3. Mobilising the strengths of Antofagasta’s mining ecosystem
This chapter identifies strategies to mobilise the strengths of the mining business ecosystem of Antofagasta, to accelerate its green transition and promote regional economic diversification. These strategies intend to identify areas of opportunities to be unlocked within the new mining strategy of the region. The chapter begins with an overview of the region’s strengths and challenges in the ecosystem. It then outlines areas of opportunity to accelerate the environmental transition in mining. Finally, it examines possible strategies to support economic diversification inside and outside mining activities.
Assessment
The region of Antofagasta is a global player in the mining industry, especially in copper and lithium. Its traditional expertise in mining operations, presence of rich geological resources, a mature mining ecosystem composed of leading mining companies, suppliers, universities with mining know-how, organised civil society actors and a recently strengthened regulatory framework with greater regional decentralisation make Antofagasta highly attractive for ongoing and future mining activities.
The global green energy transition represents an opportunity for Antofagasta to remain competitive in mining and diversify its economy, including in value-added activities. In addition to a growing demand for its mineral portfolio, there is great potential for renewable energy production and to become a green hydrogen production hub. The region has important advantages as a potential leader in making mining more sustainable. These include: i) mining companies’ initiatives, societal demand and innovative practices in overcoming environmental challenges, particularly in addressing water scarcity through water reuse initiatives or seawater desalination technologies and decarbonisation of mining operations; and ii) a favourable geographic location to become a logistic gateway to Pacific markets for mining ventures in neighbouring countries.
However, the region must also overcome some of its pressing current challenges. Notably, bottlenecks specific to mining operations (especially productivity and declining ore grades), improving environmental outcomes (including reducing its large industrial carbon footprint) and delivering a more equitable distribution of industry benefits to the entire regional population.
Policy takeaways
In order to make sure its mining potential translates into measurable well-being improvements in the region, Antofagasta will need to:
Leverage green innovation to make mining more sustainable and become a leader of these practices in Latin American. Antofagasta can scale up more sustainable mining practices to provide innovative solutions to other mining regions in Chile and neighbouring countries such as Argentina, Bolivia and Peru. To this end, the regional government and its forthcoming mining strategy should:
Provide more transparency on the use of renewable energy sources and desalinated water for mining operations across the region.
Incentivise to promote more efficient use of water, with technologies and practices to reuse water or minimise use of continental water.
Promote a co-ordinated management of desalinisation facilities, with incentives to approve and develop projects that prioritise sharing facilities among different users.
Provide incentives to attract investments for reusing mining tailings. This can be in the form of fiscal benefits, infrastructure or policy incentives.
Promote the adoption and maintenance of environmental, social, and corporate governance (ESG)-compliant practices and credentials for the mining sector, with certificates that also include civil society validation. Explanation of certificates and credentials for each mine site should be transparent and available on the website of the forthcoming mining strategy.
Diversify the production matrix of the mining sector by increasing value-added activities in the value chain and supporting the development of other minerals. To this end, the regional government and its forthcoming mining strategy should:
Strengthen upstream linkages by developing suppliers and technologies that can create specific knowledge in the region’s key priorities, such as water and air pollution management or valorising waste mining.
Strengthen downstream linkages to add value to mineral products around two main areas:
Prioritising value-added in extracted minerals in areas where Antofagasta has competitive advantages. To this end, the establishment of a public technological institute for the research of lithium and salars should promote knowledge in lithium processing (e.g. obtaining speciality chemicals from lithium) and build the basis for a stronger lithium processing industry in the region. In parallel, the region should strengthen skills and accessibility of technology to allow value-added projects in lithium. In the case of copper, the region could promote investments in downstream infrastructure that uses renewable energy to add value to copper with a low-carbon footprint (e.g. smelter/refinery that takes advantage of abundant renewable energy sources).
Adding efficiency and sustainability to mining processes and methods. These could include development processes related to the more sustainable extraction and processing of copper and lithium (for example, reducing inputs, waste streams or time involved) and greater traceability and environmental monitoring of production processes.
Attract companies interested in other minerals, such as rare earth minerals.
Leverage the mining wealth to support economic diversification in activities outside of mining, such as the production of green hydrogen, that contribute to a sustainable future in the region. To this end, the regional government and its forthcoming mining strategy should:
Develop an innovative world-class renewable energy and hydrogen hub to supply the region’s mining sector and generate an independent industry outside the mining sector.
Foster tourism as one of the region’s key economic activities, chiefly developing “special interest tourism” (including astronomy and experience-based tourism) as well as setting forth the conditions for the tourist industry to thrive (including the digitalisation of tourist services).
Promote desert-based agriculture (DBA), fuelled by desalinated water, to improve resilience and know-how against possible impacts emerging from climate change (e.g. longer droughts) and worsening conditions for conventional agriculture.
The mining sector is Chile’s main economic activity, accounting for an average of 10% of the country’s gross domestic product (GDP) during the past decades (OECD, 2018[1]), 9.3% of total fiscal revenue for the period 2010-2020, and, in 2021, for 58% of the country’s total exports and as much as 12.5% of total value-added (OECD, 2022[2])(Ministerio de Minería, 2022).
The industry is also one of the largest employers in the country, with a total of 275 575 direct employees1 (considering large, medium-sized and small companies) (SERNAGEOMIN, 2022[3]). Of large-scale mining jobs, the Antofagasta region accounts for 57 000 (amounting to 47% of total such employment) (Consejo Minero, 2021[4])
Antofagasta is the preeminent mining region in Chile and one of the largest in the world. The sector is of great relevance at the regional level, accounting for approximately 53% of the total regional GDP and over 90% of its exports in 2018 (Ministerio de Minería, 2020[5]; Paredes Araya and Poblete, 2021[6]).
Copper, lithium and, in smaller proportions, molybdenum, gold, iodine, potash and natural nitrates are geologically abundant and – more importantly – in some cases, have been produced in the region at large scales for many decades.
Beginning in pre-Hispanic times, Antofagasta has had a long and eventful relation with the mining industry, starting with the 19th century’s guano and saltpetre (i.e. natural nitrates) booms (and corresponding busts), the beginning of copper production in Chuquicamata in 1915 that has endured to the present and, in more recent times, lithium production from its world-class resources. In its long and rich history, Antofagasta has experienced typical industry dynamics, as well as phases that have had profound effects on the region’s current shape (Box 3.1)
Regarding copper, the region’s main mineral product, especially notable are:
The 1990-2005 phase, where the expansion of Escondida and the opening of El Abra, Radomiro Tomic and Zaldívar mines saw the consolidation of large-scale mining and the arrival of large, international mining companies, resulting in an increase in annual regional production from 1 million tonnes (Mt) to almost 3 Mt.
The commodity “super-cycle” between 2005 and 2013, which triggered a boom in investments resulting in the expansion of CODELCO’s Chuquicamata and Radomiro Tomic, and BHP’s Spence mines and the opening of Antucoya, Esperanza, Gabriela Mistral and Sierra Gorda mines, among others (these projects, however, did not translate into larger production volumes, mostly on account of diminishing ore grades).
The post-super-cycle, from 2013 to the present, has seen a partial retraction of the inefficiencies born under the previously prevailing boom conditions and investments directed at extending the life of several mines and of the infrastructure developments related to energy and water provision of the industry. Production has remained stubbornly stable at approximately 3 Mt per annum as in the prior phase.
The above developments have had positive and negative effects on the region’s social (including labour and well-being indicators), economic and environmental aspects (CSP, 2019[7]), which will be analysed in further detail below.
Source: CSP (2019[7]), “El super ciclo del cobre y sus efectos en la Región de Antofagasta [The copper super cycle and its effects on the region of Antofagasta]”, www.sistemaspublicos.cl (accessed on 20 January 2023).
Currently, the region’s two main mineral products per value are copper and lithium. Antofagasta’s annual output of 3 Mt of copper and 150 000 tonnes of lithium carbonate equivalent (LCE) (COCHILCO, 2022[8]); (COCHILCO, 2021[9]); (SERNAGEOMIN, 2022[3]) would make the region the second largest global producer of both mineral products.
In addition to its superb geological endowment and strategic geographical location, many factors come into play to make Antofagasta a global mining powerhouse. These include a long mining history, a healthy mining business environment (including some of the world’s largest mining companies and a robust mining equipment, technology and services [METS] sector) and a growing innovative approach to sustainable mining and energy transition challenges.
These – and other – factors place Antofagasta in a prime position to benefit from current global trends, which include a changing global value chain context and, especially, a renewed interest in the region’s mineral products on account of the energy transition requirements. In fact, in terms of total future mining investment, Antofagasta is set to retain its first place among Chilean regions, with 30% of the total expected investment, for an amount of USD 22 billion (out of a total of USD 73.6 billion) (COCHILCO, 2022[10]).
