Water Scarcity Could Hit Chile’s Miners

SPECIAL TO THE NORTHERN MINER

Santiago, Chile — Forget the energy crisis. Water is what concerns Chile’s copper miners most, although the evidence of this is hard to find. Water is such a critical issue that miners are loath to talk publicly about it, given that it is a wider domestic issue in Chile’s political landscape. But while the energy crisis has an off-the-shelf solution via diesel generators, miners enjoy no such luxury to ensure water supplies in the Atacama Desert, the driest place on Earth.

The Atacama Desert area, which stretches from Copiapo in Region III to Chile’s northern frontier with Peru, is the greatest copper producing region in the world, churning out some 4.3 million tonnes per year of red metal, about 27% of world copper production.

“Where the biggest copper reserves in the world are is where the least water is,” says Rodrigo Weisner, director general of water (DGA) at Chile’s Ministry of Public Works. “Mining needs water to produce, so water usage pressure is very high.”

Mutual concern over future water supplies saw industry figures led by sector lobbyist association Consejo Minero meet Mining Minister Karen Poniachik in April to take the first steps toward finding a solution. Consejo Minero proposed a two-phase study that will collect and collate existing information on water demand from state agencies, mining companies and other user groups in six or seven water basins in northern Chile. State copper commission Cochilco will report on this at the end of May.

Consejo Minero then wants to access money from the innovation fund, which miners pay into through a specific mining tax, to undertake second-stage studies to determine water supply. That could take up to 12 months to complete, as it will require hydrogeological studies to investigate water basin recharge.

“Water is a big issue; of the three main issues facing mining in Chile, it is the top one as mining depends on water,” says Consejo Minero general manager Javier Cox, adding that the resource will only become scarcer. “To have a real discussion, we need to include all the players and so it should be based on real numbers — so the first step is to have good information about water.”

Knowing what the water sources are means “you can look at the restrictions and say which are valid,” says Osamu Suzuki, president of water consultanting firm EDRA.

The most recent report by water authority DGA was published in 1999. Private studies on specific aquifers make for grim reading. U.S. consulting firm Golder and Associates reported that the Copiapo River basin water resource in Region III has declined by 51.5 million cubic metres per year with the expansion of agriculture since the mid-1990s. Current water consumption of 140 million cubic metres per year means there is enough water for just four years.

“The actual pumping level is not sustainable in the long term,” the report says.

This is a concern to Freeport-McMoRan Copper & Gold’s (FCX-N) Candelaria mine, Anglo American’s (AAUKF-O, AAL-L) Manto Verde operation, and Kinross Gold’s (K-T, KGC-N) Mantos de Oro mines. Golder advises reducing water consumption by 70% to a more sustainable level of 40 million cubic metres per year. In this basin, the DGA has authorized water usage rights equivalent to 667 million cubic metres per year. “This is a regional problem, and we are working with the private sector and the government in a solution for this,” says Bernadita Fernandez, head of corporate affairs for Freeport-McMoran Chile.

While Chile has copper, without more water, the portfolio of expansion projects that could add about 2 million tonnes per year of copper production, will remain undeveloped, as industry growth exceeds aquifer rechargeability.

Thirsty industry

Unfortunately, copper production is a thirsty process. Sulphide copper production uses water in flotation and tails, and uses 0.2-0.7 cubic metres of water per tonne of processed ore, according to Water Management Consultants (see table on Page 3).

“For each one hundred tonnes of material processed, you obtain about one metric tonne of fine copper. To process that one hundred tonnes, just in milling and flotation, you use about 300 tonnes of water,” explains Juan Manuel Valdivia, corporate manager of environmental and sustainable management at state copper company Codelco.

Consejo Minero has set an industry target to reduce consumption to 0.5 cubic metres per tonne processed, a refrain echoed across Chile’s large companies. Anglo American Chile wants a 15% reduction across its divisions by 2013 and recirculated 65% of its water in 2005.

If water scarcity was not enough to cope with, they also face increasing water costs and a government that has been slow to respond to the crisis.

Water rights requests in Chile’s northern regions exceed availability and the regulator has stopped issuing them in mining regions, according to Minister Poniachik, as in Regions II through V, more water rights have been granted than there is water available. Copper production in Regions I, II and III increased 129% between 1995 and 2005 to 3.94 million tonnes per year from 1.72 million tonnes, according to figures from state copper commission Cochilco, increasing demand on water resources.

“The water problem is serious and there is not a lot of awareness,” Suzuki says. “Mining companies are exploring without thinking about if there will be water available if they find minerals. The moment will arrive when mining projects will not be able to be developed or expanded because of lack of water.”

The red alert sounded in 2006 when the 400,000-tonne-per-year Collahuasi mine in Region I had its water extraction reduced from the Salar de Coposa water basin to 750 litres per second from 1,041 litres, due to declining subterranean water levels by regional environment authority Corema, turning a sensitive issue critical. Antofagasta Minerals’ 98,000-tonne-per-year El Tesoro mine also has a water usage restriction that “impedes us from increasing capacity,” says CEO Marcelo Awad.

Price of a pint

Miners have traditionally used their financial resources to meet water challenges by buying up new water rights or water technology. BHP Billiton (BHP-N, BLT-L) has formed an in-house water exploration team, while the divisions of Codelco “explore for water as part of their normal function,” says exploration manager Carlos Huete.

