Declining ore grades are one of the major challenges faced by copper miners in South America, specifically in Chile, says professional services firm Deloitte.
Chile has the largest available resource of copper in the world, with 2014 production having amounted to 5.74-million tonnes, or 30% of total global production.
Chile still has 28% of global copper reserves, which equates to 190-million tonnes, according to a 2013 United States Geological Survey report.
Chile is also the third-largest producer of molybdenum, with total production of 48 770 t, or 20% of global production, having been reached in 2014. This abundance of molybdenum is partly owing to copper’s rich content of molybdenum. In some instances, copper deposits also contain gold and silver, which are considered byproducts when producing copper.
Two of the other main commodities mined in Chile are natural nitrates and iodine.
Deloitte Chile partner Christopher Lyon says the decline in copper ore grades is resulting in the bulk of copper mining companies in Chile increasing production to enable them to produce the same amount of copper they did in previous years.
“The decline in copper ore reserves makes it very difficult for Chile to grow its yearly production. As such, the mining companies are working on two fronts: brownfield expansion projects of existing mines to increase throughput and maintain or increase production over time, and greenfield projects to develop new mines to increase production,” he explains.
The country’s aim is to grow copper production by between 3% and 4% yearly.
Further, Lyon notes that Peru is emerging as a global player in the copper mining sector, with growth projected to propel it into second place globally by 2016, trailing Chile.
In 2016, it is estimated Chile will produce 6.17-million tonnes of copper, with Peru estimated to come in at 2.15-million tonnes.
This will translate into Peru achieving a growth rate of 39.6%, compared with the country’s final estimated production for 2015.
Another major challenge is scarcity of water in Chile, says Lyon.
“Copper deposits are typically located in the north of Chile, in the Andes mountain range. There is little water as the Atacama Desert is the driest in the world, which forces mining companies to use seawater,” he says, adding that seawater needs to be pumped, on average, 2.5 km above sea level and sometimes more than 100 km inland.
This requires capital expenditure (capex) and energy.”
Additionally, if desalination of seawater is required, this will require even more capex and energy.
This leads to a third challenge: high energy costs. “The lack of water in the north of Chile also means that most of the energy sources are thermal – mainly coal-, diesel- and gas-fired plants – which are expensive [to operate] as Chile does not produce any hydrocarbons,” says Lyon.
Subsequently, this has led to investments being made in other sources of energy, such as solar; however, he notes solar energy again presents other issues, such as a lack of 24-hour availability and relatively expensive prices.
The high cost of energy can also be attributed to a lack of natural energy sources, such as hydroelectric power schemes.
This can be further broken up into two factors: permitting and investment. “Over the past three years, three significant coal-fired power stations – Barrancones, Castilla and Punta Alcalde – that were granted permits were cancelled owing to judicial decisions regarding flaws in the permitting approval process,” says Lyon.
Not building these power stations will create short-term constraint on power supply as demand grows, Lyon says.
Further, he adds that power generating companies have not been proactive in presenting new projects for permitting, which raises concerns about mid- to long-term power supply.
Adding to power constraints, Lyon says Chile’s mining industry increased its energy consumption by 59% between 2001 and 2011. “In comparison to other countries, Chilean mining projects consume an average of 25 MWh for every tonne of material processed, which is 10% higher than the world average.”
This challenge has existed for a number of years in terms of cost; however, the supply constraint has only emerged in the past five years, he says, adding that this was mainly brought on by the number of mining projects that are in the pipeline, all of which will need power that is currently not available.
To combat the power availability issue, Lyon notes that some mining companies in South America have designed their own power stations. For instance, global resources company BHP Billiton started building the 540 MW Kelar power station, located in Mejillones, II region, in northern Chile. The first stone was laid on August 28, 2014.
Further, the tendering of build-own-operate- transfer contracts will aim to attract energy companies to invest in power projects.
“The government has approved a law to unite Chile’s northern power grid with its central grid, which should provide better energy supply to the areas that are in between the two grids,” he says.