Protests threaten energy-hungry miners in Chile

Published by MAC on 2012-05-15
Source: Reuters, Bloomberg, AFP

Protests threaten energy-hungry Chile mines

Alexandra Ulmer and Fabian Cambero

Reuters

16 April 2012

It took just a handful of fishermen and artisans from this tiny village in northern Chile to threaten a $5 billion coal-fired thermoelectric plant desperately needed by nearby copper mines.

The remote, verdant village of Totoral's bid to block Brazilian billionaire Eike Batista's huge Central Castilla power project on environmental grounds is now in the hands of the Supreme Court.

The plant aims to provide power to major mining projects in the Atacama desert region, but residents say its emissions will harm air quality and that the temperature of water released back into the ocean will hurt fish and marine life.

Their case is seen as a litmus test for a string of other potential flashpoints in Chile, the world's top copper producer.

Protest groups are challenging high inequality in Chile - for long Latin America's poster child economy - and demanding that the benefits of its long mining boom be spread more widely.

They also want stricter environmental protections across Chile, from the Atacama desert in the north to Patagonia in the south, and the challenges have put major projects at risk.

Chile's shaky energy grid needs significant new investment after years of neglect, exacerbated by a devastating 2010 earthquake and droughts. But the mounting opposition to hydro-power, coal-fired thermoelectric plants and wind farm projects is worrying investors.

"There's a very significant supply problem so if investment is delayed ... we could have a very sharp energy crisis in the coming years," said Jorge Rodriguez, president of electric firm Guacolda.

A former mining minister and board president of the state-owned mining giant Codelco, Rodriguez said protests against energy projects could cause serious damage to the economy and push mining firms to look elsewhere for their next projects.

"These appeals appear excessive to me. They're lengthening processes and this will end up prejudicing people."

Mining executives say they already face soaring energy prices and even steeper future costs as supply lags demand.

"With delays in some energy projects, the situation is much tighter. The government needs to take swift decisions so this doesn't brake future economic growth," said John MacKenzie, head of copper at the Anglo American mining firm, which has huge projects in Chile.

Protests

Batista's MPX Energia and giant German utility E.ON set up Central Castilla with a goal of providing 2,100 megawatts to mining firms in Atacama. These could include Antofagasta Minerals' Los Pelambres mine, the Cerro Casale project owned by Barrick Gold and Kinross, and Lumina Copper's Caserones mine.

But villagers fought against the project roughly 25 km away from Totoral and won a key battle at an appeals court.

"They thought we wouldn't be able to defend ourselves," said Elena Marin, an outspoken Totoral artisan of indigenous descent who makes olive oil and rosemary-based soaps. "At first, we thought we were lost. But then we leaped to defend ourselves."

The chipped walls of makeshift wooden houses are draped with posters advocating a nature-first lifestyle while school children used rocks to spell out 'No to Castilla' on a barren hill looming over the village.

Residents pluck figs from orchards, grow bulrush and catch shellfish in the Pacific Ocean but they aren't even connected to Chile's energy grid, instead relying on a handful of solar panels. The humble but fertile village is nestled in Atacama's arid hills miles from other villages.

It is broadly made up of four families, with residents moving in and out of each other's houses without knocking. Much of the younger generation has for the nearby town of Copiapo, and clusters of middle-aged women are the most common sight on Totoral's sun-bathed streets.

Lucio Cuenca, the director of environmental group OLCA, which advises Totoral in its legal battle, said the appeals court decision it its favor reflects a "new kind of thinking".

"They aren't insensitive to what's happening to many of these communities," he said of the courts and referring to energy blackouts and water supply cuts.

MPX declined to comment for this article.

It is not the only company facing serious challenges.

Goldcorp, Canada's No. 2 gold miner, had its environmental permit for the $3.9 billion El Morro copper project struck down in February at the request of an indigenous agricultural community, and the case is now also in Supreme Court hands.

