Chile’s Codelco looks north for exploration partners

A new law passed by the Chilean government has paved the way for Canadian mining companies to participate in exploration joint ventures with Codelco, Chile’s largest company.

For the first time since the birth of the massive, state-owned copper producer in 1976, foreign companies will be able to earn an interest in properties covering up to 1.5 million acres of unexploited ground. While visiting Toronto to woo potential partners, a Codelco representative told the Canadian Institute of Mining, Metallurgy and Petroleum (CIM) that the Chilean producer has already identified one development and 10 exploration properties available for option, and is hoping to launch the joint venture projects by the end of this year.

In a candid speech, Vice-President of Development Jorge Bande told the CIM Mineral Economics Society that Codelco is facing serious hurdles to future profitability, mainly because of a tradition of re-investing only 0.2% of its profits compared with the industry norm of about 50%.

“There has been no major effort to increase our reserve base,” he said. “This is the problem of being a relatively rich company in a relatively poor country.”

Although Codelco produced almost 1.2 million tons of copper in 1991, or about 13% of world output, declining grades and increasing costs are expected to reduce annual production to less than one million tons by 1994. (Last year, Codelco’s production costs jumped from US48 cents to US57 cents per lb., while grades have dropped from an average of 2% copper in 1982 to 1.3% copper today).

But with an exploration budget of US$20 million, up from US$2 million in 1989 and US$8 million last year, Codelco hopes to find new, low-cost reserves to replace those currently being mined.

Fortifying that effort will be Codelco’s joint venture partnerships. In exchange for work commitments, foreign companies will be able to earn an interest in exploration properties, most of which lie in northern Chile. Although a clause added to the new legislation at the last minute states that Codelco should “endeavor” to retain a majority interest in the joint ventures, Bande said the company would remain flexible in all negotiations. He said Codelco’s main exploration target will be large porphyry copper deposits with an average grade of 1.5% copper

or greater. Smaller projects would be sold or transferred to ENAMI, another state-owned producer whose mandate is to encourage production of small to medium-sized deposits.

The first development project up for grabs is the El Abra copper oxide, 35 miles north of Codelco’s Chuquicamata mine. The property hosts reserves of one billion tons which would be amenable to solvent extraction and electrowinning recovery techniques. Bande said a joint venture commitment of $300-400 million would be required to bring the property into production.