Yet questions loom regarding some of the significant challenges the region will face if it is to increase – or even maintain – current levels of production while ensuring benefits are evenly and justly distributed, promoting Antofagasta’s sustainable development. These include environmental and geological constraints, social inclusivity and leveraging the mining industry’s potency to promote diversification of the region’s economic activities.
Antofagasta’s mining strategy will have to make the most of the region’s many advantages while addressing the challenges presented in novel and effective ways, ensuring creating the environment for a sustainable mining development that provides the region’s citizens with long-term prosperity and well-being.
The mining ecosystem in Antofagasta is complex and multipartite, comprising a large national public sector and a novel regional government setup, public and private mining companies (including some of the world’s largest, as well as small and medium-sized enterprises), a significant METS sector, labour and industry organisations, universities and research centres, and civil society actors. Close collaboration and interaction between these players will be key to ensuring Antofagasta’s mining industry effectively fosters its sustainable development.
An understanding of Antofagasta’s main value chains is essential to better grasp the potential and challenges facing the region in its strategic development. Given their importance relative to all other products, this will mostly hinge on the region’s copper and lithium value chains, which are likely to become even more relevant in future.
Mining value chains in Antofagasta
As mentioned above, in addition to gold, silver and industrial minerals such as molybdenum, potash, iodine, natural nitrates and boron, Antofagasta is world-known for its production of copper and lithium.
Both mineral products are part of large and complex global value chains involving different players and features, and both have different regional impacts and offer different opportunities for development. The next sections describe the main characteristics of each sub-sector by outlining its chief assets, companies and production processes.
Copper: Global top producer but with low refinery capacity
Antofagasta is home to some of the world’s major copper mines (including Minera Escondida, the world’s largest) and, during the past decade, has produced an average of close to 3 Mt of copper per year, mostly exported as copper cathodes, blisters and – increasingly – as copper concentrate (see Box 3.2).
Antofagasta’s copper deposits are part of one of the most important copper belts in the world, formed by the convergence of the Nazca and South American tectonic plates and the occurrence of several mineralisation events giving rise to, mainly, porphyry-type deposits (Palacios et al., 2007[11]). These are large low- to medium-grade deposits containing, on average, hundreds of millions of tonnes of ore of varying grades and are currently the world’s most important source of copper and molybdenum and an important source of gold (Sinclair, 2007[12]; Stevens, 2010[13]).
Chile’s Antofagasta region includes some of the world’s giant porphyry deposits (in terms of contained metal), including Chuquicamata, Escondida and Radomiro Tomic (Cooke, Hollings and Walshe, 2005[14]), which – like similar deposits around the world – are polymetallic, containing different proportions of copper, molybdenum, gold and other minerals.
The low grade (typically ranging between 0.25% to over 1% copper content) and large size of these deposits call for large-scale, open-pit mining, although as the pit reaches a certain size and sloping, underground, “block caving” type mining is also sometimes utilised to extend the life of the mine. This is the process recently developed by CODELCO’s Chuquicamata Subterránea expansion, in operation since 2019, and will likely be adopted by other mines as they approach their open-pit design limits.
Antofagasta’s copper deposits are considered “world-class” and have attracted some of the largest global mining companies (Table 3.1), which are also the ones financially and technologically capable of developing the large-scale operations generally needed to extract and process the typical massive porphyries of the region.2
These companies include private entities (including seven of the ten world’s largest copper producers and four of the five world’s largest mining companies) and state-owned CODELCO, the single biggest copper producer in the world.
In addition, there are a few mid-size mining companies and operations in the region (Mantos Blancos, Mantos de la Luna, Michilla and Franke, Taltal), accounting for a small fraction of total copper production (but producing some other minerals in larger proportions, most notably gold and silver) (SERNAGEOMIN, 2022[3]).
Under current forecasts, both the Chilean and regional copper production output is set to increase, reaching 6.6 Mt per year by 2033 (from today’s 5.7 Mt) at the national level and 3.26 Mt per year by the same year (from today’s 3 Mt) at the regional level (COCHILCO, 2022[8]).
To achieve these levels of production, large-scale investments will be needed both in greenfield (i.e. new mines) and brownfield (i.e. expansion and improvement of existing operations) projects.
On aggregate, the total amount of copper-related investment in Antofagasta in new projects and expansions is forecast at USD 20.7 billion through 2031, for a total of 14 projects (of which 10, amounting to USD 11.6 billion, are considered “highly likely to occur”) (COCHILCO, 2022[10]).
These numbers place Antofagasta as the main copper mining investment destination within Chile, with 34.1% of total projects and 31.8% of total investment amounts (in comparison, Atacama, Chile’s second-highest destination, amounts to 26.8% of expected projects and 24.3% of total investments).
The mining and processing of copper in Antofagasta include several stages. Some are common to all mines, while others depend on ore body characteristics. Typical processes include the following steps:
Drilling and blasting to fracture and extract copper-bearing rocks.
Loading the rock, using large shovels or front-end loaders, and hauling it by trucks to the crushers.
Depending on whether the deposit is one of copper oxides or sulphides, the process will continue through different phases:
In the case of oxides, the crushed rock is progressively subject to: i) leaching (applying a solution of sulphuric acid and water); ii) solvent extraction; and iii) electrowinning phases to produce a cathode with a purity of 99.99% copper. This process is usually referred to as hydrometallurgical.
In the case of sulphides, the crushed rock is: i) ground to very fine diameters (approximately 0.2 mm); ii) treated with chemical reagents in a froth flotation stage; and iii) thickened to obtain a concentrate of approximately 28-30% copper content.
Concentrates, in turn, are either exported as such or: iv) smelted and refined to obtain copper blisters (96% copper purity) or anodes (99.5% copper purity). These blisters and anodes (in Chile referred to as refined or FURE products, after its Spanish acronym) can be: v) further purified through pyro- and electro-refining to, again, produce copper cathodes of 99.99% purity.
Export products and trends
Chile’s copper production is largely exported, with very little in-country consumption (less than 1% of copper production (COCHILCO, 2022[15]). Copper produced in Antofagasta is mostly exported through one of the region’s four deep water, mining-specialised ports (i.e. Angamos, Antofagasta, Coloso and Mejillones) (OECD, 2013[16]).
In 2021, national copper exports were split between concentrates (53.4%), cathodes (25.1%) and refined products (21.5%) (COCHILCO, 2022[17]). These proportions are gradually changing and concentrates are expected to reach as much as 78% of total exports by 2033, with Antofagasta more than leading the trend by shifting its regional copper production from 61.5% of concentrates in 2021 to over 90.6% by 2033 (COCHILCO, 2022[8]).
This shift in the productive matrix is mostly due to two factors: i) geological reasons, which place oxide copper deposits closer to the surface than sulphides, meaning the former have been mined for much longer and are already depleted or nearing depletion; and ii) the cost structure of the Chilean smelter and refining industry.
The smelter conundrum
Chile currently operates seven copper smelters (two private and five publicly owned), of which Glencore’s Altonorte in La Negra industrial area and CODELCO’s Chuquicamata in Calama are found in the region of Antofagasta.
In addition to copper blisters, anodes and electro-refined cathodes, these smelters/refiners produce anodic muds (a sub-product of anode refining rich in gold, silver and platinum-group metals) and sulphuric acid, essential to the leaching phase of hydrometallurgical processes.
However, the country’s smelting industry is among the world’s less cost-efficient, with an average of USD 211 per tonne of copper produced (USD/t). This compares poorly with the industry average of 114 USD/t and, especially, with China’s 25 smelters, which operate at 59 USD/t on average (COCHILCO, 2022[17]).
In terms of business performance, at expected prices of copper concentrate refining of USD 160-200 per processed tonne, 2 of the country’s 7 smelters break even, 3 operate at a loss, and only 2 are profitable (COCHILCO, 2022[17]).
Coupled with high financial costs, Chilean smelters are generally older than the industry average, employ dated technology (although efforts are being made to update the infrastructure) and have a track record of poor environmental performance, especially in connection with air quality matters (Pérez et al., 2021[18]).
This situation is a cause of concern to policy makers and industry participants who are wary of the nation’s main export product being overly dependent on Asia’s (especially China’s) smelting capacity, which accounts for 91% and 67.8% respectively of Chile’s total copper concentrate exports.
In addition to commercial strategic considerations, concerns also relate to the overall mining industry’s carbon footprint (since the export of concentrates is approximately 45% more carbon-intensive than the shipping of anodes/cathodes) and to the limitations of developing a more circular economy mining sector when a key downstream component would be increasingly based overseas (Lagos et al., 2021[19]).