An environmental impact study for expansion plans to potentially double output at Collahuasi, the world's No.3 copper mine owned jointly by Anglo American and Xstrata, is also seen at risk from local opposition when it is presented in May.

Potential new mines or expansions of current ones to access better ore grades, which many old mines in northern Chile need to remain efficient, are also at risk of challenges from residents upset over their own scarce water and energy supply.

Short on Juice

Chile aims to boost copper output from last year's 5.24 million tones to over 7 million tones by 2020, but it needs to ensure mines have enough electricity.

Without that, it could lose ground to rivals like Peru or Mongolia, although Peru - the world's No. 2 producer of copper, zinc and silver - has similar problems of ensuring power supplies compounded by stiff environmental opposition to new transmission lines and generation plants.

Chile's power matrix has a capacity of 17,000 megawatts and the government aims to add another 8,000 megawatts by 2020.

But only about 2,296 megawatts of environmentally-approved energy projects since 2003 are currently being built, according to Central Energia, a Chilean portal on energy, suggesting delays due in part to long, costly legal procedures. Should the Castilla project be struck down, Chile would lose more than a quarter of the extra power the government is hoping to bring on line in the next eight years.

Mines consume 38 percent of Chile's energy supply and are already battling dwindling ore grades, freak weather and an uptick in strikes brought on by high global prices for copper.

Chile has about 28 percent of world copper reserves and needs to avoid blackouts like one in September 2011 that hit major mines and cost Codelco over 1,400 tones in lost output.

If energy supplies aren't beefed up, the country could lose between 2 and 3 million tones of potential production a year from 2015, said Juan Ignacio Guzman, mining professor at the Universidad Catolica in Santiago.

"The mining sector will just stop growing if there isn't more energy," he said.

Some see unsolved energy woes in mining powerhouse South Africa as a cautionary tale. Its national grid nearly collapsed in early 2008, forcing mines and smelters to shut for days, and some firms have begun to expand elsewhere in the continent to minimize their dependence on South Africa.

BHP Billiton base metals president Peter Beaven says Chile's costly energy and fragile electricity grid could hurt investment although BHP is sticking to its plans and may consider building the approved Kelar thermoelectric plant, a project shelved amid the 2007-2009 financial crisis, as it seeks energy alternatives.

Other miners have already made similar moves. Codelco and French energy giant GDF Suez jointly run an LNG terminal in Mejillones in northern Chile.

Codelco, which provides 11 percent of world copper, said its direct cash costs jumped 11 percent to $1.16 per pound of copper in 2011, mainly on higher fuel and energy costs.

Political Pressure

Chile's central-southern grid is supplied by hydroelectric and thermal generation, and is seen as more vulnerable than the northern grid which runs almost entirely on thermal generation.

President Sebastian Pinera has promised to overhaul the network, which will likely include building a transmission line to link the two grids, but concrete measures have not yet been taken. Political turnover is part of the problem with Jorge Bunster recently becoming the fifth energy minister of Pinera's two-year administration.

While Chile grew 6 percent last year, it was rated the most economically unequal country of the 34-member state Organization for Economic Cooperation and Development, or OECD.

Social discontent has become more vocal under Pinera, a conservative billionaire who is the most unpopular president since Gen. Augusto Pinochet's dictatorship ended in 1990.

A series of often violent street protests over the high cost of education rocked the country last year, and a spike in unrest also hit the mining industry.

Output from Escondida, the world's largest copper mine, plummeted 24.6 percent in 2011 to its lowest level in nearly a decade on sinking ore grades and a two-week strike.

Until recently, environmental demands against major projects rarely went far but more are now making it to the Supreme Court.

Earlier this year, it paralyzed a wind farm project on the remote island of Chiloe because the company failed to acknowledge indigenous communities' complaints that the park was to be built on an ancient tribal cemetery.

Two weeks ago, the Supreme Court rejected appeals against the $3.5 billion HidroAysen hydro-power project, which involves damming two major rivers and building five power stations in the wild Patagonia region.

