The recommendation by a Chilean environmental regulator to reject the permit for Anglo American's $3.3bn (R52.4bn) expansion of the Los Bronces copper mine has underscored the challenging operating environment for mines in South America, analysts said.
Anglo faces a potential hurdle after the Environmental Assessment Service of Chile (SEA) advised that the application for extending Los Bronces be rejected.
Through the expansion, Anglo is seeking to replace low-grade ore with higher-grade ore from new phases in the Los Bronces Integrated Project (LBIP).
Makhosi Nyamela, equity research analyst at FNB Wealth & Investment Solutions, said the Los Bronces extension would likely still be authorised and the current situation could involve political jockeying.
He said the project would be important for Anglo’s reduction of carbon emissions from the mine. “So if they cannot authorise this project, that means some of Anglo’s investment towards reduction of emissions does not go through. I don’t think this is the final decision.”
Nyamela said tax and constitutional reforms were creating uncertainty in mining in Chile.
“Their political environment makes it that much more difficult. It is a matter of navigating those difficult environments while ensuring you do not compromise returns to shareholders.”
Chile is the world’s biggest producer of copper, a major component for electric vehicles viewed as crucial to a cleaner environment. It is also used in household appliances and wind turbines.
In the Fraser Institute's annual mining survey, Chile declined by 14.2 points (a 17% drop) in its policy score in 2021. The report said miners expressed increased concerns over the country’s legal system, the uncertainty over disputed land claims and regulatory duplication and inconsistencies.
“Respondents identified Chile’s political stability as the major policy factor deterring investment, possibly reflecting the ongoing constitutional reform,” said the report.
Nyamela said examples of copper projects that have been stalled due to government-related issues include Rio Tinto’s copper and gold mine in Mongolia and Harmony Gold's gold and copper mine in Papua New Guinea.
Anglo, which began the application process around 2019. said this week the recommendation to reject the permit application came despite the SEA confirming that the project meets all the required environmental criteria.
The project also has the support so far of 23 of the 25 different bodies that form part of these processes, the company said.
The project has been configured specifically to protect the local environment
— Anglo American
“In the event of a negative decision from the SEA, the permitting process allows for further review to evaluate the full range of merits of the project alongside the technical permitting considerations.”
Anglo’s group head of corporate communication James Wyatt-Tilby said there are further steps in the permit process even after what may become a formal rejection from the SEA. “We will of course pursue those as needed.”
Wyatt-Tilby said Anglo’s portfolio is geared almost entirely towards metals and minerals that are critical to the decarbonisation of energy and transport, with copper being one such metal.
“We are soon to be commissioning our new copper mine in Peru — Quellaveco, which is expected to produce 350,000t of copper per year, growing our total copper production towards 1Mt per year”.
The group said the LBIP had been designed with the benefit of 10 years of scientific studies and a thorough and transparent consultation process with local communities and the relevant authorities. It said the project was important to its reduction of carbon emissions from Los Bronces.
“Mitigation measures will compensate for 120% of the emissions created by the project and Los Bronces’ current operations, both during construction and in operation, thereby improving local air quality. The result is a project that has been configured specifically to protect the local environment, without any impact on biodiversity or on the nearby protected areas or glaciers.”
Los Bronces, in the Santiago metropolitan region, is 3,500m above sea level, close to some glaciers, but the current pit is not over glaciers and the new phases of work under environmental assessment would be at least 200m from the nearest glacier.
Erik Heimlich, head of base metals supply at CRU Group, which provides analysis on global metals, said the project aims to develop two new open pit phases that would increase efficiency by accessing higher-grade and better-quality sections of the ore body. It also aims to develop an underground mine for high-grade mineralised bodies.
“So, if upheld, this decision would not stop Los Bronces, which has permits in place, but would limit its ability to expand its production and become a more efficient operation.”
He said the decision, if upheld, would have an impact on production and on operational efficiency, but the impact on global copper supply, although important, would not be extremely large.
“The company estimates that Los Bronces underground would increase production by 150,000t a year during the first 10 years post full ramp up. We think the overall impact would be smaller than that because the company would likely find other alternatives.”
He said Anglo had several avenues for growth in copper. It is completing the large Quellaveco mine in Peru and has several expansion projects at Collahuasi, also in Chile.
An investment analyst at Anchor Capital, Seleho Tsatsi, said the initial decision would not affect production this year or the next, citing a statement from Anglo that current copper production guidance for 2022 and 2023 is unchanged.
He said aside from this extension project, Quellevaco is expected to deliver its first production this year and ramp up to full production next year. Quellevaco should deliver about 300,000t a year of copper, so even putting Los Bronces to the side, Anglo has growth from green metals in the near future.
“At this stage it's probably too early to speculate on the ultimate fate of Los Bronces.”
He said South America was likely to remain an important mining region. Chile in particular is the largest producer of copper and although there will be challenges, the region will continue to be important given its resources.
Meanwhile, Sibanye-Stillwater in January pulled out of a proposed $1bn (about R15bn) acquisition of the Santa Rita nickel mine and the Serrote copper mine in Brazil due to “a geotechnical event”.
Sibanye said in January the event “is, and is reasonably expected to be, material and adverse to the business, financial condition, results of operations, the properties, assets, liabilities or operations of Santa Rita”.
The proposed acquisition would have given Sibanye increased exposure to green metals.
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