National mining policy has set out the goal of ensuring Chile retains its current smelting capacity by 2050, although it does not spell out how it will tackle the thorny issues explained above (Ministerio de Minería, 2020). Studies have shown that a new smelter in Chile, compliant with current environmental regulations, would be economically feasible (Lagos et al., 2020[20]; 2021[19])
Source: CNEP (2017[21]), Productividad en la Gran Minería del Cobre [Productivity of Large-scale Copper Mining], https://cnep.cl/wp-content/uploads/2017/09/Productividad-_cobre_14_09_2017.pdf; Acosta Barriga, F. (2017[22]), Chile: La Minería en el Siglo XXI [Chile: Mining in the 21st Century], Ocho Libros Editores, Santiago de Chile; Pérez, K. et al. (2021[18]), “Environmental, economic and technological factors affecting Chilean copper smelters: A critical review”, https://doi.org/10.1016/j.jmrt.2021.08.007; Lagos, G. et al. (2020[20]), “Cobre refinado: Un buen negocio para Chile [Refined copper: A good deal for Chile]”, http://www.cesco.cl/analisis-y-estudios/; Lagos, G. et al. (2021[19]), “Análisis económico de las cadenas globales de valor y suministro del cobre refinado en países de América Latina [Economic analysis of refined copper global supply and value chains in Latin America]”, https://www.cepal.org/es/publicaciones/47451-analisis-economico-cadenas-globales-valor-suministro-cobre-refinado-paises; OECD (2013[16]), OECD Territorial Reviews: Antofagasta, Chile 2013, https://doi.org/10.1787/9789264203914-en; COCHILCO (2022[17]), Informe Mercado de Fundiciones 2022 [Smelter Market Report 2022], http://www.cochilco.cl/Mercado%20de%20Metales/Informe%20Fundiciones%202022%20Versión%20Final%20RPI.pdf; COLCHICO (COCHILCO, 2022[15]), “Medición de encadenamientos productivos de la industria minera en Chile [Measurement of value chain linkages of the mining industry in Chile]”, https://www.cochilco.cl/Listado%20Temtico/Encadenamientos%20en%20la%20miner%c3%ada.pdf; COLCHICO (2022[8]), “Proyección de la producción de cobre 2022-2033 [Forecast of copper production: 2022-2033]”, http://www.cochilco.cl/Mercado%20de%20Metales/Proyección%20de%20la%20producción%20esperada%20de%20cobre%202022-2033.pdf.
In addition to large-scale mining operations (which are variously defined as those above a certain threshold of copper production – generally over 50 000 tonnes per year – or those employing more than 400 workers), Chile has several medium-sized, small and artisanal mining operations.3
In the national context, small- and medium-sized companies are marginal producers of copper, being responsible for 1% and 3% of all copper production in 2021 respectively. These figures are even smaller in Antofagasta, with small and medium-sized companies accounting for 0.4% and 0.94% of regional copper production respectively (SERNAGEOMIN, 2022[3]).
In sum, Antofagasta’s copper industry is world-class in terms of assets and production and is largely composed of large-scale, mostly open-pit mines owned and operated by some of the world’s leading mining companies.
Current operations, future projects and estimated global demand for copper are expected to keep Antofagasta at the forefront of world copper production for several decades, making this industry the largest single economic sector in the region for years to come.
Lithium: Global leader in reserves
Aside from copper, lithium is the largest mining value chain in Antofagasta. With approximately 123 000 tonnes per annum of LCE, Antofagasta’s production makes Chile the second producer of lithium in the world after Australia (COCHILCO, 2021[9]; Ministerio de Minería, 2020[5]).
At 9.2 Mt, Chile is also the world leader in lithium reserves and, with 9.8 Mt, the world’s third largest jurisdiction in terms of lithium resources (USGS, 2022[23]). Together with Argentina and Bolivia, Chile is part of the so-called Lithium Triangle, home to 52 Mt of lithium resources, equivalent to approximately 60% of known global lithium resources (USGS, 2022[23]).
Geologically abundant and present in many forms, lithium is, however, commercially produced from two sources: hard rock (mainly spodumene) and brine from salt flats or salares. A salar is a high-altitude, endorreic (drainage) basin that, over time, concentrates the soluble elements found in its catchment area through evaporation.
Salt flats hold lithium in their brine, which also contain other elements – in different proportions depending on the salar’s chemical makeup – such as potash, boron, magnesium, sodium and sulphur. Some of these elements (chiefly potash and boron) are commercially important and sometimes produced in parallel to lithium, while others (especially magnesium and sulphur) are considered impurities and may present challenges to the production of high-grade lithium.
Lithium is a key component in lithium-ion batteries and has seen its global demand grow significantly in the past years, pushed by the energy transition, the increased adoption of electric vehicles (EVs) and the deployment of lithium-ion batteries in non-transportation energy storage (i.e. decentralised and grid-scale energy storage).
Under current technologies, future demand is expected to continue to increase in lockstep with the decarbonisation of the economy and the exponential growth in energy storage requirements. Under a 2 degrees Celsius (ºC) scenario,4 utility-scale battery storage is expected to increase 25-fold between 2020 and 2040 (IEA, 2022[24]).
Lithium produced in Chilean salars is potentially the lowest cost lithium (especially if coupled with solar evaporation ponds) but gives manufacturers lower flexibility than in other jurisdictions in terms of the type of lithium compound produced (Box 3.3).
Chile has roughly 60 salt flats, all located in its 4 northernmost regions. Most notable for their lithium production potential are the La Isla, Maricunga and Pedernales salars in the Atacama region (all of which host projects in different stages of development) and – especially – the Salar de Atacama in Antofagasta, the only one currently in production.
Lithium production is expected to increase in the future both at the national and regional levels. Plans to develop other salars in neighbouring regions and expand current production from Antofagasta’s Salar de Atacama are in place.
The production of lithium from brine is a complex and sophisticated process that encompasses both mining and chemical knowledge and techniques.
Typical steps include the following:
A wellfield is drilled in the salt flat and brine is pumped to solar evaporation ponds. The lithium content of untreated brine depends on the salar but at this stage is approximately 100-1 600 parts per million (PPM).
Brine is then stored in a chain of ponds that, through successive stages of solar evaporation (and in some cases, the addition of chemicals), allow different elements to precipitate, concentrating the lithium for further processing.
As a result of this, the brine’s lithium content is gradually increased and impurities or subproducts separated. At the end of the solar concentration phase, the brine has a lithium concentration of 10 000-60 000 PPM.
Once concentrated, the brine is sent to the chemical plant, where it is pumped to vats for a solvent extraction phase. This stage usually involves the addition of chemical reagents (e.g. hydrochloric acid, sulphuric acid, soda ash, etc.) to eliminate most of the boron and magnesium still present.
Finally, the lithium-rich solution is treated with sodium carbonate to produce the lithium carbonate (LC), which, after filtering, drying and packing, is then shipped for export.
It is possible to produce lithium hydroxide (LH) from LC, but this involves several processing stages at the chemical plants, involving additional time, energy and the use of chemical reagents (especially lime).
In recent times, in addition to the conventional solar concentration process, new lithium processing technologies have appeared, most notably “direct lithium extraction”, or DLE, which seeks to bypass the solar concentration phase by heating the brine and enhancing the chemical aspects of the process.
Solar concentration and DLE are complex processes but, in general terms, it can be said that solar concentration uses less energy and freshwater than DLE, though requires larger volumes of brine and longer processing times than DLE. Both processes require large volumes of reagents, which are easily 2:1 ratio to the lithium produced.
Production processes are tailor-made to the specific chemical composition of the brine and usually require a significant period of adjustment to the salar’s hydrogeological and geographical conditions (including the basin’s water replenishment rates and permeability, solar irradiation rates, etc.)
A word on “battery-grade” lithium
Batteries utilise lithium in one of two forms: lithium carbonate (LC) and lithium hydroxide (LH). Other compounds (such as lithium chloride, lithium sulphide, etc.) make up at present less than 5% of world demand (Jiménez and Sáez, 2022[25]).
For processing reasons, lithium extracted from brine is first produced as LC, whereas that coming from hard rock is produced as LH or LC. This means that Australia and other hard rock producers have greater flexibility in production over brine-based producers such as Antofagasta, which can have an impact depending on where the market moves in terms of LC or LH demand. In this sense, LH is forecast to grow in demand and potentially overtake LC in the next few years.
Currently, so-called “battery-grade” lithium is of a purity of 99.5% and higher, although the remaining 0.5% is oftentimes crucial in terms of its chemical composition and make.
Indeed, cathode manufacturers employ different technologies and formulae that require both: i) consistency in the chemical composition and purity of the lithium used; and ii) penalise the existence of certain elements in the non-lithium portion of the compound. This explains why LC and LH are not considered commodities (in the sense that a standard product can be easily substituted) but rather specialised chemicals.
