign. Meanwhile, 350 km north of Santiago lies Carmen de Andacollo, an open-pit copper mine with a life of mine expected to continue until 2035 and annual production of approximately 60,000 mt.
One of the most anticipated expansion projects is the Spence mine, BHP's second-largest deposit in Chile after Escondida, for which production increased by 4% in 2020. BHP's wholly-owned Pampa Norte operation, in the Atacama Desert of northern Chile, consists of the Spence and Cerro Colorado mines, which collectively produced 243,000 mt in 2020, a 2% year-on-year decrease, primarily due to a 14% decline in stacked ore grade. These are targeting a production of 243,000-270,000 mt in 2021.
The US$2.5 billion Spence expansion project was delayed in April of 2020, as Covid-19 disrupted operations. However, construction was ramped up by Q4 of 2020 to ensure production by Q1 of 2021. According to the Australian giant, Escondida and Spence will rely on 100% renewable energy and eliminate water usage from aquifers by the mid-2020s and 2030, respectively.
Freeport-McMoRan's open-pit El Abra operation, the joint venture with Codelco, is also working to increase the percentage of renewable energy usage. The operation was awarded a Silver Seal Energy Efficiency Award from the Chilean Ministry of Energy. The Phoenix-based company is evaluating a large-scale expansion at El Abra, as their focus in Chile is on brownfield expansions. "Pre-COVID-19, we were in the process of doing baseline studies for the significant sulfide resource but were forced to stop that work," commented Joshua Olmsted, president and chief operating officer-Americas of the company. "This year, we plan to restart those baseline studies and consolidate all our previous efforts on pre-feasibility studies to determine whether we want to take the project to the next step."
Meanwhile, Europe's second-largest copper producer: KGHM Polska Miedź, reported record Q2 earnings from its joint venture with Japan's Sumitomo Metal Mining Co, Sierra Gorda, an open-pit copper and molybdenum mine commissioned in 2014. The mine produced 709,000 mt of copper in 2020, recording a 1% annual increase in production. KGHM was granted environmental approval in 2018 for a US$2 billion expansion, which would extend the mine's life by 21 years. The plans include an increase to the capacity of the facility's mill from 190,000 mt to 230,000 mt per day, according to Chilean newspaper Estrategia.
"We optimized the project on an operational scale at a starting rate of roughly 110,000 mt/d. With a large land package such as Vizcachitas, there are so many alterations that one can spend the next 15 years drilling and finding more resources."
Eduardo Covarrubias, Director, Los Andes Copper
The rise of mid-tier mining
"A current trend we have noted is the increase in mid-tier mining companies interested in Chile. Large-scale operators are expanding, but there are also several promising mid-sized projects for which we are developing studies," highlighted Claudio Lesch, president of Ausenco in South America, the leading Australian EPCM company operating globally. "We believe there is a strong potential for these projects to be developed in the future. Canadian and Australian junior companies are also increasingly active in Chile, especially in the gold space."
Chile is known for its major mines, which produce 90% of its output. However, recently the country is witnessing the rapid growth of small to mid-tier mining producers such as Minera Tres Valles (MTV), Mantos Copper, Los Andes Copper, Altiplano Metals, Pucobre, and Capstone Mining. Capstone Mining's copper-iron-gold project, Santo Domingo, is Chile's only fully-permitted greenfield project and is expected to start construction in 2021.
"2021 is a pivotal year for Capstone Mining as we are putting together all the pieces to finance Santo Domingo, which is fully permitted," commented Jerrold Annett, senior vice president of strategy and capital markets for Capstone. "We are expecting to begin construction by the end of 2021 and be in production by 2024. This will more than double the company’s entire production."
On the other hand, MTV ramped up production at its Don Gabriel mine following the completion of its expansion project in early 2020. The company is using block-caving to extract the ore. "This method has a very low unit cost compared to the other potential methods. The initial capital cost has been financed through our strategic partners," commented CEO Luis Vega, who added: "We rely on a sophisticated monitoring system to control the caving. This is vital to achieving a uniform decrease in the columns of ore over the extraction points, so technology is key to the operation's success."
Meanwhile, Canada-based Los Andes Copper is working on the pre-feasibility study for its Vizcachitas copper-molybdenum project, 150 km north of Santiago. Eduardo Covarrubias, director of Los Andes Copper, explained that the project has significant geological potential: "The current mineralization is open in most directions. We optimized the project on an operational scale at a starting rate of roughly 110,000 mt/d. With a large land package such as Vizcachitas, there are so many alterations that one can spend the next 15 years drilling and finding more resources," he said.
Another project with scope for expansion is Mantos Copper's Mantoverde brownfield operation in the Atacama region, for which it secured US$846.6 million in February of 2021 to fund the development of Mantoverde's Sulphide Development Project (MVDP). The project includes building a concentrator to process ore from the sulphide deposit and expanding the oxide operation, extending the life of Mantoverde to 2041 and increasing production to approximately 110,000 mt of copper annually and 33,000 oz of gold from 2023 to 2030.
Image courtesy of Antofagasta Plc