A crown for the copper king: Why Codelco can’t let go of Llurimagua

The future of Ecuador's Llurimagua copper-molybdenum project looks more uncertain than ever, but advancing the initiative is deemed crucial.

Ecuador's constitutional court recently refused to process a legal measure filed by the ministries of energy and environment, the public prosecutors' office and Exploraciones Mineras Andinas, the local exploration unit of Chilean state miner Codelco, to reactivate the project.

As such, a ruling by a provincial court, suspending the environmental license and demanding Ecuadoran state miner and Enami EP prepare a new environmental impact study and management plan for the advanced exploration phase, still stands. That ruling also demands that Enami and Codelco comply with the mechanisms of the environmental consultation process.

Enami owns the project, but Codelco would take a 49% interest when the joint venture is formed, according to preliminary agreements between the two companies.

Experts deem the alliance a first step in Codelco's international expansion and crucial for the company to maintain its position as global top copper producer in the face of declining ore grades in Chile.

Meanwhile in Ecuador, opposition to mining is growing, also impacting Llurimagua's progress.

Codelco started international arbitration before the International Centre for Settlement of Investment Disputes (ICSID) over the lack of progress on the formation of the joint company.

Ecuador's former deputy minister of mines, Fernando Benalcázar, tells BNamericas why Codelco cannot afford to abandon Llurimagua and what the initiative means for the country.

BNamericas: How big an obstacle is the refusal of the constitutional court to process the legal actions to reactivate Llurimagua to the development of the project?

Benalcázar: It's clear that there will be a new delay in obtaining the environmental license, which was suspended last year by a court in Imbabura province.

It's difficult to establish how long it will take. Anti-mining groups have already declared absolute victory in this case, based on the resolution of the constitutional court, and some local governments have declared their opposition to mining in relation to the court's latest ruling.

BNamericas: Why is Llurimagua so important for Codelco?

Benalcázar: It's a vital project for Codelco, since it's the only international one it has.

Furthermore, the company carried out geological research and interpretations for more than eight years that would confirm the great resource potential. You can't throw that away, especially at this very important time for copper.

It must also be considered that the large copper deposits in Chile are reaching the end of their mine life and the next prospects are much deeper and more expensive to develop.

Llurimagua would be a true crown for Codelco, which is why it will seek to maintain the project.

BNamericas: How important is it for Ecuador to advance this project?

Benalcázar: In the global context, the prices per ton of copper confirm the need to identify new world-class deposits for the energy transition.

Experts predict that a ton of copper could reach US$12,000 if the world's largest mining companies don't invest several billion dollars in exploration and development of new prospects.

With more than 100,000m of samples obtained through advanced exploration, carried out and processed by Codelco, and the commitment and interest this company has shown in the deposit over the last decade, it can be deduced that this could be one of the great copper discoveries in the Americas.

If Ecuador, with only two large-scale mines [the Fruta del Norte gold and Mirador copper operations], has managed to generate employment, position mining as the fourth largest export sector and generate net benefits to the State of US$1bn in 2023, a project of Llurimagua's potential caliber has much greater economic impacts than those mentioned.

Additionally, and along with prospects such as Cascabel, Warintza and Linderos, Ecuador could enter the major copper leagues.

BNamericas: Might Ecuador face an unfavorable international arbitration ruling?

Benalcázar: Importantly, over the last nine months Enami has been able to attract strategic partners such as world-class multinational Barrick, as well as Hancock and a junior like Solaris to exploration, with more than US$160mn in investment, which positions the national mining company as a very interesting partner-actor.

On the contrary, if Enami continues with little social investment in Llurimagua's area of influence and with little presence of the social community team, it could lead the anti-mining opposition to grow and become more robust, both due to the resources available to activists and because of their permanent presence in the territory.

This may finally be considered in the arbitration, in which Codelco has the ability to claim that there was an agreement between the negotiating teams in October 2019 for the formation of the joint company, which was ratified by the Chilean company on November 14, 2019. But it omits that the agreement was subject to the approval of Enami's board, which, unlike Codelco's board, hasn't ratified it.

Therefore, the basis for the formation of the company doesn't yet exist.

BNamericas: If the agreement was conditional on Enami board approval, there has always been a possibility that it wouldn't happen. How would the claim with ICSID be supported in that case?

Benalcázar: There is no way to demonstrate that the State, through any authority in power, has ratified a decision that concerns only the Enami board.

I consider this the weakest point of the demand.

However, if the lawsuit ends in favor of Codelco, it could cost Ecuador more than US$550mn plus interest.

BNamericas: Despite the problems with Llurimagua, Codelco was interested in an Enami tender for an exploration contract...

Benalcázar: Codelco felt discriminated against because, due to an internal Enami regulation, it wasn't invited to the open tender for an exploration contract related to six concessions peripherally neighboring the Llurimagua area.

That regulation established that any company that has differences with the State couldn't participate in any contest, and in this case, these were Codelco's international lawsuits against Ecuador.