It is also the reason why many downstream users of LC or LH seek to establish and maintain long-term relationships and contracts with lithium producers that guarantee that the product will comply with their specific processing requirements (Obaya and Céspedes, 2021[26]).
In sum, the production of lithium from salares involves the complex processing of brine and the production of highly specific chemical compounds of a given and consistent quality. This implies sophisticated methods involving numerous steps and – in most cases – precise knowledge of the salar and its chemical fingerprint.
Source: Jiménez, D. and M. Sáez (2022[25]), “Agregación de valor en la producción de compuestos de litio en la región del triángulo del litio [Value-adding in the production of lithium compounds in the lithium triangle region]”, www.cepal.org/es/publicaciones/48055-agregacion-valor-la-produccion-compuestos-litio-la-region-triangulo-litio; Obaya, M. and M. Céspedes (2021[26]), “Análisis de las redes globales de producción de baterías de ion de litio: implicaciones para los países del triángulo del litio [Analysis of global production networks of lithium-ion batteries: Implications for the countries of the lithium triangle]”
Having started production almost four decades ago, Antofagasta’s two operations (Table 3.2) have placed the region as a world player in the production of lithium products, especially LC.
Both companies are among the world’s top lithium producers (including production from their non-Chilean assets) (COCHILCO, 2021[9]); they have a long history in the region (Albemarle’s – then Foote Mineral Company – first production started in 1984 and SQM’s in 1994) and, in addition to LC, LH and related products, produce other industrial minerals from their Antofagasta assets (see next section).
Following expected market growth dynamics and specific contractual terms agreed in 2016 (Albemarle) and 2018 (SQM) in renegotiations with the Chilean public Production Promotional Corporation (CORFO) (see Box 3.4), both companies seek to increase production.
Of special note in this regard is the recent announcement of the National Lithium Strategy which, among its goals: i) seeks to provide the Chilean government with a majority participation in the ownership of lithium companies (to this end, CODELCO is to enter into negotiations with Albemarle and SQM for the transfer of a controlling stake in both Salar de Atacama operations); ii) proposes the creation of a national lithium company to participate in downstream transformation of lithium into lithium-ion cells and batteries; iii) looks to accelerate projects in some of Chile’s numerous and as of yet non-productive salars; and iv) promotes research and development (R&D) activities through the establishment of a public technological institute for the research of lithium and salars, to be based in the region of Antofagasta (Gobierno de Chile, 2023[27]).
In Chile, lithium is not subject to the general mining regulations, being instead governed by its own specific framework dating back to the 1970s.
In 1979, potential military uses of lithium moved Chile to declare it of national importance, reserve it in property for the state and proclaim it not subject to concession to private persons. The Chilean Nuclear Energy Commission was entrusted with the administration of all lithium-related contracts and assets, with the sole exception of those pertaining to mining properties requested or granted before the above declaration of public interest.
Such exempted properties were held by: i) CORFO, with rights to 55% of the Salar de Atacama; ii) CODELCO (100% of the Pedernales and 18% of the Maricunga salars); iii) Chile’s National Mining Company (ENAMI) that owns 4% of Salar de Aguilar; and iv) 3 private companies owning 25% of the Maricunga salar.
All other lithium-bearing salars and deposits are to remain state property and can only be put into production: i) directly by the state or through CODELCO and ENAMI, its state-owned companies; ii) through an administrative concession, not governed by the Mining Code; or iii) by a special operation agreement (CEOL), granted by the Ministry of Mines.
In 1980, CORFO and Albemarle’s predecessor Foote Mineral entered into an agreement to jointly produce lithium from the Salar de Atacama. This agreement was followed in 1986 by another between CORFO and SQM’s predecessor Minsal Minera. These contracts included clauses which, in modified form, remain applicable to this day (e.g. maximum extraction quotas, special royalties payable to CORFO, fixed term, etc.).
Following the radical increase of lithium demand and prices sparked in 2010-15 by the battery and energy storage exponential growth (driven in turn by the global move for a decarbonised economy) and a 2012 failed attempt to incorporate new lithium producers through a somewhat scandalous CEOL process, the more accessible avenue to expand production was the renegotiation of existing agreements with Albemarle and SQM.
This process resulted in amended versions of Albemarle’s (in 2016) and SQM’s (in 2018) agreements. The renewed agreements include, among other things:
Larger extraction quotas, subject to the commissioning by each company of new plants or facilities by a certain date for specific additional production volumes (e.g. 24 000 tpa of LC for Albemarle and 50 000 tpa of LC for SQM).
Up to 25% of production being sold at preferential prices to Chilean companies engaged in downstream value-adding activities.
Monetary contributions to local communities and to R&D institutions engaged in certain types of research (e.g. solar energy, lithium products, etc.).
Greater access to information and oversight of operations and processes by government authorities and local communities.
The agreements are operational and have spurred the intended expansion of lithium production. Questions remain, however, as to whether Chile will be able to generate the conditions to attract new producers and projects to its lithium assets, key to achieving the national mining policy goal of producing 380 000 tpa of LC equivalent by 2030 (Ministerio de Minería, 2020[5]).
Source: Poveda Bonilla (2020[28]), “Estudio de caso sobre la gobernanza del litio en Chile [Case study on the governance of lithium in Chile]”; Cademartori Dujisin, J. et al. (2018[29]), “La economía política de la explotación de litio en Chile : 1980-2018”, Revista de ciencias sociales, Vol. 10/34, pp. 83-100; Ministerio de Minería (2020[5]), Política Nacional Minera 2050 [National Mining Policy 2050], www.doe.cl/alerta/28012023/2262175.
Another challenge for the continuing viability of lithium extraction from salars (potentially intensified by the planned expansion of production) is the social pressure regarding the long-term environmental impact of water use in a dry environment.
Companies are already taking steps in this direction, including modifying processes to be less water-intensive and rethinking their product mix (i.e. prioritising lithium over water-demanding potash) but further efforts and investments in technology will likely be required (see Table 3.3).
Finally, potentially disruptive technologies and developments should also be considered in the mid- and long-term scenarios. Indeed, sodium-ion batteries, hydrogen cells and similar breakthroughs could adversely impact the demand for lithium (World Bank, 2020[30]) and will require foresight and advance planning to ensure such disruptions, if they are to occur, are adequately managed.
Other mineral products
As indicated above, Antofagasta’s mineral endowment is not limited to copper and lithium.
The region has also been singled out as having potential for the development of metallic and non-metallic minerals such as gold, silver, lead, zinc, molybdenum, iodine, natural nitrates, boron and rare earth elements.
Of the above-mentioned minerals, Antofagasta currently produces: i) gold from Yamana’s El Peñon and Austral Gold’s Guanaco mines; ii) iodine and natural nitrates from SQM’s Coya Sur, María Elena and Pedro de Valdivia operations; iii) potash from Albemarle’s and SQM’s Salar de Atacama operations; and iv) boron, from Quiborax’s Ascotan mine.
In addition to those stand-alone operations, the region obtains gold, silver and molybdenum as sub-products of their copper mining (in Antofagasta Minerals’ Centinela and KGHM’s Sierra Gorda mines).
Finally, since 2011, CODELCO has operated Molyb, a molybdenum concentrate plant in the municipality of Mejillones with an annual production capacity of 17 000 tonnes of molybdenum trioxide.
In terms of future developments, Antofagasta is the third most prospective region within Chile for the development of non-copper-related projects, with a total of 48 potential targets for silver (26 projects), molybdenum (8), zinc (6), iron ore (5) and lead (3). Of these, three projects in different stages of development (Cachinal, El Inca and Nuevo Juncal) appear to be especially promising (Muñoz López, Escobar and Quintanilla, 2021[31]).
Innovative approaches to obtaining valuable minerals from less-traditional sources, including tailings, smelter waste and even the seafloor is under study, with CODELCO taking the lead in initiatives to reprocess copper anode mud at its Planta Recuperadora de Metales SpA (a joint venture with Korean LS-Nikko) in operation in Mejillones, Antofagasta, since 2016.
Seabed mining, in turn, is being explored, with the Mejillones peninsula having been identified as one of the prospective areas for nodules containing rare earth elements (Muñoz López, Escobar and Quintanilla, 2021[31]).
In future, as more former mining and smelter waste streams are re-treated and other sources of valuable minerals are tapped, production of non-copper and lithium products is likely to increase.
This would be in line with the goals stated in the national mining policy (Ministerio de Minería, 2020[5]), which seeks to diversify the Chilean mineral portfolio through the production of products other than copper and lithium.5
Antofagasta’s METS sector
A key component of any mining business ecosystem is that of the industry’s supply base, comprised of those companies providing “specialised products and solutions for mineral exploration, extraction and mining supply chains” (METS Ignited, 2016[32]).
