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EMJ-Chile2012

EMJ-Chile2012

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TABLE OF CONTENTS
Introduction.................................................
p50
Interview with Minister Hernán de Solminihac..
p51
Interview with Diego Hernández, CODELCO.....
p53
Chile’s Array of Commodities........................
p54
Evolution and Challenges.............................
p63
Service Providers..........................................
p70
Conclusion.................................................
p82
This report was researched and prepared byGlobal Business Reports (www.gbreports.com) forEngineering & Mining Journal.Editorial researched and written by Matilde Mereghetti,Sidonie Pichard and Yana Stankova.For more details, please contact info@gbreports.com.
MARCH 2012
Cover photo: View of Anglo American’s Los Broncesoperation, courtesy of Anglo American.
 A REPORT BY GBR FOR E&MJ
Mnn n Chle
The engine that moves Chile forward 
 
MiNiNg iN CHiLEMiNiNg iN CHiLE
50
E&MJ
MARCH 2012 www.e-mj.com www.e-mj.com
E&MJ
MARCH 2012 51
The economy of Chile is one of SouthAmerica’s most stable and prosperous,with the highest nominal GDP per capita inLatin America. The Global CompetitivenessReport by the World Economic Forum for2011-2012 ranks Chile 31st, topping allLatin American countries, well above Brazil(53rd), Mexico (58th), Peru (67th) and Ar
-
gentina (85th). The Ease of Doing BusinessIndex of the World Bank for 2012 lists Chileas being the 29th most competitive countryin the world and the first in Latin America.The mining sector is one of the pillars ofthe Chilean economy. The Chilean govern
-
ment strongly supports foreign investmentin the sector and has modified its miningindustry laws and regulations to create afavorable investing environment for for
-
eigners. Thanks to large copper resources,progressive legislation and a healthy invest
-
Mnn actvty wll be the enne thatmoves Chle forward n the next decade
Enjoying political stability, the world’s largest copper-producer has set anexample in the development of its mining sector and related industries.
ment environment, Chile has become thecopper-mining capital of the world, produc
-
ing over a third of global output.In recent decades, mining activity hasled Chile’s economic growth. Mining proj
-
ects are not seen as isolated enclaves butas active promoters of regional developmentand generating new sources of employment.Increased investment in exploration andmining stocks, greater output and exports ofmineral products and their derivatives havebeen key factors that have contributed tothe development of communities.In the words of the President of Chile,Sebastián Piñera, at the annual meeting ofthe Mining Council (Consejo Minero) heldin November 2011, “The mining indus
-
try represents a little more than 20% ofChile’s GDP, equal to more than US$40billion and generates direct employmentfor approximately 110,000, and indirectmore than 500,000 people.”“Mining is Chile’s engine,” said Hernánde Solminihac, Chilean Minister of Mining,when talking about the overall mining in
-
vestment portfolio by 2020, which is esti
-
mated to equate to US$66.8 billion. Thiscontinual growth is based not just on theindustry expanding, but also on it becomingmore sophisticated and diverse.Traditionally, Chile’s mining strength hasbeen based on a single commodity: copper.In the past two decades, Chile has consoli
-
dated its position as world leader in copperproduction, raising its global market sharefrom 17.7% in 1990 to 34.2% in 2011.Mine copper output in 2011 reached 5.69million metric tons (mt) of refined copper, a267,000 mt or a 5.0% annual increase onthe previous year.
(cont. on page 52)
“Our priority is to improve safety”
Interview with Hernán de Solminihac, Minister of Mining, Chile
Which are the main bodies underthe umbrella of the Chilean Mining
Mnstry?
