The challenges facing mineral exploration in Chile

Although Chile leads in exploration at the regional level and is ranked fourth globally, being surpassed by the US, Canada and Australia, copper production has stagnated in the world’s largest producer of the metal.

In 2022, 5.33Mt of copper was produced, a drop of 5.3% compared with the previous year, including 1.4Mt by state-owned Codelco whose output was down 10.7%. Production reached a peak of 5.83Mt in 2018.

Last year, US$713mn was spent on exploration in Chile, accounting for 5.48% of the US$13bn global budget and up 30% on 2021. Although that was partly due to the lifting of restrictions related to COVID-19, high prices of copper, gold and lithium have encouraged exploration.

However, the figures reflect a scenario where brownfield-type exploration is privileged with a focus on sustaining or increasing production, as in the cases of Teck's Quebrada Blanca II, BHP's Escondida and Spence, Anglo American's Los Bronces Integrado and Codelco's structural projects.

Medium-sized mining, meanwhile, has opted for new initiatives such as GoldFields' Salares Norte and Minera Arqueros, Marimaca and Pucobre’s El Espino. 

"Without exploration we won't be able to replace the old deposits and in copper there's still not enough exploratory work to make up for what we haven’t done in many years," Patricia Narváez, geologist and president of the FEXMIN mining fair, said during a meeting with the Chilean mining chamber this week.

There were 217 exploration projects registered in Chile last year, predominantly copper (52.5%), followed by gold (28.1%) and lithium (9.7%). Of the total, 112 were active, 96 halted and nine were withdrawn. Only 36 progressed to an advanced stage, according to a study by copper commission Cochilco. There were 52 advanced exploration projects in 2020 (The report can be seen in the Documents box on the top right of the screen).

A hurdle on the horizon is law 21,420, which is due to take effect next January after being postponed because of the need to review certain items considered risky for the mining concession system.

According to that law, the four-year term for an exploration concession cannot be renewed for the same property until one year after the expiration of the permit. That creates uncertainty and hinders projects, said Daniel Weinstein, a mining specialist at law firm Urzúa Abogados, in response to a question from BNamericas.

In addition, the law raises the costs of exploration permits, mainly affecting small-scale mining, as well as national company Enami, whose principal task is to process the ore of small miners and support the segment.

It would hinder "the planning of mining properties and open up space for territorial speculation," Antonio Ortúzar, head of Baker McKenzie Chile's Mining Practices Group, said in an interview with BNamericas.

Although the law provides for exemptions or reductions in the cost of permits if the property is being worked, this would apply only to advanced exploration or projects with studies submitted to the environmental review system, leaving out early-stage projects.

“Ultimately, it will still be the same large companies that already own most of the mining concessions in Chile,” Weinstein said.

The mining royalty bill contributes further to the uncertainty. "The feeling that the State is going to take up to 50% of the profits isn't motivating for investments in exploration," Weinstein said.

In recent years there has been a growing trend of investments made by junior companies in countries like Peru, Ecuador and Argentina, demonstrating Chile's loss of competitiveness, experts say.

In the latest Fraser Institute ranking on the attractiveness of mining jurisdictions to investors, Chile dropped to 31st place, after being placed sixth in 2018. Miners' concerns related to the legal system, uncertainty over disputed mining lands, regulatory inconsistencies and political stability were among the factors cited.