As copper prices hit their highest level in almost a decade, Chile’s mining industry is preparing for a new cycle of expansion.
“We hope that if the price cycle remains high, which is what most analysts expect, that this accelerates the development of new mine projects,” Chile’s Mines and Energy Minister Juan Carlos Jobet said in an interview with The Northern Miner.
The government has identified mining projects worth US$74 billion in development, of which almost a third are already in construction. They include Teck’s (TSX: TECK.A/TECK.B; NYSE: TCK) US$4.5 billion Quebrada Blanca project, an expansion of Antofagasta plc‘s (LSE: ANTO) Los Pelambres mine and Codelco’s massive program to overhaul its aging mine operations.
The new spur in investment could lift the country’s annual copper output to over 7 million tonnes by the end of the decade, according to the Chilean Copper Commission, up from the less than 6 million tonnes it has averaged over the last decade.
But the rally in commodity prices coincides with changing times in Chile. Last October Chileans voted overwhelmingly to rewrite the country’s forty-year-old constitution which many see as preventing government from tackling the huge gaps between rich and poor and improving public services, failings that triggered unprecedented protests and street violence in late 2019.
The constitutional process is set to take two years during which a huge range of issues are likely to be debated, from the presidential form of government and the size of the state to the place of indigenous communities and protection of the environment.
That could include ownership of the country’s mineral resources which are protected under the current constitution, notes Jobet. But he says foreign investors have little to worry about. The body which will draft the new constitution must approve all articles of the new constitution by a two-thirds majority (ensuring a broad consensus is reached) and must respect Chile’s existing international treaties and judicial rulings (including mineral claims).
“There is a broad consensus that the combination in Chile of public and private mining companies has been successful so there is no reason to expect this to change,” he argues.
A bigger challenge is preparing for the growing demand among consumers, investors, and local communities that the mining industry is sustainable and part of the fight against climate change, an issue Jobet sees taking center-stage in the coming months.
In recent weeks, U.S. President Joe Biden has re-joined the Paris Agreement on Climate Change while China, Japan, and South Korea (the three largest buyers of Chilean copper) have all adopted commitments to achieve net carbon neutrality by mid-century.
“This is gaining traction very quickly,” the minister explains. “I am convinced that post-Covid this is going to take off.”
Chile’s mining industry is already moving rapidly in this direction.
Once heavily reliant on coal-based generation, many large players, including Anglo American (LSE: AAL), BHP (NYSE: BHP; LSE: BHP) and Antofagasta Minerals (LSE: ANTO), among others, have signed deals in recent years to begin sourcing most or all electricity from renewable sources in the years ahead.
By 2023, renewables (including solar, wind and hydropower) will account for 60% of the power consumed by the sector, according to government estimates.
Cheap renewable energy (solar projects have won contracts at just US$20 per megawatt-hour (MW)) is also allowing the industry to tackle another challenge: water.
As inland sources grow scarce, especially in the bone-dry north where the industry is concentrated, mining companies are turning increasingly to the sea to supply water to their industrial processes.
BHP announced in February 2020 that following the construction of its new 1,200 liter/second desalination plant outside the city of Antofagasta, it had halted all pumping of continental water, fulfilling a corporate commitment a decade early.
Many more plants are in development. Production of desalinated water is expected to double over the next decade so that by 2030 the industry will be sourcing around half of its water from the ocean, the government says.
Despite these gains, Jobet says, the industry could and should do more to reduce its impact on the environment. Otherwise, Chile could see markets closed to its mineral exports or forced to accept lower prices at a significant cost to its economy, he claims.
“They [the mining companies] are advancing but I would like them to move faster,” the minister says.
There is no reason why they cannot. Chile’s dazzling deserts and endless coastline is one of the world’s richest resources for renewable energy.
Marginal as recently as five years ago, wind and solar now account for 22% of installed capacity on Chile’s national grid, according to the National Energy Commission. This figure could almost double this year with the inauguration of another 6,000MW, according to Jobet.
Renewables including hydropower already account for more than a third of the country’s power supplies, a proportion which should reach 70% by 2030 and 100% by 2050, according to government forecasts.
Jobet is particularly keen on concentrated solar power, or CSP, which uses water or salt to store solar energy through the day and which is then released during the night, thereby overcoming solar power’s main weak point: that the sun also sets.
The minister will inaugurate Chile’s first such plant near Calama later this year. By mid-century, a quarter of Chile’s energy could come this way, Jobet says.
To accelerate the transition to renewables, Jobet negotiated a commitment from the power industry to close all its coal-fired plants (which supply 40% of Chile’s power) by 2040, including a third by 2024.
Meanwhile, Chile’s almost endless potential for renewables is opening new opportunities. Solar power from the Atacama Desert, for instance, could meet a fifth of the world’s energy needs, according to Chile’s Solar Energy Research Center.
In 2020, President Sebastian Pinera launched Chile’s national green hydrogen strategy with the aim of making the country one of the world’s leading producers and exporters of the fuel by the end of the decades.
Still in its infancy, this sustainable fuel is seen as key to cleaning up many industrial processes (from heating to heavy transport) that cannot be replaced by lithium batteries. A study in 2020 by consultants McKinsey found that thanks to the strength of its sunshine and winds, Chile could be the world’s lowest cost producer of green hydrogen, with costs low enough to compensate for its distance from key markets in Asia and North America.
Developing a domestic hydrogen industry could also help clean up Chile’s mining industry, Jobet notes.
Mining companies, including Anglo American and Codelco are already working on converting giant haul trucks to run on hydrogen instead of diesel. A prototype hybrid model could be in operation later this year.
“Mining in Chile faces a challenge to show its importance to the economy and what it is doing to become sustainable,” says Jobet. “This is a great opportunity.”