Beyond Copper Exploration
Light at the end of the tunnel for Chile’s junior companies
The future of mining in Chile appears bright, with massive investment flows forecast for the immediate future. However, the outlook may be bleaker for exploration companies, especially those not focused on copper. According to Cochilco, only 18% of the expected investment will be allotted to greenfield projects, with US$15.2 billion divided among 15 projects, compared to 35 expansion projects amounting to more than four times that figure. Of these, 54.3% are copper exploration and 11.5% are related to gold, with lithium and rare earths representing a minor share of the greenfield sector.
Nonetheless, even if the outlook remains challenging, many companies are starting to notice a more positive sentiment towards junior companies in financial markets. Moreover, technology is evolving, optimizing junior’s operations and making them more sustainable and successful, which is catching the eyes of investors.
Lithium: Navigating challenges, embracing innovation
While a few years ago, the world was in the midst of a lithium rush, doubts about electromobility and energy transition, global turmoil, political decisions, and a rising supply of the mineral contributed to lower prices, affecting producers and diminishing investors’ appetite for lithium. Juniors are forced to devise strategies to try to lure investment. Adoption of new technologies has helped enormously in this regard, namely Direct Lithium Extraction (DLE), allowing for faster production without needing a larger amount of water. “DLE offers a more environmentally responsible alternative to traditional evaporation ponds. We believe DLE will become the standard across the industry, and we intend to be at the forefront of its adoption,” commented Steve Cochrane, CEO of Lithium Chile.
Government-backed initiatives have also been important in holding a lifeline to the sector. In Chile, the new National Lithium Strategy is aimed at boosting and reshaping lithium extraction. The Strategy not only opens up new areas to explore but also intends to position Chile as a key player downstream of the value chain while sustainability concerns are taken into great consideration. To do so, the Strategy allows for public-private cooperation through extending the role of Special Lithium Operation Contracts (CEOLs).
Lithium Chile was granted one of the CEOLs together with Grupo Errázuriz at the Coipasa Basin, underpinning the benefits of cooperation. “Our JV with Grupo Errázuriz was key. Together, we controlled more than 97% of the claims in the salar. That level of basin control was a prerequisite for applying under the fast-track CEOL framework under the National Lithium Strategy,” Cochrane affirmed.
Nonetheless, the process to obtain a CEOL is competitive and complex, and many companies have faced rulings that they felt were unfair. This is the case of Ignacio Mehech, CEO of CleanTech Lithium. He remains confident that the government will approve the appeal and grant CleanTech a CEOL, making its Laguna Verde project, which incorporates DLE, a key component of its Strategy. “We are very confident in this government and their strategy for lithium,” he said, adding, “There is an opportunity for an integrated BEV supply chain in Latin America, as seen through the Chilean public sector partnering with companies like Albemarle and SQM, as well as greater incentives provided for downstream collaboration in Chile.”
Thus, despite the industry enduring a period of induced lethargy due to low lithium prices, the first glimmers of hope are appearing. The sector is confident in the momentum the National Strategy is giving it, in its sustained relevance regardless of electoral outcomes, and in the inexorability of the energy transition, which will hopefully drive prices up and with them investor confidence.
“China is the world’s largest consumer of lithium and is advancing rapidly in EVs, so building constructive relationships with China is pragmatic and necessary. Their expertise in lithium processing and manufacturing cannot be overlooked.”
Steve Cochrane, CEO, Lithium Chile
The broader outlook
Chile is endowed with a myriad of different metal deposits. Despite each mineral faring differently regarding price trajectories, they have all experienced the same financial constraints concerning availability of investment, but the outlook is brightening again.
Aclara Resources is a rare-earth exploration company that has devised, in collaboration with the University of Toronto, the Circular Mineral Harvesting technology, which allows for the extraction of rare-earth minerals, mainly dysprosium and terbium, from clay deposits while recycling 99% of the chemicals used and almost all the water needed for the process. Like most companies, Aclara faced some difficulties recently. Nelson Donoso, Aclara Resources’ general manager, explained: “Being a project developer has its difficulties. Developers invest heavily before obtaining any environmental approval or revenue. For example, two years ago, Aclara was investing around US$25 million annually; now it is closer to US$10 million per year.”
But behind each hindrance lies new opportunities, with Donoso pointing to the need to find stable partners to surmount financial difficulties. “Automakers and other industrial players are now much closer, showing strong interest in securing a sustainable rare earth supply. We have engaged with globally known automotive companies, all of whom are concerned about future supply chains dominated by China,” he said.
Cobalt is also poorly valued, with low prices affecting companies mining it. “Factors such as the COVID pandemic and short-term cobalt overproduction in the DRC and Indonesia have led to price volatility and a more cautious development approach,” affirmed Duncan Blount, CEO of Chilean Cobalt, which owns the La Cobaltera project, historically one of the few mines globally to have cobalt as its primary mineral.
“Chile benefits from a strong, experienced mining investment community. The next administration has a valuable opportunity to build on this foundation and help usher in a new chapter of responsible growth with strong local and foreign investment and support.”
Duncan Blount, CEO, Chilean Cobalt
The expectation is for metal prices to rise again, pushed by decarbonization processes, but sustained thanks to enhanced investor confidence. Part of this optimism is due to the importance that many of these minerals will have in the energy transition. Blount commented: “What has brought the majority of investor interest to our project is that cobalt is listed on every country’s critical minerals list, and the US has to import the majority of it.”
Not even gold has been spared from this trend in exploration, despite having enjoyed record-high prices. Tesoro Gold, owners of the district-scale Ternera deposit at El Zorro, has also had to adapt to limited capital inflows, despite resources currently amounting to 1.5 million oz and having made breakthrough discoveries at nearby Drone Hill. “It is unusual to use a spot gold price for project valuation. Projects are generally assessed based on a consensus long term gold price or one that is acceptable for financial institutions to form the bases for funding of the project. The current gold price is used for a valuation scenario, but not as a decision gate for the project. We have seen a significant increase in the gold price over recent times, but whether this is sustainable over the long term remains uncertain,” elaborated Linton Putland, executive director, mining and development at Tesoro Gold.
While recent times might not have been the easiest for exploration companies, particularly regarding investor sentiment, the sector has demonstrated its robustness and resilience by weathering the storm. Technology has proven invaluable in this regard, streamlining operations and luring investors. Juniors should receive more support as they are key in generating new discoveries that will translate into future jobs and resources. The National Lithium Strategy is a welcome example of how cooperation between public and private actors can drive development and business, capitalizing on Chile’s mining and geopolitical potential. But more efforts should be made, and financing made more available. Juniors should keep embracing new technologies. Despite having navigated turbulent times, exploration companies are starting to see the light at the end of the tunnel.
“Chile ranks 45th in the world and 1st in Latin America for S&P ratings and is first and second in global production of copper and lithium, demonstrating confidence in the country and the importance of mining as a significant contributor to GDP.”
Alistair McIntyre, CEO, Altiplano Metals
Article header image by Alexander Schimmeck at Unsplash