From explosives, chemical reagents, mill balls, fuel and off-road tires to construction, financial, commercial and legal services, mining functions everywhere as a catalyst of economic activity and development (COCHILCO, 2022[15]; Corporación Alta Ley, 2019[33]).
At the national level, Chile has long identified mining suppliers as a relevant sector for development and, starting in the 1990s, has put in place successive public policies to this effect, setting ambitious goals in terms of number of companies and export values (Ministerio de Minería, 2020[5])( (CNEP, 2017[21])).
In Antofagasta, this impulse was mirrored by the creation of the Cluster Minero de la Región de Antofagasta (CMRA), an initiative adopted in 2019 by CORFO, the regional government, the Antofagasta Association Industrial Association, the Chilean Chamber of Construction, the Association of Antofagasta Municipalities and the University of Antofagasta and the Catholic University of the North.
This agglomeration of relevant industry players is showcased every two years in Exponor, one of South America’s largest trade fairs (Box 3.5).
Exponor is a mining trade fair organised by the Antofagasta Industrial Association (AIA) and, together with Expomin (also in Chile) and Perumin in Peru, is considered one of the most important trade shows in the mining industry in Latin America.
The event brings together key players in the industry, including mining companies, suppliers, government representatives and industry experts. The fair provides a platform for participants to present their latest products, services and technology while also facilitating networking opportunities and promoting business relationships.
With a focus on sustainability and innovation, Exponor has become an important forum for discussing and sharing ideas about the future of the mining industry, as well as discussing best practices, sharing knowledge and identifying opportunities for collaboration.
The latest edition of Exponor was held from 13 to 16 June 2022 and featured over 730 exhibitors showcasing their products and services across a variety of categories, including mining equipment, technology and services. More than 40 500 visitors from around the world attended the fair to learn about the latest trends and innovations in the mining industry.
Source: Exponor (n.d.[34]), Homepage, https://exponor.cl.
Together with other public-private collaborations – such as the World Class Suppliers Program, co-financed in 2009 by BHP Billiton and Fundación Chile, and since joined by CODELCO – the CMRA has sought to capitalise on regional mining activity to develop a strong set of local suppliers capable of devising solutions to the industry’s challenges and, eventually, able to export know-how and products.
Antofagasta boasts the largest concentration of mining supply companies of all of the Chilean regions (with the exception of the Metropolitan region),6 accounting for 6% of large, 10% of medium-sized and 18% of small supply companies (Expande, 2019[35]). It has managed to attract multinational companies (including Cummins, Caterpillar, Komatsu and 3M, among others) and develop its own number of local suppliers (such as Complejo Metalúrgico Altonorte, Inacal, Mabortex and Sales de Magnesio, all companies with annual sales between USD 50-100 million).
However, the fact remains that the METS sector in Antofagasta still shows a lot of room for improvement if it is to attain the same relative importance of mining compared to national totals. Indeed, Antofagasta accounts for 50% of total copper production and 100% of total lithium production but only for 26-12% of total mining industry suppliers (Atienza, M. et al., 2015[36])
Antofagasta is in many ways uniquely positioned to become one of the world’s leading producers of responsibly sourced minerals, key for a low-carbon future.
The transition towards clean energy will be more resource-intensive than energy generation from fossil fuels, and both copper and lithium are minerals whose demand will significantly increase in this context (World Bank, 2020[30]). This additional mineral production – although a fraction of fossil fuels’ carbon intensity – will also have to be mined in climate-responsible ways.
Antofagasta’s large endowment of energy transition minerals and the low-carbon footprint with which these minerals can be mined (given the region’s superb renewable energy potential) provide Antofagasta with the opportunity to play a key role in the global push towards a decarbonised future. A future that, in turn, will further boost Antofagasta’s development by providing long-term demand for its METS.
World-class geological resources, a long-established mining presence and a strong mining value chain provide the region with a great head start. There remain, however, important challenges to address, including progressively diminishing mineral grades, productivity gaps and human skills (Table 3.3).
The adequate balancing of these – and other – factors place Antofagasta in a prime position to benefit from current global trends, which include a focus on energy transition requirements, a changing global value chain and supply context, heightened international competition for natural resources, a renewed interest in the region’s mineral portfolio and an expectation of sustainably mined minerals (Box 3.6).
Sustainability requires the region to mobilise its mining assets and effectively manage its challenges to achieve the environmentally adequate use of its geological endowment while ensuring the mining industry’s impacts and benefits are equitably spread among all relevant stakeholders, including the region’s future generations.
In terms of regional development, long-term sustainability will depend on Antofagasta’s mining sector being harnessed to achieve three simultaneous goals:
1. Maximise the opportunities presented by the energy transition to enhance the industry’s positive impact on the region’s economic and social fabrics while minimising potential adverse effects on the environment.
2. Develop a strong, innovative and inclusive value chain capable of providing equipment, technology and services to Antofagasta, as well as other South American and global mining regions.
3. Progressively decouple Antofagasta’s regional growth from the production of minerals by fostering alternative uses of the region’s natural capital and the development of non-mining-related economic sectors.
The concept of “green mining” was originally developed in Finland and revolves around five pillars:
1. Promoting materials and energy efficiency by reducing the environmental footprint of mineral-based product life cycles.
2. Ensuring the availability of mineral resources for the future (e.g. addressing the intergenerational “mineral debt”) through geoscientific mapping and research, and mineral exploration.
3. Minimising adverse environmental and social impacts in all stages of mining operations while maximising social and local benefits
4. Improving work and organisational practices, with a view of ensuring mining is safe and meaningful for its employees, for local residents and for the environment.
5. Ensuring sustainable land use following mine closure by conceiving mining as a transitional use of the land.
A recent book published by the Future Challenges, Science, Technology and Innovation Committee of the Senate of Chile (2022[50]) further defined the green mining concept, as applicable to Chile, as mining that is:
Low in local and global emissions and adaptable to climate change.
Low in waste, minimising its generation and integrating into circular production systems.
Caring for biodiversity in the ecosystems where it operates.
Efficient in the use of energy and intensive use of low-emission renewable energy.
Integrated into territories, opening spaces for the participation of local capabilities in the processes of creating value for sustainable mining.
These features will have to be adequately addressed by Antofagasta to develop a mining strategy that is well-suited to the long-term development of the region. In this regard, both lithium-producing companies in the region have initiated certification steps towards the Initiative for Responsible Mining Assurance, a step that will likely have to be followed by copper miners in the short term.
Source: Nurmi, P. (2017[51]), Green Mining – A Holistic Concept for Sustainable and Acceptable Mineral Production; Comisión Desafíos del Futuro, Ciencia, Tecnología e Innovación (2022[50]), Chile tiene futuro desde sus territorios. Comisión Desafíos del Futuro, Ciencia, Tecnología e Innovación 2018-2022 del Senado de la República de Chile (2022), “Chile Tiene Futuro Desde Sus Territorios” [Chile has a Future From Its Territories], Ediciones Biblioteca del Congreso Nacional de Chile, Santiago de Chile, http://repositoriobibliotecas.uv.cl/bitstream/handle/uvscl/3817/CHILE%20TIENE%20FUTURO%20-.pdf?sequence=1&isAllowed=y (accessed on 12 April 2023).
Environmentally, the region must make the most of its advantages to enhance sustainability in extracting and processing its mineral products. This includes implementing circular practices in the use of key industry inputs (especially energy and water), minimising the use of those resources and the generation of waste streams (Krausmann et al., 2018[52]).
Success in this area would ensure the mining industry remains an essential player in the sustainable development of the region while also providing an instant advantage to Antofagasta by allowing it to comply with the progressively more demanding requirements of natural resource-based development. These include both consumer preferences for traceable, “green” minerals and products (van den Brink et al., 2019[53]) and a gradually more exacting regulatory landscape, such as the one embodied in European Union Regulation 2017/821 (Conflict minerals) or in the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (OECD, 2016[54]).
Antofagasta’s already significant head start towards less water- and carbon-intense mining also creates opportunities down the line for the region to contribute – by exporting its technology and know-how to other mining regions in the world – to the sustainable future of mining and to the region’s economic diversification development. To do so, several challenges remain. Among these, the following three stand out.
Energy
Nationally, the mining industry is responsible for 15.3% of Chile’s overall energy consumption, which translates into 34.1% of total electricity and 21.1% of total diesel consumption (COCHILCO, 2022[40]; 2022[55]; 2022[56]).
Some of the mining industry’s processes carried out in Antofagasta (including comminution, concentration and cathode production for copper and brine processing for lithium) are energy intensive. In copper mines, especially, energy is also required to power the machinery and heavy trucks essential for the extraction and in-site transport of the ore.
