Delays and high costs hitting major mining projects in Chile

A string of major copper mining projects in Chile are being impacted by high costs and delays. 

Canada’s Teck Resources and state-owned copper giant Codelco are two of the companies that have had to face these scenarios which, according to copper studies center Cesco, affect 80 large and medium-sized mining initiatives in the country.

Between 2006 and 2022, the average investment in copper projects rose from US$500mn to US$2bn, Cesco said. In the same period, large-scale projects were delayed by an average of 4.3 years and medium-sized ones by 6.3 years, although the costs of delays in medium-sized projects are lower, according to a Cesco study.

State copper commission Cochilco indicates that 12 initiatives that account for investment of US$19.7bn had postponed their implementation by between one and three years as of the end of last year. Reasons included the pandemic and the instability of international markets, according to the latest mining investment report produced by the agency.

However, the industry also faces other complexities, such as obtaining environmental permits.

“The terms are longer than in other comparable jurisdictions and there is a lack of certainty about the standards to be met. In addition, when the permits are finally obtained, it is not known if they will last or if they will be the subject of endless administrative and/or legal processes,” Rony Zimerman, a mining attorney at the Lembeye law firm, told BNamericas.

At Teck's Quebrada Blanca phase 2 (QB2) copper project, the pandemic was the cause of a construction stoppage in mid-2020. 

In the last update for 3Q22, capex for QB2 increased to US$7.75bn compared to an initial planned investment of US$4.70bn reported in 2018.

QB2 is designed to produce 285,000-315,000t/y copper for 27 years. It is currently in the commissioning stage.

Although QB2 is the largest initiative in Chile, in general the initial capex of large-scale mining projects increased from an average of US$1.2bn to US$2bn, a 65% overrun in the last 20 years, according to Cesco.

Meanwhile, in medium-sized mining, the increase was from US$250mn to US$280mn, an 11% cost overrun.

Other factors that impact costs are higher prices of inputs, the increase in engineering costs, the aging of deposits, the drop in grades and new socio-environmental requirements, both Cesco and Cochilco say.

Codelco has been impacted by these variables. Last year its cash costs increased 24.6% year-on-year, said chairman Máximo Pacheco in a forum at the beginning of the year. He attributed the rise, in addition to the above, to inflation, low productivity in the construction sector and slow procurement processes.

This scenario affected the development of its projects at the company’s Chuquicamata, El Teniente, Andina and Salvador divisions, which aim to replace old deposits to increase production.

The capex for the underground Chuquicamata operation saw cost overruns of 53% and the current expected investment exceeds US$6bn. Also, it’s behind schedule. Initially, production was due in 2018 but Codelco was forced to extend the open pit's useful life, first to 2025 and now to 2032, Pacheco told the lower house of congress in March.

The El Teniente project portfolio, which seeks to deepen mining at the underground operation by three levels – Andes Norte, Diamante and Andesita – saw its capex increase to US$5.6bn this year, a 75% cost overrun, Pacheco added.

In addition, the start of production is delayed by one year and the material handling system in Andes Norte by three years, although it still does not have an official start date.

At Rajo Inca, Codelco looks to extend the life of Salvador’s open pit mine by 47 years, after the closure of its underground mine late last year, but it is delayed by nearly 15 months due to the pandemic, supply problems, pre-stripping issues and a change in strategy, according to a lower house document.

Initially, Rajo Inca was going to start production in 2019, now it is estimated that in 2026 it will reach its maximum capacity. The capex of US$1.4bn will be reviewed.

Delays in the start-up of Codelco's projects contributed to the company’s 10.7% drop in production last year to 1.4Mt of fine copper.

Chile is the world’s largest copper producer and Codelco the biggest red metal miner.