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Codelco seeks partners and expansion.

Codelco can now joint venture projects with third parties, for the first time since it was incorporated in 1976. Besides these prospects, it has important expansion plans for its own account.

Last year Codelco's copper production amounted to 1,156,260 t, fine content, an almost 3% increase on the 1991 output of 1,125,478 t. The Corporation's target is for production increasing to 1.4 Mt in the second half of the 1990s. To achieve this it has a number of its own expansion plans and, for the first time in its history, it has recently invited joint ventures on three properties. Two further properties are expected to be offered for joint venture this year.

Mr. Jorge Bande, Codelco's planning director, was quoted in the Financial Times, on November 1 last year, saying: "We are opening a whole field of exploration that was previously closed to the private-sector mining industry. It will also allow Codelco to share the risk of exploration ventures."

In the middle of 1990, soon after he took over as Codelco's chief executive, Mr. Alejandro Noemi delivered a damning indictment of the problems besetting the world's largest copper producer (MJ, August 17, 1990, p123). He spoke of rock burst problems (at El Teniente), declining grades, rising costs and falling production, serious overmanning, thorny labour relations, loss of competitive edge against foreign copper producers and the neglect of environmental protection which will cost hundreds of millions of dollars to redress.

At that time it was pointed out that all four Codelco divisions, Chuquicamata (production some 640,000 t/y of copper), El Salvador (90,000 t/y), Andina (110,000 t/y) and El Teniente (280,000 t/y) are suffering from declining ore grades and that the Corporation is planning to spend at least $10 million annually to explore for additional reserves, initially around El Salvador and Chuquicamata. The company will also have to expand its smelting and refining facilities to treat lower-grade ores.

Commenting further on low ore grades, Mr. Noemi stated in the 1990 Annual Report: "This has stimulated Codelco-Chile to hasten the evaluation of various highly economically profitable projects at divisional level, especially those designed to exploit the possibilities of copper production through leaching and electrowinning. Among the projects worth mentioning are: Chuqui Norte, second phase waste and low grade sulphide ores, at Chuquicamata Division; crater leaching at El Teniente, development of oxides at El Salvador, and possible expansion at Andina.

In addition, Codelco-Chile attaches great importance to mining exploration. This has been defined as the Corporation's third strategic objective and is the reason for giving high priority to investments aimed at deepening the geological knowledge of current ore deposits and their adjacent or surrounding areas.

Moreover, the exploration strategy also consists of searching for copper porphyries and precious metals deposits in other geographical areas of the country. This is to take advantage of the fact that Codelco-Chile owns a considerable proportion |17%~ of the country's mining property, of which only a very small portion corresponds to the four deposits currently being exploited and to other projects under evaluation.

To make progress on an aggressive evaluation strategy of these properties, the Ministry of Mining recently finished a legal study designed to overcome the Corporation's current impediment which prevents it from incorporating third parties, either national or foreign, as partners in carrying out prospecting and new projects in mining properties, other than those related to deposits being exploited."

Joint ventures sought

As a result, in May 1992, a law was promulgated authorising Codelco to associate with third parties on its mining claims relating to deposits that are not under exploitation at present. Also excluded are properties that the Corporation determines it requires for replacement ore tonnage or expansion plans.

The law requires two formalities to be fulfilled by Codelco before entering into any negotiation. The first is for a report to be issued by the Comision Chilena del Cobre stating that the mining claims subject to eventual partnership do not belong to orebodies currently under exploitation. The second prerequisite is that these properties should at least have been subject to basic exploration by Codelco.

In December 1992, Codelco initiated the process for the negotiation of exploration joint ventures. The Corporation has released three exploration projects, all at high altitude, for development in this manner. It is expected that more such projects will be made available for joint ventures in the future, depending on the results of the exploration programmes currently being carried out by Codelco.

Codelco describes the three properties released so far as "classified within the categories of grass-roots and middle-stage development." They require exploration and development investment to bring them into production.

To structure the joint ventures, Codelco will invite a limited number of companies to participate in the negotiations for each project. The main criteria for the selection of potential partners will be "mining background, financial solvency, capability to act as operator, priority of the project within the corporate strategy of the interested company and compatibility of interests with Codelco."

Once the basic potential of a property has been established, the partner will be required to enter into a commitment to finance the exploration costs in exchange for a stake in the project. Participation by the private sector is not expected to be of a controlling nature; as the new law states, "Codelco-Chile will tend to have a majority participation."

Once selected, companies will be supplied with the available information on the respective project, having previously signed a confidentiality agreement. This would be followed by direct negotiation with the parties concerned. The joint venture agreement will be performed basically through an exploration option contract, incorporating the necessary alternatives and flexibility each contract may require. Contracts will be subject to the approval of the Codelco Board of Directors and must be ratified by the President of the Republic of Chile, Mr. Patricio Aylwin.