Throughout the north of the country, but especially in the case of Antofagasta, energy consumption is also high in relation to the provision of sea and/or de-salinised water, which must be extracted, processed and transported from the coast to altitudes of up to 3 000 metres above sea level and higher.
Energy generation and transportation provide an obvious avenue for enhancing the mining industry’s environmental profile while, at the same time, fostering the diversification of the local economy and creating innovation and learning opportunities.
Fortunately, the region enjoys one of the world’s highest potentials for renewable energy generation (Ministerio de Energía/GIZ, 2014[57]; Ministerio de Energía, 2021[41]), with the Atacama Desert scoring the highest solar incidence in the world at 3 500 kilowatt hour per square metre (kWh/m2) direct normal irradiance and UV-B radiation 65% above the European average (OECD/UN, 2018[45]).
In recent years, there has been a progressive increase in the use of renewable energy in the Chilean mining sector. This has been done by integrating these energies into mining operations in one of three different ways: i) direct use of renewable energy in some process; ii) through power purchase agreements (PPAs) in which the mining company participates in the investment of the renewable energy project; and iii) through PPAs in which the mining company, as a customer, requests its generator to supply renewable energy7 (COCHILCO, 2022[56]). In Antofagasta, all large-scale copper operations, both lithium producers and even some industrial mineral producers, have either PPAs or self-built renewable energy projects (COCHILCO, 2022[58]).
This trend has been especially strong in Antofagasta, with as many as 13 renewable energy projects in place as of 2022 (COCHILCO, 2022[56]) and more to come (Vyhmeister et al., 2017[59]). Antofagasta is also home to some of the country’s leading scientific research initiatives in the development of solar generation technology, with the Atamostec Solar Energy Research Center (SERC) project – a network of researchers and institutions focusing on solar energy – as a prime example (OECD/UN, 2018[45]).
Finally, Chile’s National Green Hydrogen Strategy (Ministerio de Energía, 2020[60]) is also being reflected in Antofagasta, both with several projects vying to produce green hydrogen in the region and through the piloting of green hydrogen as a fuel for mining projects and operations, especially as a replacement of diesel for heavy trucks (COCHILCO, 2022[56]). Challenges remain, however, as the technology – although promising – is still in the early stages of adoption (COCHILCO, 2022[58]).
Water
The mining industry is already an important user of water in the country, accountable for a total of 17.6 cubic metres per second (m3/s) for copper mining, of which two-thirds (11.8 m3/s) are “continental” waters (including surface and underground water sources). The remaining 5.7 m3/s are seawater8 (COCHILCO, 2022[61]).
Nationally, water intensity is expected to grow over time in response to several factors, including: i) an increase in total copper production; ii) diminishing copper contents (which require the processing of larger quantities of material); and iii) a shift towards the more abundant copper sulphurs – whose flotation process requires more water per unit of production – from the rarer and progressively depleting copper oxides (COCHILCO, 2021[62]).
In response to the above factors, copper mining water use is forecast to achieve by 2032 a total of 20.9 m3/s, of which 68% (14.2 m3/s) will be seawater and 32% (6.7 m3/s) will be continental water, reversing the current proportion (COCHILCO, 2021[62]).
The advent of green hydrogen projects would also likely add to water demand since, under current technology, 9 litres of water are required for every kilogram of hydrogen produced (Beswick, Oliveira and Yan, 2021[63]), although an integrated approach between green hydrogen production and water policies may result in a net-positive effect (see next section).
This increase in water demand will take place against a backdrop of climate change that is expected to diminish rainfall in Antofagasta – already one of the world’s driest regions – by as much as 60% before the turn of the century (COCHILCO, 2021[62]).
Regionally, water presents a significant challenge given; i) the dryness of Antofagasta (together with the rest of the Chilean northern regions subject to “very high” risk of hydric stress (Ministerio de Minería, 2020[5]); ii) the volumes of water used by mining operations in the region (53% of national mining water use, dwarfing the second-highest region, O’Higgins, at 13%); and iii) the importance of mining relative to other regional water uses, which stands at 57% of regional water use (again, the highest of all Chilean regions (COCHILCO, 2022[61]). Contrary to every other Chilean region, mining, and not agriculture, is the main consumer of water in Antofagasta, although the Agricultural sector still accounts for 15% of total water use (Aitken et al., 2016[64]). Starting in the last decade, the mining industry began using desalinised seawater, which is obtained and processed at sea level and pumped for its use at the mines. Currently, 9 large and mid-sized operations use seawater in Antofagasta (out of a national total of 14 seawater capture plants in operation) and this number is expected to grow over time (Corporación Alta Ley, 2021[65]). In fact, Antofagasta is expected to be the region with the highest proportion of seawater utilisation, with as much as 63% of national seawater used by the region. Conversely, continental water use will diminish by as much as 74% in Antofagasta, freeing these resources for other uses (COCHILCO, 2021[62]).
Despite the significant progress reflected by these numbers, they would still fall short of the national mining policy target, which mandates a maximum of 10% of continental water use by 2030 and 5% by 2040 (Ministerio de Minería, 2020[5]). In addition to obtaining water from non-continental sources, the industry will have to improve its efficiency in the use of water, reducing consumption through recirculation, a circular economy approach and deploying novel technological processes in matters such as dust removal, tailings, etc. (Aitken et al., 2016[64]; Stella, Budinich and Botov, 2023[66]).
Waste streams
Nationally, the copper mining industry is responsible for 15.6% of total Scope 1 and 2 greenhouse gas (GHG) emissions,9 with Antofagasta accounting for 58% of total copper-related Scope 1 and 2 GHG emissions in Chile (COCHILCO, 2022[56]).
National mining policy vows to attain carbon-neutrality for the whole of Chile’s mining industry by 2040 (Ministerio de Minería, 2020[5]), in line with the Government’s 2050 Net Zero goal, as stated in the June 2022 Climate Change Law. To achieve this, a combination of green hydrogen adoption and heavy truck fleet electrification is proposed, with initiatives already being put in place in several of Antofagasta’s mining operations. This follows a broader trend where many of the major mining companies operating in the region (including the operators of Antofagasta’s largest copper mines) have pledged to curtail emissions and are taking concrete steps in this direction.
The same goes with regard to particulate emission reduction programmes, which are being developed and implemented following the International Council on Mining and Metals (ICMM) Innovation for Cleaner, Safer Vehicles initiative.
Another significant waste stream of mining is that of sterile rock deposits and tailings (i.e. massive deposits of liquid slurry made of fine metal or mineral particles and water created when mined ore is crushed and finely ground as part of the extraction of metals and minerals).
Antofagasta has 51 tailing deposits, which amount to a surprisingly low percentage (6.9%) of Chile’s totals (Ministerio de Minería, 2019[67]). These are, however, generally massive in nature, contain important volumes of water and require long-term geophysical and geochemical stability monitoring.
Several initiatives are being studied and put in place to enhance the circularity of massive sterile rock and tailing deposits, through the reprocessing of material to extract valuable elements, the extraction of water from tailings to be reused in mining processes and the development of new technologies and processes that are more efficient and environmentally sustainable (Ministerio de Minería, 2019[67]; Corporación Alta Ley, 2019[33]; 2021[65]).
As is the case with energy and water, innovative approaches and solutions developed in Antofagasta would not only further enhance the region’s environmental profile but also constitute potential opportunities for economic diversification and development.
In sum, more sustainable mining as a regional opportunity
Accelerating the implementation of an environmentally sustainable mining process presents both challenges and significant opportunities. A strong ESG-driven mining sector and policy (ideally striving for a “first in class” position), would allow the region to maintain its global relevance in years to come, ensuring long-term global acceptability of – and consequent premium for – its mineral products.
Greater use of renewable energy, lower reliance on continental water and valorisation of mining waste streams all present ideal potential targets for prioritisation.
To do this, the regional government must foster a collaborative approach with the national government, industry players and academia, whose role would be of special importance given the innovative nature of most of the actions needed in this area.
Initiatives may include, among others:
Publicly show the level of renewable energy sources used in each mine in the region.
Incentivise the use of shared desalinisation facilities and more efficiency in water uses.
Provide tax credit incentives to attract investments for reusing mining tailings.
Ensure that the national government company CODELCO leads by example in the use of renewables and desalinated water.
Adoption and maintenance of ESG-compliant practices and credentials for the sector should thus be made a top regional priority. This includes promoting a common use of certificates that also include civil society validation, such as the Initiative for Responsible Mining Assurance – commonly referred to as IRMA – for which a number of mining companies in the region are already applying. The implementation of a robust circular economy approach would also work in the same direction. By ensuring that mining is conducted under the tenets of the circular economy, Antofagasta would capture the benefits of a more sustainable mining industry, which is also purposefully designed to prolong the viability of the sector over long periods of time.