The 2,750 megawatt project, a joint venture between leading generator Endesa Chile and partner Colbun, still needs environmental approval for a 1,250-mile (2,000-km) planned transmission line to channel power to Santiago.

No one doubts that major projects face greater environmental scrutiny and legal challenges.

"There are more suits than there were five or 10 years ago," said Joaquin Villarino, head of the country's Mining Council that represents the biggest miners in Chile. "There's absolutely no doubt that the way communities express themselves is changing. You can agree or disagree, but it's happening."

(Writing by Alexandra Ulmer; Editing Simon Gardner, Kieran Murray and Sofina Mirza-Reid)

---

Power Shortage Hurts Chile's $100 Billion Copper Push

Matt Craze

Bloomberg

25 April 2012

The biggest-ever pipeline of copper projects is under threat as Chile, the world's top producer, struggles to contain rising opposition to new power plants.

At least 5,000 megawatts of capacity, including a $5 billion coal-fired plant proposed by Brazilian billionaire Eike Batista, are facing delays or have been shelved as companies including BHP Billiton Ltd. (BHP) and Anglo American Plc spend as much as $100 billion on copper and other mining projects in Chile.

The country, struck by a power blackout as recently as this week, needs to boost capacity by 47 percent within 8 years to keep pace with consumption. Protesters from fishermen to university students oppose the plants, prompting miners to consider their own projects to help meet China's copper demand.

"Chile will have to shelve many of the country's mining investments due to the high cost and scarcity of electricity," Joaquin Villarino, president of mining lobby group Consejo Minero, said in Santiago on April 19. Delays will jeopardize a "significant" part of the proposed mine investments, he said.

BHP Billiton, the world's largest mining company, may solicit offers to build a power station in northern Chile, Peter Beaven, head of the Melbourne-based company's base metals unit, said April 10. Teck Resources Ltd. (TCK/B) is considering options for the location and providers of a power station in the Atacama Desert to supply its Quebrada Blanca mine, the company based in Vancouver said in an e-mailed response to questions.

Chile needs to add 8,000 megawatts to its 17,000-megawatt power system by 2020, according to National Energy Commission estimates. The mining industry accounts for about a fifth of the country's energy demands.

Earthquake

Transmission lines damaged by an 8.8-magnitude earthquake on Feb. 27, 2010 also need investment. The grid will be prone to blackouts for years to come, Chile's former energy minister Rodrigo Alvarez said Feb. 17. The latest blackout struck this week as supply was cut from the capital Santiago to the southern region of Los Lagos on April 23.

Power prices on Chile's central grid rose from about $100 a megawatt hour at the start of 2010 to more than $150 a megawatt hour at the end of 2011, according to the Energy Ministry.

"It is a challenge that the government is well aware of the need to ensure that economic growth is not constrained by a lack of power," John MacKenzie, head of Anglo's copper business, said in an April 10 interview in the Chilean capital.

Alvarez resigned after a conflict related to fuel subsidies in the southern region of Aysen. President Sebastian Pinera then appointed Jorge Bunster on April 3 as his fifth energy minister in two years.

Environmental Opposition

Opposition from environmentalists and community groups are slowing construction of power projects, including HidroAysen in Patagonia that would become the country's biggest power generator, according to Villarino.

HidroAysen, which is being developed by Colbun SA (COLBUN) and Empresa Nacional de Electricidad SA, would generate 2,750 megawatts for Chile's central grid. State-owned Codelco, the world's largest copper producer, operates three mines in that region of the country. Last year's approval of the project sparked protests that led to hundreds of arrests and millions of dollars in damage in public infrastructure.

HidroAysen still requires approval to build a 1,900- kilometer (1,180-mile) transmission line.

MPX Energia SA (MPXE3), controlled by Batista, faces delays to its Castilla project after fishermen won an injunction to halt its development. The plant will provide power to new mines proposed by Freeport McMoRan Copper & Gold Inc. and Teck.