There are various governmental institutionssubordinate to the Ministry of Mining. Co
-
chilco is the institute that advises the Chil
-
ean government and private players on mat
-
ters concerning the production of copper,copper byproducts, metals and industrialminerals, with the exception of coal andfuels. Sernageomin provides specializedtechnical advice on geological and miningmatters to the Ministry of Mining. ENAMI(Empresa Nacional de Minería) aims to en
-
courage the development of small and me
-
dium mining companies, helping them toaccess the market of refined metals, undercompetitive conditions.There is currently a law under discussionthat reconsiders the structure of the Ministryof Mining. The proposition will give a newdirection to the aforementioned institutionsand hopes to create additional institutions,such as an Institute of Geology, which willbe responsible for research, development, or
-
ganization of data and advice on geologicalfeatures and another institution, “Superinten
-
dencia de Minas”, will be dedicated to moni
-
tor and ensure compliance with mine safetyregulations. This law is yet to be approved.
You were recently nominated as
Mnster of Mnn. What are the
main initiatives that you hope to seeapproved during your Ministry?
Our priority is to improve mining safety. Af
-
ter the Mina San José accident, the govern
-
ment has been working intensely to loweraccident rates. The San José mine accidentwas, without a doubt, an accident with apositive outcome, and important lessonswere learned from it by the whole industryin Chile. Additionally, the ministry has im
-
proved the taxation system and increasedassistance to small mining businesses, aswe are aware that most accidents occur inthis specific market sector. Thanks to thiseffort and the raised awareness of safetyconcerns, the fatalities rate in the first eightmonths of 2011 were reduced by morethan 50% compared to the same period lastyear. At the same time, we have proposeda regulation that puts increased emphasison safety, improving working conditions andsafety at altitude.Another project, which has already beenapproved by congress and is in its final stageof approval, is a law requiring mining compa
-
nies to prepare a closure plan for the minesbefore the start of operations to minimize theenvironmental impact of mines.
The state mnn company Codelco
was the subject of legislation last
year. What are the man chanes
that have been made to Codelco’s
corporate overnance?
In March 2010, a new legislation was ap
-
proved which makes Codelco’s corporategovernance more independent from the gov
-
ernment. The government designates threedirectors directly, and the rest are nominatedby the corporate president, with the proposi
-
tion of high public direction, an organizationthat selects the candidates for the positions.Also, two directors are proposed and select
-
ed by the workers.The question of private capital in Codelcohas also been a long running discussion inChile. The President Sebastián Piñera hasbeen clear about the fact that Codelco is,and always should be, a state company. De
-
spite this, there might be specific projects inwhich Codelco can participate in cooperationwith private capital.
What are the ntatves n Chle to
counteract the lack of professionals
n the mnn sector?
We are assessing the profile of the profes
-
sionals needed, the quantity and the salarythat each type of profile would get. Whendemand is quantified, it is easier to solvethe problem. We have worked with univer
-
sities and technical institutes to adjust cur
-
ricula to adapt to the need of the miningsector and, by being aware of the prospec
-
tive salaries, we are able to show studentsthe prospects that this activity can offer.We have also created programs to trainpeople from other industries, allowing themto transfer into mining. Companies are alsodirectly training people who are interested
in entering the sector.
An important subject for our countryis the participation of females in the workforce; both government and private sectorhave made a significant effort in this regard.Today there are examples such as MineraGaby, where the workforce is currently 20%female, and Esperanza, where the work
-
force is currently 12% female. There hasbeen a definite advance in this line of work.
How can Chile attract more ju
-
nior companies? Is the regulatoryframework too favorable to major
companes?
In Chile there are currently 8,000 miningoperations, out of which around 20 are heldby large companies. The amount of com
-
panies is colossal. Considering productionlevels, big companies are majority, but ifyou look at the quantity of companies, thereare considerably more small and mediummining companies.The government is working alongsidewith CORFO (Corporación de Fomento dela Producción), to create the Fénix fund, inwhich the state has invested US$92 mil
-
lion, and the private sector delivered aroundUS$58 million, to support the participationof junior companies in the exploration of newmineral deposits.
How will you ensure Chile’s globalleadership for copper production inthe future?
