Codelco: Going Underground
The fight against declining ore grades
Chile faces a structural issue regarding productivity growth, as the country's total factor productivity (TFP) has plateaued since the 1990s and decreased by 4.7% on average every year from 1993 to 2015 as a result of declining copper ore grades, according to the OECD. "Mines must invest in innovations to ensure higher copper ore grades are extracted and productivity is achieved to remain competitive," confirmed Philippe Hemmerdinger, president of the Association of Industrial Mining Suppliers (Aprimin).
Chile is home to the world's largest copper producer, Codelco, which accounts for 10% of the world's known proven reserves and 11% of global annual production. Codelco also operates some of the oldest mines in the world, such as Chuquicamata, the company's second-largest operation by size. The company's total production amounted to 1.71 million mt in 2019 and increased by 1% in 2020. The company did however, face challenges to maintain production amid the pandemic. Codelco has a plan to invest US$40 billion on its core assets to extend their life, expand and overhaul operations over the next decade.
Chuquicamata's life is to be extended by another 40 years at least, as approximately US$5.6 billion is being spent on the century-old mine to transition it from one of the world's largest open-pit mines (by excavated volume) to an underground operation to maintain Codelco's production rates amid the declining grades. The three levels deep underground expansion is to be implemented using conventional drill and blast drifting techniques. By 2026, it is expected to produce 320,000 mt/y of fine copper and 15,000 mt/y of molybdenum.
Chuquicamata accounts for a quarter of Codelco's total production, however 1,700 km to the south lies the company’s largest operation, El Teniente, the world's largest underground copper mine. First mined in the early 1900s, El Teniente developed through the years and today includes 3,000 km of underground tunnels. Its US$3.4 billion expansion, to be completed by 2023, will introduce a new section called Recursos Norte, to contribute 20% of the ore fed daily to the mine's processing facilities. Next comes the Diamante and Andesita phases, currently under construction. Overall, the expansion will extend the productive life of the mine by 50 years, boosting production to more than 500,000 mt/y compared to 459,744 mt/y it produced in 2019.
Earlier in 2021, Codelco also approved a US$1.38 billion development project for Rajo Inca, part of its Salvador division, which has been operating since 1959 with three small open pit mines and an underground mine. The expansion will increase the mine's output by 50%, peaking at 95,000 mt/y of fine copper. Meanwhile, its Andina operation is to be altered under a US$250 million plan following criticism from environmentalists to protect glaciers in the region.
With great production capacity comes great challenges for Codelco, which faces attacks from environmentalists across multiple operations, tensions with labour unions and high costs and debt to finance structural projects. Nonetheless, the company has embarked on a journey of innovation and is increasing the use of mining technology to reduce its carbon footprint, minimize costs and increase productivity by applying automation and robotics to efficiently extract high grade copper at its deep mines. The current high cycle of copper prices should only help the company’s positioning for the coming years.
Image courtesy of DSI Underground