Expert Risk Articles

Mines of hope: copper giant Chile

It's a forbidding place, dry as dust, bleak, desolate, and on top of that, vulnerable to earthquakes too. It may be one of the most inhospitable regions in Chile but here lies one of the country’s greatest natural resources: copper. A new deposit is being mined there right now: Esperanza, the mine of hope.

This is where NASA tested its Mars probes, which says a lot about the region, believed to be the driest place on earth. The Atacama Desert in northern Chile receives only a fraction of the annual rainfall of Death Valley, U.S.A – not exactly a wet place itself.


Not only the projects but also the trucks are in outsized proportions, as Dean West demonstrates

Dean West (photo above) knows a lot about dryness and drought. But the arid conditions that the Australian found in northern Chile put everything he experienced in his native country in the shade. "It’s so dry that there aren’t even any insects," says West, who normally examines industrial risks in the Asian-Pacific region for Allianz Global Corporate & Specialty (AGCS) from its base in Singapore.

Alcohol and drug testing

However, one of AGCS’s clients is the Japanese Group Marubeni, which is also doing well in South America. Marubeni holds a 30-percent stake in the Esperanza mine, which lies at 2,500 meters above sea level. Allianz is one of the underwriting companies.

World copper production continues to grow year after year (see charts), and Chile has over 40 percent of the world’s copper resources, but most of them are located in the country’s most hostile environments, namely the Atacama Desert and the Andes. The ore is mined under extreme conditions. Water is a particularly rare commodity. And this is needed to transport the crushed stone down to the processing stations, which lie at a lower altitude. A 145-kilometer pipeline has been built to carry pumped seawater to the mine for the Esperanza project, whose costs total USD 1.25 billion.

Work on the 3.5-kilometer-long, 2.5-kilometer-wide and 750-meter-deep opencast mine started over a year ago. Supply facilities, transport pipelines and a huge ore crusher (the one in the Esperanza mine is the biggest in the world) should all be in place by December 2010. Then, each day 95,000 metric tons of ore containing 0.5 percent copper will be mined from the walls and taken away in enormous trucks. It’s a tricky job: The terraced ramps aren’t particularly wide, and it wouldn’t take much for such a heavy carrier and its load to topple onto the plateau below. The drivers are tested for alcohol and drug use twice a day, just to be safe.

The Los Pelambres mine, in which Marubeni has a 40-percent stake, is possibly even more technically demanding. Allianz is the lead insurer for the Japanese there too. The Chilean consortium Antofagasta, which takes its name from the port city, is the majority shareholder in both mines, Los Pelambres and Esperanza. Los Pelambres is situated at 3,100 meters above sea level. The teams have to undergo a medical check-up before they are taken up there. Altitude sickness is no joke.

The ore is extracted from an open-cast mine and transported through a specially constructed mountain tunnel down to 1,600 meters above sea level – at first glance a rather unusual method. “We were initially surprised,” reports Dean West, who is familiar with similar open-cast mines in Australia. But the riddle was solved soon: The conveyors are below ground so that heavy winter snowfalls don’t hold up transport of the crushed stone.

Graphic showing world copper production by country

The stuff of dreams

There are other reasons why the efforts are so extensive. The entire site is monitored with cameras so that any disruption can be dealt with swiftly. In addition, there are stations to monitor avalanches, and procedures are in place in the event of an earthquake after a quake measuring 7.7 on the Richter scale shook northern Chile and cut off power to numerous mines two years ago. Two dams have been built nearby to supply water, and measures taken to deal with flash floods.

World copper production total (2009)

Copper remains the driving force of Chile’s economic development, despite the world market price’s volatile performance in recent months. China in particular is stocking up on the metal and thereby fuelling demand. This is good news for Chile. The country earns a third of its GDP from the sale of copper, which is mostly extracted and processed into nearly one hundred percent copper sheets in Chile’s own smelting plants and refineries. It’s the stuff of dreams for countries such as China, whose populations are increasingly striving for wealth: The metal is essential for the manufacture of refrigerators, air conditioners, cars and electronic equipment.

According to estimates by the state copper commission Cochilco, Chile’s copper output could reach 6.8 million metric tons in 2012 – an increase of almost 25 percent over 2007.

Download "Global Risk Dialogue" Spring 2010 (4 MB)