The mining industry today has aboutUS$67 billion worth of investment to be putin place in the next eight years, of whicharound US$20 billion belong to Codelco,and the rest to private companies, with theobjective of increasing the production oncurrent mines, generating new production,making existing mines more efficient, andsurpassing 5.4 million mt of fine copper.We expect that the materialization of theseprojects will maintain Chile’s leadership inworld copper production.
 
MiNiNg iN CHiLEMiNiNg iN CHiLE
52
E&MJ
MARCH 2012 www.e-mj.com www.e-mj.com
E&MJ
MARCH 2012 53
(cont. from page 50)
According to An
-
drés Mac-Lean, executive vice president ofthe Chilean Copper Commission (Cochil
-
co), “The trend should stand over the shortterm, with production in 2013 expected toreach a record 6.12 million mt”.Chile has been the leading global pro
-
ducer of copper since the 1990s whenthe process of liberalization opened theChilean market to the arrival of large in
-
ternational mining companies, whoseinvestments led to a tripling of the coun
-
try’s copper production so that in 1999Chile produced roughly 35% of the coppermined in the world.Since then, the industry, followed bythe state owned firm Codelco, has intro
-
duced new management practices, newtechnologies and strong investment intraining and skills development.As a result, the extraction of copper be
-
tween 1993 and 2005 was equal to theamount of ore mined in the previous 92years. Increasing productivity and reduc
-
ing production costs have ensured Chile’smining competitiveness in internationalmarkets. In 2002, Chile ranked first in theFraser Institute’s Annual Survey of MiningCompanies as the most attractive countryin the world for mining investment, bothfor its geological potential and its politicalstability.Moreover, since the beginning of thelast decade, prices of copper have in
-
creased in response to the sharp rise indemand from emerging Asian countries.The London Metal Exchange LME index ofsix primary metals including copper andaluminum fell 22% last year, the first dropin three years.However, copper prices may gain asmuch as 25% in the second half of thisyear on steady demand from China, theworld’s top consumer, and amid tightsupplies. According to Yuka Kageyama,a commodity derivate analyst at MizuhoCorporate Bank Ltd (MIZC), prices willclimb to as high as US$9,500/mt fromlast year’s close of US$7,600/mt.Despite this traditional and continuedfocus on copper, which accounts for morethan 60% of the total mining Chilean ex
-
ports, other minerals are also receiving in
-
creased attention. In 2011, Chile rankedfirst globally in copper, lithium and rhe
-
nium, third in molybdenum, fifth in silverand 15th in gold. Chile was also one ofthe world’s significant producers and ex
-
porters of potassium nitrate and sodiumnitrate and ranked second after Japan inworld production of iodine.Over the next four years, there will be asubstantial increase in silver, copper and,especially, gold output. Moreover, Chile isone of the most significant producers of ar
-
senic, boron, refined selenium, pumicite,sulfur, salt and diatomite.However, the Chilean mining industryneeds to face certain challenges includingaccess to water, energy and the lack ofqualified personnel. Nevertheless, the sta
-
ble political and economic situation andthe mining regulation framework supportconfidence and foresight for investmentsin the country; the production potentialof Chile is huge and long-term projectionsare positive.
Mantann global Leadershp
Interview with Diego Hernández, President and CEO of Codelco
What is your vision for Codelco gov
-ernance?
