Chile's mining industry embraces change to improve community relations

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Thursday, November 21, 2013

Chile has seen a rising tide of social opposition to development projects, especially in the mining and power sectors, in recent years.

 "Today's communities are insisting on a different kind of treatment. They no longer want to be spectators of the development of mining projects... or of any project that affects their lives," mining council president Joaquín Villarino told guests at the annual council dinner, held in capital Santiago on November 20.

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Major mining projects that have hit development hurdles due to community opposition include Barrick Gold's (TSX, NYSE: ABX) Pascua Lama gold-silver project, Goldcorp's (TSX: G, NYSE: GGEl Morro gold-copper project and an expansion at Antofagasta Minerals' Los Pelambres copper operation.

At the same time, large thermo power projects such as the 2.1GW Castilla, the 566MW Barrancones and the 740MW Punta Alcalde have faced strong social opposition and subsequent legal battles as an ever more litigious Chilean society looks for more environmentally friendly ways to produce power in the wake of the massive coal buildup in the late 2000s.

In addition to allocating part of mining taxes to affected communities, the industry needs to develop homogeneous standards by sharing successful experiences and implementing best practices, according to Villarino. The executive also called for a new mechanism to ensure early stage civil participation and the use of a "common language" between communities and companies.

"We admit, honestly, with humility and transparency, our mistakes, and we confirm our commitment to working together based on trust and the creation of value for the communities," Villarino said.

The executive also called for coordination between authorities, local civil organizations and companies to avoid what he called "social activism" which he said is putting the country's development at risk.

PERMITS

A mining company currently needs more than 500 permits to start operations in Chile, according to Villarino. "There is duplication, and a lack of coordination and consensus in criteria," he said.

Chile implemented new environmental legislation in 2012. In a speech at the dinner, President Sebastián Piñera announced the presentation of a new bill in congress (on Nov 20) to accelerate administrative procedures and avoid the duplication of water permits.

The new bill is also designed to improve the workings of national geology and mining service Sernageomin, as well as regulate mine closure.

ENERGY

Chile has the third highest copper mining cash costs in the world, after Canada and Australia, according to Juan Carlos Guajardo, the director of Chile's copper study group Cesco.

One of the main reasons is the high cost of power in the country. Energy accounts for up to 15% of costs at some of state copper producer Codelco's mines and top mining companies have been calling for change to current policy.

While the government has been taking steps to improve the situation, such as drafting new laws for power concessions, Villarino suggested increasing competition in the sector by allowing more players to participate, promoting LNG and improving relations with local communities. The executive also called for more progress in land use zoning.

TRAINING

The quality and quantity of people available to fill the upcoming needs of the mining sector is another industry concern.

In his speech, Piñera said he was drawing up a bill to be presented in "the next few days" to set up 'sector skills councils' in an effort to train people in areas specifically related to mining.

WHAT IS AT STAKE?

As of November, Chile's portfolio of mining projects in construction totaled US$22.6bn. Another US$45bn in planned projects remains without a firm investment decision.

The mining sector provides 14% of the government's income, represents 13% of GDP and accounts for 60% of the country's exports.