'We have the capacity to drive another leap in mining, just as we did in the 1990s'

Starting next year, Chilean state copper giant Codelco will lead a public-private partnership with local company SQM to produce lithium in the Salar de Atacama. Furthermore, Codelco recently bought fellow state company Enami's 10% share of the Quebrada Blanca copper mine for over US$500mn.

The two developments have caused some concern in the sector, mainly due to Codelco’s delicate financial situation and lack of experience in lithium.

Chile's mining production, meanwhile, is expected to begin regaining momentum this year, but there are challenges regarding permits to develop projects and the rise in concession fees for exploration.

To discuss the outlook for the local mining industry, BNamericas spoke with former Codelco CEO Marcos Lima, a founding partner of Cis Consultores and the first Latin American to receive the Copper Man of the Year award in 2000.

BNamericas: What do you think about Codelco entering the lithium mining industry and establishing an alliance with SQM?

Lima: In 2020, I proposed at a sector forum that Codelco could become a green giant, not just because of copper, but by incorporating other essential minerals in electromobility, such as rare earths, to address climate change. My proposal is reflected in the agreement with Soquimich [SQM]. The conditions of the agreement seem favorable to me for the company and the country, and I believe that they will help unlock the production increases that are required for the future.

This is relevant when we consider that lithium has a shorter life cycle than copper. Copper wiring used in homes has a life cycle of 50 or 100 years versus lithium batteries of 10 years or more. Some think that from 2040-45 the additional lithium to meet the increased demand will come from recycling. That is why we need to hurry.

BNamericas: Do you think Codelco's fragile financial situation could be an obstacle to its role in the public-private partnership with SQM?

Lima: When I proposed the transformation of Codelco into a green giant, I did so considering a Codelco 2.0 21st century, where the traditional Codelco would be combined with the financial resources provided by a sovereign fund, which could be from a country like Norway, Saudi Arabia or another. Codelco's financial situation has not been due to the mismanagement of its authorities, but because its owner – in his right – has taken all the resources from it. There are few companies that give 10% of their sales to the State. That is a gigantic figure.

It would be wise for Codelco to have a foreign partner to tackle the lithium challenge and increase its copper production. During my time leading the company [1996-2000], Codelco partnered with Anglo American to buy mines in Zambia, something that did not happen for reasons of profitability, and we also had partners in Mexico and Ecuador. Further opening up these possibilities is still available, such as the new partnership with Teck in Quebrada Blanca, with Anglo American in Los Bronces, Freeport in El Abra and the joint venture with Rio Tinto.

BNamericas: Do you agree that Codelco's purchase of Enami’s 10% of Quebrada Blanca was justified in order to support Enami's financial situation?

Lima: Enami, like Codelco, has suffered the problems inherent to being a state-owned company, from which financial resources are taken away and its capital is not increased. But Enami's role should be different from maintaining mining interests in its business portfolio. If the company has financial problems, it is reasonable for it to evaluate the best way to obtain a return today, and not in five, 10 or 20 years from now with the assets it has. I’m not shocked that it has decided to liquidate that asset.

It should be noted that this 10% of Quebrada Blanca is not susceptible to dilution. That is, when it's necessary to increase the company's capital, Codelco will continue to hold that proportion of the business. The first thing that should have been done was to negotiate this clause with Teck, since a company with financial problems has to use its fixed assets, maximizing the return on the most valuable ones. In addition, the transaction should have been as competitive as possible to maximize the return, from the perspective of Enami's interests. It is clear that Codelco is in a better position to take advantage of this 10% than its previous owner.

BNamericas: Given Codelco's historical financial instability, would it be advisable for it to cease being state owned?

Lima: Like many Chileans, I think it's important to maintain state ownership of Codelco.

However, it should raise financial resources from international funds, without implying privatization. Once associated with a sovereign fund, one could follow the example of Aramco, which is owned by the royal family of Saudi Arabia but has a small percentage of its shares – between 2% and 3% – on the New York stock exchange to see how much it’s worth. If we could do something similar with Codelco, it would be fantastic because it would allow us to have an indicator of the real value of the company on the market. I am sure that no one thinks that Aramco has been privatized by floating that small proportion of shares.

BNamericas: What do you think about the stagnation of copper production in Chile?  

Lima: When one thinks in terms of the value of Chile's copper reserves, they amount to US$1.95tn at a price of US$4.65/lb, which shows their importance. Therefore, I'm confident that Chilean mining will continue to be a big business in the future and for this very reason it's not logical that Chile produces less today than it did 20 years ago.

It's true that mines have lower grades, they must be mined at greater depths, the ore is harder, but these challenges can be addressed with technologies and improvements.

We have top-level professionals, so we must be able to face the challenges of nature. In this sense, what Collahuasi, Antofagasta Minerals and BHP's Escondida have done in the last 10 years to improve their efficiency and productivity is commendable. We have the capacity to drive another leap in mining, just as we did in the 1990s.

BNamericas: To project an increase in mining, more exploration is required. However, in the latest modifications to the mining code and mining concession system, the fees for exploration permits were increased.  

Lima: The increase in value is precisely an incentive for exploration, since it tries to prevent people from sitting on mining concessions and properties without exploring and evaluating their potential. This has been a historical debt.

I am surprised by the small number of Chilean juniors dedicated to exploration. The State must strongly encourage mining exploration so that new important deposits can be found.

BNamericas: How much does the current permitting system influence the stagnation of Chilean mining?

Lima: It has been another cause of impact on mining production. Unfortunately, we have not been able to convince those who think of mining as an activity that does not require incentives and is a symbol of extractivism. 

It is regrettable when one hears that because of five orange trees the development of a rare earth project in Penco was cancelled. This reflects dramatic short-sightedness. Meanwhile, we see how Argentina is pushing its mining, which is positive for our suppliers and consultants.

BNamericas: Various nations are seeking to secure their supply chains of critical minerals to advance the energy transition. What role should Chile play in the geopolitical arena?

Lima: Chile must remain neutral and try to avoid becoming involved with one or another nation or rival faction. Sixty percent of the world's copper demand comes from China, therefore, Chile as the main producer must begin to opt for a greater diversification of clients.

Just as large nations seek to secure their mineral suppliers, Chile should have a strategy to seek new clients and find a balance between the demand from China, Europe and the United States. The national mining policy for 2050 is positive, but it must be accompanied by state policies to allow the continuity of these objectives and deadlines, beyond the government in power.

BNamericas: What do you think of the national lithium strategy?

Lima: My main criticism is the speed with which we must act. We are going through a period of low lithium prices and we don't know when they will recover, although fortunately the extraction costs in Chile are low, which allows us to generate a significant surplus.

The Chilean State decided years ago that concessions for lithium could not be granted, which is nonsense if you look at it through today's eyes. That decision was made thinking that lithium was going to be strategic for nuclear fusion, but in the end that didn't happen and now we have the phenomenon of climate change, the urgency for electromobility and the electrification of countries.

We must look at these mining riches only as a business and not as a lever for industrialization or with a nationalist or other focus, to take the most advantage of this situation.