Codelco had hoped for an increase in its 1993 exploration expenditure, but its recently approved total budget for 1993 has been restricted to $450 million. Thus, 1993 exploration expenditure will show a fall to $15.4 million, from 1992's $18.3 million. The Corporation has stated that it needs investments of over $2,800 million by 1996 in order to push copper output above 1.4 Mt/y.

Pastos Largos

The first of the projects currently subject to negotiation is Pastos Largos, a hydrothermal alteration zone with potential for porphyry copper mineralisation, situated 45 km north of Chuquicamata at an elevation of 3,900 m.

This alteration zone covers an area of 75 |km.sup.2~ and follows north and north-east trending faults and fracture zones in Lower Tertiary andesites with intercalated tuffs and breccias. Towards the south of the concession, intrusives of the El Abra complex invade the andesitic volcanics. A north-south trending regional fault, known as the 'West Fissure' separates the Tertiary volcanics from Cretaceous sediments to the west.

Mamina

The Mamina prospect is located 90 km due east of the port of Iquique at an elevation of 2,400 m. It is a particularly interesting exploration target due to its position between the Cerro Colorado porphyry copper deposit and the Sagasca stratiform copper oxide body, the two of which are 15 km apart.

The Sagasca orebody occurs at the base of the sediments and volcanics of the Altos de Pica formation in the Sagasca Gorge, 7 km southwest of the Mamina basin. The impregnation of copper oxides attains a thickness of 30 m above the andesite footwall and extends laterally for 1,100 m.

The deposit was formed by the percolation of copper solutions through sediments in a drainage system pre-dating the deposition of the base of the Altos de Pica formation. Structural evidence suggests that this drainage system was orientated south-west towards the Sagasca deposit.

The source of the copper solutions is likely to be an enriched zone of a porphyry copper consisting of easily soluble chalcocite, covellite and copper oxide, upstream from Sagasca. It is not considered likely that Cerro Colorado could be the source of the copper solution in view of its relatively small size, history of erosion and distance from the Sagasca deposit. A possible source of the copper solutions deposited at Sagasca may be a concealed basement high in the Mamina basin.

Puren

Located 5 km north-east of the La Coipa deposit in Copiapo Province, the Puren prospect lies at an altitude of 4,500 m. The area of interest covers 3 km by 5 km and is part of the Coipa district, with similar geology. The adjoining La Coipa and Can Can deposits are reported to have estimated reserves containing 2 Moz of gold.

The district is covered by extensive colluvial deposits and ignimbrites. The oldest rocks are Permo Triassic conglomerates which seem to have been thrust over a calcareous sequence of Jurassic age. Along the thrust fault several dacite domes are exposed, dated 20 to 23 million years old, similar to dacites in other parts of the district. To the west of the dacite domes, associated dacitic lavas and tuffs are exposed and attain a thickness of 300 m.

There are extensive areas of silicification and argillic alteration with sulphur deposits. The alteration areas are related to north-west trending faults and fracture systems and may represent the upper part of a geothermal system which could overlie epithermal mineralisation at depth.

Transfers to Enami

In addition to these joint ventures, Codelco has transferred four copper deposits and one silver deposit to Enami, the other state smelting and refining company. These are the first in a programme that will see Codelco passing projects to Enami for them to be placed on the market for development. The copper properties include the Inca deposit in northern Chile, for which Enami will invite development by private interests. The other four prospects are also in the north, and may be offered to small-scale mining cooperatives.

Enami has also begun the auctioning process for the Altamira copper-silver prospect, which has also been transferred from Codelco. Reserves have been calculated to be 12.1 Mt grading 1.7% Cu and 41 g/t Ag. An investment of some $41 million will be required to bring it into production.

Codelco expansions

In its own right, Codelco has other projects aimed at compensating for falling production at the existing operations and raising output. The output trend at all four divisions has been downward. Chuquicamata produced 660,000 t in 1989, rising to 681,000 t in 1990 before falling again to 641,000 t in 1991. El Teniente has serious ground control problems and output has fallen steadily from 329,000 t in 1989 to 300,000 t in 1990 and 279,000 t in 1991. Reserves at El Salvador are relatively limited. However exploration during 1992 has been successful within the limits of the mine and its surroundings and this situation may change in the near future. El Salvador produced 130,000 t in 1989, 95,000 t in 1990 and 91,000 t in 1991. There is also potential for leaching and SX/EW production and the possibility of reopening the old Potrerillos mine. Andina's output has also fallen steadily from 124,000 t (1989) to 119,000 t to 114,000 in 1991, but here there is significant future potential. Codelco plans to expand copper output to some 200,000 t/y by doubling production from both the open-pit and underground mines to about 33,000 t/d of ore each.
Table 1. Codelco's estimated cash costs ($/lb)
                   1989        1990       1991
Chuquicamata       0.40        0.43       0.47
El Teniente        0.46        0.53       0.61
Andina             0.53        0.73       0.78
El Salvador        0.70        0.69       0.71
Overall            0.46        0.50       0.55
From: Philip Taylor, S.G. Warburg Securities