"If Castilla doesn't get approved then these projects will get delayed," Pedro Litsek, who heads MPX's Chilean operations, said in an interview in Santiago today.

GDF Suez

In 2010 Pinera asked GDF Suez SA (GSZ), Europe's largest natural- gas network operator, to scrap plans to build a 540-megawatt coal-fired power plant on the coastal site of Barrancones after environmental opposition.

Xstrata Plc (XTA) has partnered with Australia's Origin Energy Ltd. (ORG) to develop its Energia Austral hydroelectric project in southern Chile.

"Energy risk is significant and we need to ensure that the risks are properly mitigated," Charlie Sartain, the head of Xstrata's copper business, said in an April 17 interview.

Liquefied natural gas imports can be increased to Chile through the two LNG terminals already operating in the country, BHP's Beaven said.

The government is taking a more prominent role in taking decisions to improve power supply in Chile, Codelco's Chief Executive Officer Diego Hernandez said in an April 18 interview in Santiago. Previously, the government limited itself to regulating the sector, he said.

Economic Growth

Pinera aims to achieve average economic growth of 6 percent during his four-year term as part of a goal for Chile to become a developed nation by 2018. That plan is contingent on approving power projects, according to a Feb. 28 speech.

"If we don't win this battle to have cheap, clean and safe energy, we won't become a developed country," Pinera said.

Chile will seek to "substantially" increase hydroelectric generation to solve the country's shortages, Juan Manuel Contreras, executive secretary of the National Energy Commission said April 19. Chile has 9,000 megawatts of untapped hydroelectric power generating capacity, he said.

Chile's gross domestic product expanded 6 percent last year and 6.1 percent in 2010, the fastest in more than a decade. Economic growth will slow this year to 4.1 percent as the euro- zone crisis reduces demand for exports, according to the median estimate of economists surveyed by Bloomberg.

The South American country can reduce consumption by 12 percent through power-saving measures, according to Deputy Energy Minister Sergio del Campo.

Renewable Energies

The country is considering a law that would set Latin America's highest renewable energy goal and spur $10 billion of investments in clean power projects. Dozens of companies have applied to the environment regulator to build solar farms in the Atacama Desert, the driest place on earth.

The extra yield, or spread, investors demand to hold Chile's bonds due in 2021 has fallen to 94 basis points from 116 basis points at the end of 2011. The country's credit-default swap, a measure of the cost of insuring against default for five years, fell to 97 basis points from 132 basis points on Dec. 30. The benchmark equity index has gained 9.3 percent this year.

Mining companies are considering $100 billion of projects in Chile, home to the world's largest copper reserves, according to data compiled by mining association Sonami. Peru, the world's third-largest copper producer, may get $50 billion in mining investments over the next decade, according to the country's energy and mines ministry.

Lower Quality Ore

More energy is needed as mining companies develop deposits with lower quality ore, as they need to move more earth to extract the same amount of copper.

Chile's copper output has slumped this year due to declining ore at mines including Codelco's flagship Chuquicamata that is a century old.

Codelco needs to spend more than $20 billion to boost output to 2.1 million metric tons by 2020 from about 1.7 million now, Hernandez said. Without those investments, Codelco's output will slump to 800,000 tons a year in that timeframe as the company exhausts profitable ore at its mines.

---

MPX may submit a smaller coal fired power project in Chile

Reuters

27 April 2012

Chilean unit of Brazilian billionaire Mr Eike Batista's MPX could opt to submit a smaller power project if Chile's Supreme Court rules against its giant USD 5 billion coal fired Central Castilla power project, if it resubmits at all.

The 2,100 MW plant, which is being developed in a JV between MPX and giant German utility E.ON, is seen as crucial to helping world top copper producer Chile meet growing energy needs.

Mr Pedro Litsek CEO of MPX Chile said that "In my opinion it would be difficult to resubmit" if the top court rules against Castilla. So the question would be, resubmit which project? Something smaller, of 1,000 MW it's a possibility. We don't know how much smaller it could be, or if the company will be willing to resubmit."

