LATIN AMERICA — 2002: a Peruvian mining odyssey — Antamina faces economic, social, environmental challenges

Augusto Baertl, president of Minera Antamina, is not one to downplay the challenges faced by the consortium of three Canadian companies developing the huge Antamina copper-zinc deposit in the Peruvian Andes at an elevation of about 4,300 metres.

“The logistics are quite complicated,” Baertl told mining reporters in late March. “It’s a complex project that requires Western technologies and design, and the best human resources you can get. Yet it’s remote, beautiful and in a very poor region, where we will have to train the local people, who want the majority of jobs.”

Scheduled to begin production in 2002, Antamina is one of the world’s largest copper-zinc deposits, with minable reserves of 494 million tonnes grading 1.3% copper and 1% zinc, 0.03% molybdenum and 12 grams silver per tonne. When it reaches full production, it will be the third-largest zinc and the seventh-largest copper mine in the world.

Through government tender, Rio Algom (ROM-T) and Inmet Mining (IMN-T) jointly acquired rights to the property in 1996, when it was believed to host about 128 million tonnes. Subsequent drilling expanded this estimate four-fold, which meant developing a project on a larger scale and with higher capital costs than originally envisioned.

This wasn’t perceived to be a problem, at least until 1998, when metal prices began a downward slide triggered by the Asian crisis and other weaknesses in the global economy. With financing becoming difficult to raise, Inmet read the writing on the wall and placed its then-50% interest on the block.

Noranda (NOR-T) made no secret of its interest, and Teck (TEK-T), well-known for its ability to size up a bargain, saw the chance to become involved, virtually at sunk cost, in an opportunity that might not have been available two years earlier.

The majors each acquired half of Inmet’s interest for $35 million, plus a royalty of 1.67% of the project’s cash flow after repayment of all capital, and an interest factor on 60% of project expenditures. Noranda also acquired a 12.5% interest from Rio Algom.

Then, in September 1998, the newly formed partnership exercised its option to proceed with development at a planned capital cost of US$2.6 billion, which would include the final payment to the government. It was an important turning point, because should the partners fail to invest that amount by mid-2002, they would be required to pay 30% of any shortfall to the Peruvian government in lieu of further expenditures.

A few months later, a syndicate of eight banks signed commitment letters for US$600 million, or about half the debt financing being sought for the project. The partners will contribute, on a pro rata basis, to the $1-billion equity component.

At the same time, the partners announced that all concentrates from the mine would be transported 300 km to the port of Huarmey by pipeline, rather than by truck. While direct project costs edged up 7% to about US$2.35 billion, the change is expected to reduce cash operating costs by more than 10% to US35 cents per lb. — among the lowest in the world. There will also be environmental and safety advantages. Bechtel Group, which carried out the feasibility study for the project, was awarded the engineering, procurement and construction management contract.

Officials from the three companies concede that the remainder of the debt financing has taken them longer than planned to arrange. However, Baertl expects that the recent deal with Mitsubishi will accelerate the negotiations currently taking place with various import and export credit agencies. “We hope to complete the financing package by the middle of this year,” he said.

Last month, the Japanese giant agreed to acquire a 10% interest in Minera Antamina for about US$54 million, subject to certain conditions. Following the closing, expected this summer, Rio Algom and Teck will each end up holding a 33.75% interest, while Teck will have 22.5%.

Mitsubishi and other Japanese smelters are expected to buy 200,000 tonnes of copper concentrates and 80,000 tonnes of zinc concentrates annually from the mine, which is expected to produce an average of 600 million lbs. copper and 360 million lbs. zinc annually over a 20-year mine life. LG Metals, a South Korean firm, recently signed a 12-year deal to buy 100,000 tonnes of copper concentrates per year, and the Antamina partners hope soon to fulfil commitments for the remainder.

While the outlook for copper remains weak, Baertl sees zinc playing a stabilizing role. “I’m optimistic that zinc fundamentals are good for producers. Unlike copper, stocks are continuing to decline, and no new mines are coming along.”

Work is already in progress at the site, Baertl noted, including the start of pre-stripping and road-building. Once built, the operation will consist of a conventional, truck-shovel, open-pit mine feeding a 70,000-tonne-per-day flotation mill. The waste-to-ore ratio will be 4-to-1 in the early years, and 2.4-to-1 over the entire mine life.

Aside from having to operate at a high altitude, Antamina’s technical challenges are chiefly related to the different types of complex ores contained in the skarn deposit. Four types of concentrates will be produced, the two most important being copper and zinc. Recoveries are expected to be 93% for copper and 77% for zinc.

“Because of the different types of ores, co-ordination between the mine and mill will be a key issue,” Baertl said, adding that the three operating partners have considerable metallurgical and processing skills. “The synergies between these companies is good; they are supporting the project with their technical expertise and ability to work in challenging environments. Antamina will be a first-class operation.”

Sustainable Development

Working at high-altitude operations in mountainous terrain takes a special kind of person, and Augusto Baertl appears to be of the view that the people best-suited to the task are those who live nearby. The Peruvian government shares that view, as do the people who live near the site, most of whom are subsistence farmers barely eking out a living.

Through local technical schools, Minera Antamina is involved in efforts to help locals learn the basic skills to become mechanics, welders, electricians, etc., and to develop and improve their mining-related skills. To help with the training programs and technology transfer, technicians will also be imported from Canada.

“There will be quite a few ex-patriates at the beginning, but they will decrease as the project progresses,” Baertl explained. “Over the long run, the goal is to build a national Peruvian company.”

Minera Antamina is committed to a community development program aimed at ensuring the sustainability of the local economy, as well as upgrading health and the quality of life. While the immediate goal is to ensure that locals have the skills either to work at the mine or start businesses that will provide services to it, the program also has longer-term objectives.

Toward that end, Minera Antamina is working with various micro-credit enterprises involved in such things as improving the productivity of forestry and farming enterprises.

“The goal is to help the locals become economically sustainable after the life of the mine,” Baertl said. “We have proposals from non-governmental organizations willing to help fund these programs and improve their effectiveness.”

Antamina has a 20-year mine life, though Baertl expects that it will operate even longer as exploration programs develop more reserves. “There is still potential for this orebody to expand.”

On the environmental front, Baertl said the companies have made every effort to engage the public and fully inform them about the mine’s environmental impacts. “It’s important to note that we’ve received special recognition from Unesco [United Nations Educational, Scientific and Cultural Organization] for working with locals and non-governmental organizations on sensible environmental issues.”

One of the most sensitive issues was the
proximity to Huascaran National Park, particularly as the plan to transport concentrates by road was still on the table during development discussions. The new pipeline plan will bypass the park entirely. Even so, a working group has been established to monitor the use of park roads and other potential environmental effects, as well as improve the condition of the park. The group is chaired by Peru’s National Institute of Natural Resources, and includes representatives from foreign organizations.

Development of Antamina appears to have strong support from Peruvians, most of whom are aware of the contributions mining has made over the years to their economy.