By designing mining sites and operations with circularity in mind, the region could position itself to obtain significant benefits and savings in terms of life-of-mine extensions, smaller input volumes (especially in energy and water), minimised waste streams and more efficient and resilient equipment and processes.
As is the case with ESG standards, championing circularity would also generate know-how that could easily be exported to other mining regions and across productive sectors, thereby generating an independent side-industry and revenue stream which would exist beyond the mining industry itself. In this sense, the Regional Innovation Strategy 2022-2028 identifies the existence of a green, sustainable and technologically advanced mining industry as one of the pillars of future regional development (GORE, 2022[68]).
Previous OECD reports have identified diversifying the national and regional economies as a fundamental challenge to lessen the dependence on natural resources (subject to cyclicality) and generate opportunities for sustaining continuous long-term growth (OECD, 2013[16]; 2018[1]; 2022[2]). Studies have also shown a strong correlation between economic diversification and sustained growth for low- and middle-income countries, with higher GDP per capita, lower volatility and job creation resulting from a more diverse economy (IMF, 2014[69]).
As mentioned in previous paragraphs, Antofagasta’s mining industry presents a number of assets and challenges that, if properly addressed, will allow the region to develop a more diversified and resilient economic profile. This would have the benefit of further enhancing Antofagasta’s mining industry’s social acceptability, as well as providing long-term sustainability and prosperity, by generating development opportunities that are decoupled from the extraction of natural resources.
Three main avenues of regional economic diversification may stem from Antofagasta’s vibrant mining industry:
1. Downstream diversification, by adding value to mining products.
3. Diversification beyond the mining value chain by taking advantage of synergies with non-mining sectors.
Diversification throughout the mining value chain
Globally, mining is known to generate economic linkages throughout the value chain.
At the national level, the multiplier effect of the mining activity over other related value chain sectors has been estimated to be 1.96 in 2019 (growing from 1.4 in 2008), which is doubly significant since, in 2008, the mining share of total national GDP was 20%, while it only amounted to 16% in 2019 (COCHILCO, 2022[15]).
This trend has been shown to deepen, with the mining sector shifting from those considered “independent sectors” (i.e. not linked to other sectors) to that of “driving sectors”. In other words, the mining industry has strengthened its multiplier effect, becoming a driving force of the economy from 2015 onwards (COCHILCO, 2022[15]).
Despite the challenges, there is significant potential for beneficial outcomes stemming from a thriving mining sector, especially in terms of local sourcing and value-added processing.
Although downstream diversification is more apparent, the greater benefits in terms of job creation, skill development and experiential learning are likely to be realised through local sourcing or upstream diversification. This is because many of the competencies required by enterprises that supply products and services to mining firms (such as equipment maintenance and repair, construction, specialised apparel, catering and so on) can be seamlessly transferred to other industries (McMahon and Moreira, 2014[70]).
Downstream transformation and value-adding
Downstream diversification opportunities arise from: i) the transformation of mineral products into intermediate goods; and ii) other forms of value-adding to those mineral products (such as, for example, the production of a purer form of lithium products).
In the Antofagasta region context, this would in essence involve the manufacture of products from, or the addition of value to, any of the region’s main mineral products, namely copper concentrates or cathodes, and LC or LH.
Downstream diversification from the transformation perspective requires a deep understanding of the respective value chains of copper and lithium in order to better identify the opportunities available to the region. The challenges regarding this type of diversification are, however, significant as, in many cases, the economic rationale for the efficient and competitive production of a given product is strikingly different from other products in prior stages of its value chain (IMF, 2014[69]). As will be explained below, a clear example of this dynamic can be seen in the case of lithium battery components and similar products.
In terms of copper, downstream transformative diversification would entail, in the first instance, the manufacture of copper-made products such as wire rods, wire, cable, tubes and copper and copper alloy semi-manufactured products. From there, any number of copper-bearing products could theoretically follow, with copper foil being promoted as a potential high-value-added product (Corporación Alta Ley, 2019[33]).
Similarly, in the case of lithium, a potential avenue for downstream diversification would be the lithium battery and electric vehicle (EV) value chains. These comprise several different steps, namely: i) lithium extraction; ii) production of battery materials (chiefly, “battery-grade” LC or LH); iii) battery components (cathodes); iv) cell production; v) module production; vi) battery pack assembly; and v) integration into the vehicle (Clean Energy Canada, 2021[71]).
To date, a combination of long-term investment, skilled labour, manufacturing capabilities and technological development has enabled Asia to become the dominant producer of lithium battery cathodes, cells and battery packs. While other regions, such as Europe and North America, are working to develop their own battery supply chains, it will likely take time for them to catch up with the established infrastructure and expertise of Asian manufacturers. And the same holds true for Antofagasta.
In this regard, the recently announced public technological institute for the research of lithium and salars – a part of the National Lithium Strategy – to be based in the region of Antofagasta (Gobierno de Chile, 2023[27]) could play a relevant role in the development of downstream applications and lithium products. However, a long-term incentive policy will likely have to be adopted to ensure conditions are present to foster innovation and adequate investment.
In sum, although there are opportunities for downstream diversification, these should be explored with caution and with the view of prioritising those areas where Antofagasta is better suited for competitive advantages. Areas of potential development include obtaining speciality chemicals from lithium (with specific levels of purity and non-lithium contents) and, in the case of copper, the installation of a smelter/refinery that, taking advantage of abundant renewable energy sources, is able to produce copper cathodes with a low-carbon footprint (see, however Box 3.2, trends in end products and the smelter outlook for the potential challenges involved).
Downstream diversification in the form of value-adding processes and methods of production is a different proposition, with greater potential. These would include development such as processes related to the more sustainable extraction and processing of copper and lithium (by, for example, reducing inputs, waste streams, r time involved), greater traceability and environmental monitoring of production processes and the development of more inclusive social and labour practices that foster greater acceptability of the industry as a whole (Corporación Alta Ley, 2019[33]; 2022[72]).
To achieve these results, policies should focus on promoting innovation – an area where Chile lags behind other mining jurisdictions (OECD/UN, 2018[45]; Poveda Bonilla, 2020[73]) – and on creating the adequate conditions for these developments to occur, including the fostering of necessary skills (CCM/Programa Eleva, 2020[46]).
Upstream diversification: Leveraging the METS sector
The mining equipment, technology and services (METS) sector plays an important role in the development of a resilient and sustainable mining industry in many jurisdictions (including Australia, Canada, Finland and Sweden), through the creation of employment and business opportunities.
The METS positive influence is twofold: i) by providing competitively sourced services and equipment to local miners (which enables efficient mining operations to thrive); and ii) by capturing and transforming the benefits from mineral extraction into long-term business propositions that transcend the eventual depletion of local mineral deposits.
The development of “world-class exporting suppliers” (with a view of achieving exports worth USD 4 billion annually) was made a central tenet of the country’s future development (Corporación Alta Ley, 2015[74]). However, there is still work to do.
There are now more than 8 500 mining suppliers in Chile, responsible for 1.16 million jobs, or 13% of total national employment (Corporación Alta Ley, 2021[39]). Chilean METS represent, in turn, 60% of the operational costs of mining companies through purchases of goods and services (Meller and Gana, 2015[75]). Although these numbers compare favourably to other mining jurisdictions, in export value, Chilean METS underperform significantly with just USD 500 million in exports in 2020 (vs. USD 3.7 billion in Canada, USD 6.7 billion in Finland, USD 13.3 billion in Sweden and USD 20.2 billion in Australia (Corporación Alta Ley, 2021[39])).
Also, as pointed out in prior reports (OECD, 2013[16]; OECD/UN, 2018[45]), Chile could benefit from further promoting innovation in its METS sector, both areas where Chilean metrics significantly underperform other jurisdictions (OECD/UN, 2018[45]) (CNEP, 2017[21])In terms of innovation, Chile’s R&D expenditure for 2019 was 0.35% of its GDP, significantly below Canada (1.5% of GDP), Australia (1.9% of GDP), Finland (2.8% of GDP) or Sweden (3.4% of GDP) (Corporación Alta Ley, 2021[39]).
Finally, despite being supportive of METS development and having long identified the sector as an important contributor to the prosperity of the country, Chile spends just 0.02% of GDP in public subsidies or initiatives related to METS development, whereas Australia devotes 10 times more and Canada 56 times more (Corporación Alta Ley, 2021[39]).
Antofagasta is home to the Mining Cluster initiative set up in late 2019, with the view of promoting the development of METS at the regional level. This initiative can be coupled with the profound transformations reshaping the mining industry – including digitalisation, automation, artificial intelligence, remote operations and the manifold changes related to green mining – to develop a vibrant METS sector at the forefront of this new mining industry (OECD/UN, 2018[45]).