Major copper projects and expansions routinely contemplate seawater desalination even though at US$2 per cubic metre, it is five times as expensive as groundwater, at US40 per cubic metre. BHP Billiton spent US$200 million to build a 45,000-cubic-metre-per-day reverse osmosis desalination plant near its Coloso port facility, to pump water 200 km to its Escondida copper mine, some 3,500 metres above sea level.

Escondida also undertakes artificial recharge to inject water into aquifers to maintain wetlands, as an environmental control, which is expensive. Escondida is not alone as Collahuasi may artificially recharge the Coposa and Huasco salars.

“Artificial recharge is undertaken to prevent having your water rights suspended,” Suzuki says.

Xstrata (XSRAF-O, XTA-L), the new operator of Collahuasi, thinks the mine has an underestimated resource and will spend on water to unlock its production potential. “We don’t want to see water as a limitation on expansion and there are ways that you can invest to prevent this, such as desalination,” says CEO Charlie Sartain.

The willingness of miners to open their wallets rather than face structural or regulatory issues may have made a difficult situation tougher by creating the perception that money is the solution to the water problem.

“BHP set a precedent with desalination and the government may take the view that miners can afford desalination and pumping, so why should it work to find additional resources at altitude,” says Rowan McKittrick, operations manager of Water Management Consultants (WMC).

The combinatio
n of high copper prices and increasingly acute supply has seen the resale value of water rights tripling from US$75,000 per litre per second, alarming even the mining minister.

“Companies are paying between US$200,000 and US$250,000 per litre per second,” she says.

Such lucrative payments have generated a water exploration industry — or speculators, depending who you talk to — with at least three dedicated water exploration companies now operating in Chile. EDRA, which advises some of these, says they perform the same role as juniors by sharing the risk of finding water, with high prices reflecting the opportunity cost of water, or rather not having water.

“They are not just looking for water; they have to do hydrological studies to show there will be no environmental damage by exploiting it,” Suzuki says.

“They put a lot of investment into looking for water because they know they can potentially get high returns,” McKittrick says.

It would be far from the mark to say large miners are extravagant with water; browsing through their sustainable development reports bears witness to the process improvement efforts they are going through in order to reduce water consumption and increase reuse.

“At Codelco Norte, it is estimated that each drop of water is used up to seven times before it is effectively consumed,” Zaldivia says, adding that this means higher costs. “Without doubt, cost is going to increase. It is possible that the technologies that today seem economically unviable, such as desalination, start to be interesting (in the future).”

Regulatory issues

Part of the water crisis is due to historic lack of co-ordination between government agencies such as the water regulator and environmental authority, imprecise regulations, and a lack of resources.

Under the 2005 water code, once you have water rights you can do whatever you like with them, but you have to show they are used to avoid paying a fine or patent.

“This has the detrimental effect of not promoting efficient water usage, as people use all their water to avoid paying the fine,” McKittrick says.

Once miners have water rights, it takes a large cheque to prise them away again. Escondida paid the Zaldivar copper mine US$135 million for 631 litres per second in 2005. Having sunk so much investment into water rights, miners are averse to concepts such as paying for water usage that would “see efficiency rates improve dramatically,” McKittrick says.

“We would not embrace a payment for water usage,” says Cox of Consejo Minero.

Miners hate uncertainty, but that is the problem with water regulation, which is a very murky and muddy pool in Chile.

“The water code as applied in Regions I and II puts protection orders on wetlands, but environmental protection legislation gives an impact allowance if the design and implementation of an effective mitigation plan can be demonstrated,” McKittrick says. This creates a situation where companies say that a water project is not going to have an impact because honesty “puts the authority in an awkward position” — which could result in the rejection of the company’s plan. Drawing water depletes aquifers if they are exploited more quickly than they recharge, so non-impact scenarios are unrealistic.

“The authority has to accept that there are going to be downstream impacts if you alter the natural balance of the hydrological cycle,” McKittrick says.

Even basic definitions are imprecise. The DGA refers to “available water” as a renewable water resource, but with little aquifer recharge information, this is largely unknown.

“Lack of recharge information means we do not know how they recharge and there is no effort being made by the government to change this,” Suzuki says.

The DGA definition means fossil water resources — those that do not recharge — cannot be exploited.

“There is immense groundwater storage in non-renewable aquifers of very poor-quality water, two or three times the salinity of seawater. No other sector than mining can afford to treat or use them,” McKittrick says.

“It is a water source that can never be used if you do not change government mentality,” Suzuki says.

Another muddy area is mine water that runs into operations and can be used without a licence. But does this include water pumped out of exploration holes? Or mine dewatering to prevent problems with pit stability?

Declining water resources and increasing demand mean water management is key.

“Management is fundamental to use water more efficiently,” Weisner says.

But Claudio Lopez of environmental NGO Puna Sustentable says the problem is cultural.

“The logic of our water culture has no conscience of scarcity,” he says. “We act as if water is infinite.”

Solving the problem requires co-operation and hard data, but, as Codelco’s Zaldivia recognizes, “it is not easy, as it is an issue with many legal and political players.”

One of those players is the marginalized indigenous community. “Indigenous rights are already being infringed in northern Chile under current water usage patterns and if water becomes scarcer, it could lead to conflict between domestic and industrial users,” Lopez says.

Part of that co-operation will require making environmental concerns compatible with development.

“If you want to have mining, you have to accept some ecological damage, but no one says how much ecological damage can be accepted, which the government needs to do,” Suzuki says.

— Paul Harris is a freelance journalist based in Santiago, Chile.