Is Chile’s mining sector wasting its potential?

Bnamericas Published: Saturday, January 07, 2023
Is Chile’s mining sector wasting its potential?

Chile's mining supply industry is a key driver of the value chain of the sector, but the outlook for companies in this area is bleak for 2023, even though long-term opportunities abound.

BNamericas talks with Philippe Hemmerdinger, president of industrial mining supplier association Aprimin, about the risk of wasting potential, the export business and more.

BNamericas: What’s your perspective for 2023?

Hemmerdinger: We are still lagging behind due to the disruption in supply logistics and the global imbalance caused by Russia’s war against Ukraine. And inflation, nationally and globally, has led to many long-term contracts being rescheduled. This year, our sector will see a contraction.

Copper mining in Chile grew fantastically between the 1990s and mid-2000s, from 1Mt/y to 5.5Mt/y [of fine copper output]. But since 2005, we’ve stagnated. This is because the deposits have been exploited for many years and grades are lower and rocks are harder. Mining has become more complex.

[State miner] Codelco has faced tremendous delays in the development of its projects, difficulties with approvals [of permits] and advancing with new projects – often more for political than technical reasons. We are losing opportunities and we are giving them to Argentina, Australia and others.

We don't seem to know how to take advantage of the historic opportunity that climate change offers with the development of electromobility and renewable energies that require minerals such as copper and lithium. We should be among the world’s main players in this [field]. But, if we keep waiting, substitutes for copper and lithium will appear and we will be left with unexploited minerals.

BNamericas: How do the general prospects look for the sector?

Hemmerdinger: Exports from mining suppliers have decreased because most have been establishing themselves in countries where we used to make exports. This is the case of my company, Tecnología y Transportes de Minerales, which has an office in Peru. A large proportion of the exports we used to make directly have been turned into local sales.

But the offer has diversified and innovation has been incorporated, although unfortunately it is used more abroad than here. This is because our mining industry is huge and demands proven innovations and technologies due to their impact on large production volumes. Piloting centers are allowing us to test these innovations, but we still have a lot of work ahead of us.

At Aprimin we represent 124 companies out of 6,000 mining suppliers and we help them internationalize, become long-term suppliers and form part of a competitive industry.

BNamericas: Having helped create the carbon footprint calculator, how do you evaluate the sector’s environmental responsibility?

Hemmerdinger: The pandemic brought digital transformation and we realized it’s possible to telework and operate mines remotely. There is the concept of sustainability. Remember that in the previous constitutional period, we were heavily questioned on environmental issues. For this reason, together with Corporación Alta Ley, the Inter-American Development Bank, Sonami and Codelco, we developed a calculator that measures the footprint of scope 3 emissions by suppliers, and which will be available as an open tool.

The idea is that we measure the carbon footprint for each product received. Once we understand what the key performance indicators are, we will define the steps to advance toward carbon neutrality in 2050.

BNamericas: What are the most common products or services among mining suppliers in Chile?

Hemmerdinger: The most notable ones in terms of volumes and billing are aimed at processes and comminution, which is tremendously important in mining. There are solutions for grinding processes, conveyor belts, trucks, etc.

Enaex settled in Australia and now supplies close to 20% of explosives in that country. We have companies like ME Elecmetal with foundries in various parts of the world and which exports [mill] balls and mill lining elements from Chile.

Chile also exports hoppers for exploitation trucks. It's a tremendously modern industry that is sending various offers abroad, including options for logistics, control and security.

BNamericas: What’s your perspective on the mining royalty, recently approved by the senate's mining committee?

Hemmerdinger: Mining can give more, but without ceasing to be competitive. The finance ministry said the current tax rate is 33%, while the mining sector claims it’s close to 40%. That’s a difference of seven percentage points that needs to be clarified. On the other hand, it's bad policy to tax [copper] sales because companies have different operating margins and standards.

Some companies operate with lower grades, others are further from ports and others deal with harder rocks. Before, the bill was lousy, now it's bad. I hope the finance commission can review it so we get a good royalty bill.

It has been said that the funds will go to the regions, but in practice we have seen that this doesn't happen. Finally, the funds are taxed at the national level, budgets rise and the money is wasted. Chile's problem isn't a lack of resources, but the inefficient administration of state resources. If we add to this legal uncertainty, difficulties in approving projects and high taxes, we're going to be left out of the market.

We have stagnated in production, and millions of dollars have been invested to keep the industry active. But if there are no clear or long-term rules regarding mining taxation, investments won't reach Chile.

BNamericas: What do you think of plans for the creation of a national lithium company and a new institutional framework governing salt flats?

Hemmerdinger: Why are we wasting funds on a national lithium company, when they're needed for education, health, infrastructure and housing? Private firms are willing to do it.

We're wasting time and we're giving Argentina and Australia a lithium advantage. We should take a more long-term outlook rather than a short-term one. In addition, there's the risk that a substitute for lithium will appear. In the second half [of 2022], SQM paid more taxes than Codelco. I believe that state companies aren't efficient and a public-private partnership is preferable.

BNamericas: Do you agree with a new law that seeks to energize the mining concession system through changes to the mining code? Was the lower house right to postpone its entry into force by one year to January 2024?

Hemmerdinger: Copper demand will double within the decade, so more projects are required and the State should demand a higher rate for deposits that aren't being explored, exploited or worked, because basically that's the cost the mining company must pay for having an asset that's being used as a liability. The willingness to invest and approve projects must be encouraged so that these investments become a reality.

Instead of being stuck at 5.5Mt/y of copper, we should aim at producing 10Mt/y by 2030, so Chile maintains its share of the global copper market. It's essential for all the mining properties that are under concessions are in production.

BNamericas: What are Aprimin’s biggest challenges this year?

Hemmerdinger: Our goals are defined by our committees, focused on sustainability, ESG, education, labor, productivity and approval, or contracts. In homologation, we are dealing with an issue related to allowing the exchange of workers from one site to another through common health requirements, for example. The focus is more on efficiency.

In the contracts committee, we have seen that purchases are increasingly specific and that many mining companies have outsourced their supply units to other countries. Another challenge for this year will be the constitutional process. We will be there to represent and defend our sector.

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