Sustainability solutions designed and tested in Antofagasta will be in high demand elsewhere, especially in a region that is already mining-intensive and will likely be more so in future. Brazil, Colombia, Ecuador and Peru already have significant mining sectors. Argentina and Bolivia are also looking to expand their mining industries. The fact that they share many geological, climatological and geographical features with Antofagasta means that techniques and solutions developed in Antofagasta could be easily transferred to them.
However, a proper environment between mining companies and METS should be created and sustained to achieve these results. As raised by various companies in the OECD mining regions initiative, the main source of innovation in mining comes from the interaction between miners and suppliers. The main challenge is to facilitate mining companies in presenting their production challenges to their base of national suppliers, so that they can develop and scale solutions without affecting the operational continuity of the mining process.
Mining’s positive effects on the socio-economic and human development of its host jurisdictions have been shown to be greater when strong local economic linkages are at play (McMahon and Moreira, 2014[70]).
These linkages can deliver win-win results for the community (in the form of jobs, economic and human development opportunities) and for the mining sector (which will see its approval ratings raise), helping cement the overall “social license to operate” of the industry.
A particular case can be made regarding the development of Indigenous communities and their integration into extractive and mining value chains. Indeed, positive examples of natural resource-led development led by Indigenous peoples include the Frog Lake Energy Resources Corporation in Canada, the NANA Regional Corporation in Alaska, United States and the Gumatj Corporation in Australia’s Norther Territory (OECD, 2019[76]). All of the above participate in different stages of the mining process and value chain (from passive landowners to more active mining services providers and mine operators) and have managed to reap significant community benefits from their industry participation.
In Antofagasta, steps in this direction have been taken in connection with the Indigenous communities located in the vicinity of the Salar de Atacama lithium operations though – mostly – agreements between certain community groups and mining companies. However, it appears that a more co-ordinated approach with public sector oversight would perhaps generate greater benefits with less community friction.
Source: McMahon, G. and S. Moreira (2014[70]), The Contribution of the Mining Sector to Socioeconomic and Human Development, https://documents1.worldbank.org/curated/en/713161468184136844/pdf; OECD (2019[76]), Linking Indigenous Communities with Regional Development, https://doi.org/10.1787/3203c082-en.
Diversification beyond the mining value chain: Leveraging synergies
Aside from diversification through the value chain, mining and the economic environment that follows from it provide the possibility of diversifying the productive matrix of a region by harnessing its potential synergies.
As mentioned above, Antofagasta is centrally located within an area of intense present and future mining activity, both within Chile and internationally. In this regard, the region can act as a fulcrum for the development of other mining regions, providing Antofagasta with opportunities for diversification of its own productive fabric. Mining equipment, technology, services and know-how – especially if carried out in compliance with ESG and circular economy standards – can easily be exported elsewhere. In this sense, the Mining Integration and Complementation Treaty signed with Argentina can facilitate the flow of mining inputs and technology between these two neighbours (Bauni, 2005[77]).
Mining also requires inputs (especially power and water) and presupposes (or generates) significant infrastructure that other economic sectors can utilise. Railroads, roads, ports and airports, power generation and transportation, seawater desalinisation plants and pipes, and the transition towards a decarbonised mining industry are all factors that can mobilise other areas of the economy.
Potential areas where mining can act as a catalyst of synergistic development are listed in the following.
Renewable energies and hydrogen
Antofagasta’s potential for renewable energy generation (especially solar photovoltaic and thermal) is, literally, second to none (Ministerio de Energía/GIZ, 2014[57]). This, coupled with the progressive but relentless decarbonisation of the mining industry, provides the region with a clear avenue for diversification. Indeed, locally generated know-how, technology and solutions can be applied elsewhere while – at the same time – generating a strong independent renewable energy industry.
And the same holds true for hydrogen generation (Ministerio de Energía, 2020[60]), which is expected to play a significant role in the decarbonisation of the mining industry (IEA, 2021[78]).
Antofagasta is therefore poised to develop as an innovative, competitive and world-class renewable energy and hydrogen hub, both to supply the region’s mining sector and to generate an independent industry that is called to transcend the eventual depletion of the region’s mining assets (OECD, 2012[79]). In terms of future investment, Antofagasta is home to 13 new renewable energy projects (including solar, wind and hydrogen), for a total of 6 982 megawatts (MW), leading among all Chilean regions which, in aggregate account for 1 368 MW (Ministerio de Energía, 2022[80]).
Adequate planning and incentives should be put in place to ensure that the energy transition – spearheaded by the mining industry – is properly captured regionally in terms of knowledge generation and economic diversification. Also, an integrated approach between renewable energies, net zero policies and water use may in fact yield positive effects in terms of water availability for the region (Newborough, 2021[81]).
Tourism
The Atacama Desert is a place of great natural beauty and significant cultural heritage value (San Pedro de Atacama was submitted to the United Nations Educational, Scientific and Cultural Organization (UNESCO) World Heritage Convention by Chile in 1998). It is a thriving tourism destination with natural preservation areas, archaeological and cultural heritage and astronomical tourism of international fame.
This area accounts for 8.7% of total regional employment (amounting to 27 000 employees) (Subsecretaría de Turismo, 2021[82]) but can still be further developed. Most of the activity focuses on San Pedro de Atacama and tourists fly into Calama rather than Antofagasta in order to reach the area (OECD, 2013[16]). Most of Antofagasta’s tourism is “business tourism” linked to the mining industry and focused on conferences, mining events (such as Exponor) and business with mining companies.
The possibility of enhancing tourism has long been identified as an important component of regional development and innovation strategies (GORE, 2009[38]; 2022[68]). These policies describe a number of actions to foster tourism as one of the region’s key economic activities, chiefly developing “special interest tourism” (including astronomy and experience-based tourism) as well as setting forth the conditions for the tourist industry to thrive (including the digitalisation of tourist services).
Desert-based agriculture
Desert-based agriculture (DBA) stands out among the other potential avenues for diversifying the region’s economic fabric. Although small – agriculture represented barely 0.5% of regional GDP at the time of the latest territorial review (OECD, 2013[16]) – DBA has a long history in the region and strong cultural bonds with local and Indigenous communities.
The regional government has long promoted this activity as a means of diversifying the local economy and, more recently, as a potential competitive advantage in the face of climate change, worsening conditions for agriculture and a particularly long drought in Chile (GORE, 2022[68]).
CORFO has also supported several programmes with a view of developing DBA, including an R&D initiative called Consorcio del Desierto launched in 2022, together with several other institutions such as Fraunhofer Chile Research, the Catholic University of the North, Arturo Prat University, UC Davis Chile Life Sciences Innovation Center and the Corporación de Desarrollo Social del Sector Rural (Rural Sector’s Social Development Corporation).
Aside from providing agricultural products to the region, experiences gained, and technology developed in Antofagasta’s unique desert environment could potentially be exported elsewhere, with the attendant benefits for the region.
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Notes
← 1. In Chile, it is estimated that for every direct job, mining is responsible for as much as two indirect employees (CNEP, 2017[21]).
← 2. The capital expenditure of a greenfield copper mine typically runs to several billion dollars and is increasing over time.
← 3. Definitions vary as well; however, SERNAGEOMIN considers a company: i) mid-sized if it employs more than 80 but fewer than 400 employees; ii) small-sized, if it employs more than 12 but fewer than 80; and iii) artisanal, if it employs fewer than 12 people.
← 4. The “2°C scenario” refers to the technology-based climate change mitigation scenarios developed by the International Energy Agency (IEA) and, specifically, to a scenario with at least a 50% chance of limiting the average global temperature increase to 2°C by 2100. See IEA, Energy Technology Perspectives 2017.
← 5. Of note in this sense is the Chile Polimetálico project, co-financed by COCHILCO, CORFO and Corporación Alta Ley ( (ChilePolimetálico, nd[84])).
← 6. Reasons for this unusual concentration of METS companies are multiple and include a low level of decentralisation in Chile, lack of adequate supply chains and skills in other regions and the high cost of access to land in the northern regions of the country (including Antofagasta) (CNEP, 2017[21]).
← 7. The National Mining Strategy sets out a target of 90% of PPAs from renewable resources by 2030 and 100% from 2050 onwards (Ministerio de Minería, 2020[5]).
← 8. A major industry breakthrough, seawater can in turn be used after being desalinised (accounting for 63% of total seawater used) or “raw”/direct seawater (37% of seawater used) (COCHILCO, 2022[61]).
← 9. Scope 1, 2, and 3 are categories of carbon emissions created by a company’s operations and in the wider value chain. Scope 1 emissions are Green House Gas (GHG) directly made by the company. Scope 2 emissions are indirectly made by the company. See: https://ghgprotocol.org/sites/default/files/standards_supporting/FAQ.pdf