The Antofagasta Court of Appeals unanimously accepted an appeal put forward by nearby fishermen and artisans against the thermoelectric project's environmental categorization.

The residents of the northern, mineral rich region where Castilla is planned say its emissions will harm air quality and pollute pristine landscapes, and that the temperature of water released back into the ocean will hurt fish and marine life. The case landed in the Supreme Court after MPX appealed the Antofagasta court's ruling.

Mr Litsek said MPX is expecting a Supreme Court ruling in June 2012 and that the company would evaluate once the ruling is in. He added that "We'll have to evaluate internally what we're going to do, if we're going to resubmit or whatever the decision is, we haven't decided."

Chile's shaky energy grid needs significant new investment after years of neglect, exacerbated by a devastating 2010 earthquake and droughts. But mounting opposition to large scale hydro power, coal fired thermoelectric plants and wind farm projects have delayed the development of key energy projects.

Chile's power matrix has an installed capacity of 17,000 MWs and the government aims to add another 8,000 MWs by 2020. Miners are anxiously awaiting the top court's decision on the Castilla megaproject, seen as a litmus test for a string of other potential flashpoints.

MPX has estimated that construction of Castilla, which includes a desalinization plant, could take 15 years.

---

Environmental Authorities Approve Xstrata Chile Project

Dow Jones Newswires

May 8 2012

SANTIAGO –  Chilean regional environmental authorities approved global diversified mining company Xstrata PLC's (XTA.LN) Cuervo hydroelectric project Tuesday.

Cuervo, one of three projects Xstrata's local Energia Austral unit is developing, has an installed capacity of 640 megawatts and will be located in southern Chile near the city of Puerto Aysen.

In addition to Cuervo, Energia Austral is also planning the 375-MW Blanco and 54-MW Condor projects and an 800-kilometer transmission line to connect the electricity into the central SIC grid.

The transmission line will share land rights with a similar line planned by the massive HidroAysen project, a joint venture between Chilean power generators Empresa Nacional de Electricidad SA (EOC, ENDESA.SN) and Colbun SA (COLBUN.SN).

HidroAysen, Chile's largest energy project, faces staunch opposition from environmental groups because of its plans to build a transmission line through pristine land in the Chilean Patagonia and to dam the Baker and Pascua rivers.

After the Cuervo project's approval, Energia Austral will submit to regulators an environmental study for its Blanco project, which will be located 30 kilometers south-east of Puerto Aysen.

It took more than two years for the Cuervo project to get environmental approval.

Once Energia Austral is in full operation, it will have a total generating capacity of around 1,000-MW.

In April, Xstrata's copper subsidiary announced it sold a 51% in Energia Austral to Origin Energy Ltd. (ORG.AU) while keeping a 49% in the hydroelectric-development company.

---

Another dam project approved for Patagonia: official

AFP

8 may 2012

SANTIAGO — An environmental review commission Tuesday approved construction of another hydroelectric project in Chile's remote and pristine Patagonia region, an officials said.

The Rio Cuervo project, developed by a joint venture of Australia's Origin Energy and Xstrata Copper, is part of a larger plan to build three dams with a total capacity of 1000-MW in the area around Aysen.

The scheme has drawn protests from environmental groups, who believe it will wreak havoc in the region's unspoiled wilderness.

But Governor Pilar Cuevas said the company had come up with satisfactory responses to "all significant impacts that have been identified."

"So the Environmental Evaluation Commission unanimously approved the Rio Cuervo hydroelectric complex," she said.

Hydroaysen, which wants to build another five hydroelectric dams in the Aysen region, is already in the final stages of the approval process.

That $3.2 billion project, a joint venture of Colbun and Endesa, would generate 2,750 megawatts of electricity, but the dams would flood 14,600 acres (5,900 hectares) of pristine land.

The Chilean Supreme Court has given the green light for that project to go ahead.