Chuquicamata's output is expected to fall further to about 550,000 t/y as the ore grade declines to 1.0%, but two projects are in hand to compensate for this. The leaching of the low-grade sulphide dump could produce 15,000 t/y but, more important, Mansa Mina (MM) could add significantly to production. MM is situated south of the Mina Sur open pit, itself south of Chuquicamata and part of that Division, producing some 70,000 t/y of copper from the mine and a further 60,000 t from SX/EW operations.

Two porphyry copper orebodies, the North and Central MM orebodies have been found. The mineralisation is emplaced in a coarse granodioritic porphyry, predominantly with sericitic alteration. The North MM orebody, 200 Mt at 1.0% Cu, comprises mainly chalcopyrite, bornite, digenite and molybdenite. In the Central MM orebody, 700 Mt at 1.3% Cu, there are large veins of enargite, chalcocite and bornite, the last increasing at depth, separated by chalcopyrite and pyrite zones. The veins contain interesting gold and silver values. Both orebodies have an upper enrichment of chalcocite and covellite, with a pyrite envelope.

The MM orebodies could be an upper part of the Chuquicamata porphyry copper, based on its hydrothermal alteration and mineralisation characteristics. However, there is also the possibility that the MM orebodies are not directly related. Whatever the case, the MM discovery opens up the possibility of discovering other porphyry copper orebodies masked by super-position of marginal rocks.

To the north of Chuquicamata is the Radomiro Tomic project which is to become another division; Pampa Norte. A 1,850 Mt reserve has been outlined here grading 0.64% Cu, with a further 650 Mt grading 0.58% Cu indicated. Feasibility studies are still in progress but initial plans are for a leaching and SX/EW operation that would produce some 150,000 t/y. Such a project would cost $400-500 million.

In the meantime, Codelco is developing Quebrada Teniente at a cost of $45 million. This 56 Mt reserve grading 1.4% Cu should be producing 55,000 t/y of copper from next year. It is part of the main Teniente orebody and its exploitation has been anticipated due to its important reserves of copper contained in secondary sulphides. There are also plans to leach low-grade ore from the crown of the block caving area, which could add 20,000 t in SX/EW cathode.

Bechtel, in association with Chilean consulting/engineering company, Arze, Recine y Asociados, has completed a feasibility study for a heap leaching project at El Salvador. Codelco is now aiming for a start-up in mid 1994. In the first stage, production is expected to be around 10,000 t/y of fine copper, rising to 20-25,000 t/y at a later stage. The initial cost is estimated at some $40-50 million.

El Abra

The El Abra complex has already been mentioned as bordering the Pastos Largos property. Located 50 km north of Chuquicamata this deposit has been well known for over two decades. In the past it was always rejected because of its low grade. However, modern SX/EW technology could make El Abra feasible. Codelco studies indicate a breakeven total cost (including depreciation and finance) of $0.60-0.65/lb.

This is a 400 Mt oxide resource averaging 0.75% Cu which has been enriched to 0.8% Cu in several areas. The oxides are underlain by an 800 Mt sulphide resource grading about 1.0% Cu. Although low-grade, the deposit is close to surface and stripping ratios would be low.

The complete El Abra porphyry deposit contains, as Codelco puts it, "a demonstrated mining resource" of 1,150 Mt grading 0.63% Cu. Codelco intends to develop this project in a joint venture and hoped to initiate the process of seeking a partner in March of this year.

Yet another project intended for joint venture is Franja Aurifera, a gold prospect for which no invitations to participate had been put out at the time of writing. Codelco officials stated at the beginning of this year: "It is pending until March."

Codelco has its share of problems and a past legacy of working to short-term objectives. These deficiencies are now being aggressively addressed and the Corporation expects its production profile to continue declining until mid-decade (producing 1.15 Mt this year, 1.095 Mt in 1994 and 1.099 Mt in 1995) before increasing to 1.4 Mt in the second half of the 1990s. Nevertheless, Codelco's production costs remain the envy of many of its competitors, as shown in Table 1.
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Title Annotation:Corporacion Nacional del Cobre de Chile allowed to enter into joint ventures; plans more mining projects
Author:Chadwick, John
Publication:Mining Magazine
Date:Apr 1, 1993
Words:2739
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