Codelco is the number one copper producerworldwide, which is a position that we haveheld for the last 40 years. We are in a pe
-
riod where we need to invest much morethan what we have invested before; from2011 we had to invest the same amount ofmoney that we have invested over the last35 years.In 2014 we will run out of oxide ore atChuquicamata where we have a plant thatproduces 150,000 mt/y; we are mitigatingthat risk by developing the Quetena and Ale
-
jandro Hales projects. We will lose accessto the ore we are mining now in Chuqui
-
camata unless we transition from open-pitmining to underground mining. The locationof the ore at El Teniente is 300m deepercompared to the current level of the ore.The new underground level of El Tenientewill cost additional investment.Moreover, to increase our production,Codelco will require the construction of anadditional plant to process sulphides, whichshould be completed by 2017. We areproviding Ministro Hales, which produces150,000 mt/y, with an open-pit concentra
-
tor. We also have projects in Salvador, whichat present produce 70,000 mt/y, but we canincrease this by constructing an open pit ontop of underground workings and smalleropen pits. This would give us access tothe source of 1 billion mt of ore at gradesof 0.5% and we are currently collecting thegeological information for the project.We are performing a feasibility study atthe San Antonio project to produce 60,000mt/y, which will provide future access to800 million mt of sulphide reserves that arebelow the oxides. The production at Salva
-
dor should increase from 70,000 mt/y to200,000 mt/y.Andina is a project in the feasibilitystage and we plan to build a concentratorto increase production from 250,000 mt/yto 600,000 mt/y. If we execute all of theprojects, copper production will increasefrom 1.75 million mt/y to 2.1 million mt/y,but if we do not execute any projects thenour production will drop to 800,000 mt/yby 2020.Codelco intends to improve its positionin the industry in terms of cost. We want todecrease costs by 25% by the second halfof 2012 and the investments will help usto become more competitive. The projectswill allow us to have bigger plants with lesspeople and will improve our productivity.
How do you plan to improve effi
-cency?
Codelco will use the same tools that privatecompanies use. Codelco is a state companythat had to comply with new rules intro
-
duced by new governors when Chile joinedthe Organization for Economic Co-operationand Development (OECD) in 2010. The Min
-
ister of Finance and Minister of Mining rep
-
resent the shareholders. This system givesmore flexibility to the company and enablesus to achieve better business results.Moreover, Codelco needs to take advan
-
tage of all of our investment programs toupdate our current technology and includethe latest generation of equipment in a waythat we can be more competitive. We runour own programs in some fields throughdifferent approaches in partnerships withsome service companies, universities andresearch and development entities. In somefields we have internal research and devel
-
opment in underground mining for blockad
-
ing, automation, working at distance, thepre-conditioning of rock, continuous miningand bio-leaching, although when we canfind available technology in the market wedo not try and develop it ourselves.
What s the msson of the mnn
cluster in Chile that Codelco has
been oranzn?
The project is aimed at helping servicecompanies that are in the mining cluster toexpand and become global companies thatcan be competitive abroad. We have influ
-
ence to contract their services and there aremany service companies who can provideus with solutions using innovation and tech
-
nology to solve our challenges.We have selected companies that are inthe program and our target is to help themimprove their quality and potential by offer
-
ing them contracts. We encourage compa
-
nies to incorporate new innovations and thecommon target is to increase the number ofcompanies in the cluster program to 250by 2020.
What is Codelco’s strategy regard
-
ing power supply?
We have secured power contracts withpower companies, which is important aswe believe that in the future there will bea shortage of power. Therefore we need topressure power companies to increase theircapacity because there is enough interest inthe market.The cost of power has increased follow
-
ing the growth in the demand. This has af
-
fected our competitiveness so we are look
-
ing for alternatives to decrease the cost.
How do you face the shortage ofskilled professionals working forthe industry?
We need to prepare the company for thenext generation of employees as Codelcohas a higher than average age of staff in theindustry. We have started to employ peoplethrough apprenticeships and through gradu
-
ate programs and we are focused on human
resources.
All of these initiatives will work in con
-
junction with health and safety programs,environmental and community initiativesand we are making a special effort to im
-
prove our working practices.
What is your final message to Engi
-
neering & Mining Journal’s reader
-shp?
Chile will maintain its leadership and see aportfolio of greenfield and brownfield projectsthat are lower-grade copper; the grades havedecreased from 0.95% copper to 0.75% andcould continue to decline, meaning that weneed to enhance our technology to producethe same amount of copper.
Andrés Mac-Lean, executive vice president of theChilean Copper Commission (Cochilco)

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