COMMENTARY — Chile poses problems, but still attractive

As a member of the Canadian exploration fraternity and staunch supporter of mining in Canada, I often wondered why everyone was endeavoring to learn Spanish and heading for southern climes.

Well, having just returned from a hectic, yet very gratifying, 8-day tour of Chile with a group of analysts and investment fund managers, I now have a better understanding of why Canadian miners are flocking to Santiago to set up shop.

The trip, organized by Jonathan Challis and Michael Fowler of securities firm Scotia

Mcleod, focused on foreign investment in the Chilean mining industry. During the trip, we visited Cerro Colorado and Quebrada Blanca (advanced copper development projects); Zaldivar and Ivan (early-stage copper projects), Escondida (one of the largest producing copper mines in Chile) and La Coipa and El Indio (two producing gold mines).

One of the biggest attractions seems to be the potential for finding and developing substantial orebodies. Large-tonnage, low-grade copper porphyry deposits are the main targets, but epithermal precious metal deposits are also being sought.

Although the potential prize is considerable, the exploration, development and exploitation of these deposits are not without problems: * Many of these deposits exist at high altitudes (greater than 3,000 metres), which can adversely affect both human and mechanical performance. * Since most of these deposits are in the Atacama Desert (the driest place on Earth), water availability can be more important then minable reserves. Water for most projects is supplied from well fields at higher altitudes near the Continental Divide. (This can entail building pipe-lines up to 75 km long). * In many areas, roads must be carved out of mountain-sides so that access can be gained for exploration and drilling. Ultimately, larger access and haulage roads must also be built.

* The deposits are in seismically active areas. As a result, mine facilities must be built to withstand earthquakes. This can also affect road design and tailings containment.

* Electricity must be supplied either from a generating station on site or from powerlines hooked up to the national electrical grid.

* As in Canada, many of the near-surface, easier-to-locate deposits have been found, which has led to increased exploration costs. Acquisition costs are also rising, as witnessed by the recent $404-million purchase for El Albra by Lac Minerals (TSE) and Cyprus Minerals (NYSE).

* Land tenure can still be a problem. One company spokesman described staking several overlapping layers of claims on a property to prevent possible disputes or forfeiture of mineral rights.

One thing which was apparent on the trip was that Canadian companies are not going to Chile to escape tough environmental regulations at home. Virtually all of the projects visited were designed to meet environmental standards set down by The World Bank. One saving grace with these projects is that because of the arid climate, there is virtually no acid mine drainage.