Last week, Chile and Ecuador resumed talks over the stalled Llurimagua (that’s in northern Ecuador) copper mining project. For some time, the project has been facing strong environmental opposition from local indigenous communities and has been the source of ongoing litigation between the project’s primary investor, Chile’s state-controlled copper mining producer Codelco and Ecuador’s national mining company Enami whom the former accuses of repeatedly stalling the project by refusing to comply with contractual obligations.
The legal battle has made headlines not least because demand for copper has been driven upward by clean energy transitions both in Latin America and globally – the mineral can be used to construct wind farms and solar panels for example.
A former adviser to Chile’s Ministry of Ministry of Mining explained, “Arbitration is suspended for now whilst both parties attempt to negotiate an amicable resolution. That said, it is difficult to see how the disagreement can be resolved – Codelco’s relationship with Enami has been beset by difficulties from the beginning.”
“Arbitration is suspended for now whilst both parties attempt to negotiate an amicable resolution. That said, it is difficult to see how the disagreement can be resolved.”
former adviser to Chile’s Ministry of Ministry of Mining
In an interesting development that makes Chile’s involvement in the project substantially more precarious, president Gabriel Boric (“Boric”) announced last week that the Ventanas smelter would be closed for environmental reasons. A somewhat strange announcement given that just two days earlier, his administration announced investments of USD 50 million in environmental technology for the smelter. The closure will make it significantly harder for Codelco to support the project.
Whilst the true extent of the project’s environmental impact is debatable, it is located in an area that has historically been hostile to mining projects and local communities have managed to stop two previous initiatives. ESG reputational concerns will do neither company any good.
Reputation aside, the arbitration will likely cause significant commercial fallout too, “The failure of the collaboration with Enami will result in sizeable financial losses for Codelco and thus the Chilean administration. That said, the reputational and litigation costs mean that over the long-term, losses could be even more far-reaching,” explained the former mining ministry adviser.
Codelco itself appears to still see value in pursuing the project. A Codelco executive explained, “Codelco has insisted on the development of the project despite the risks, trusting to a great extent that its character as a state company will help it to be better received by Enami.”
“Codelco has insisted on the development of the project despite the risks, trusting to a great extent that its character as a state company will help it to be better received by Enami.”
Codelco executive, Chile
The reality however is that the government in Quito appears to be playing the long game, extracting investment and technical expertise at Codelco’s expense. Ecuador’s business environment has traditionally been somewhat hostile to foreign enterprises, an entity from neighbouring Chile appears a little more palatable but not by much.
The development of the project is likely to have important political ramifications in Santiago. Boric’s coalition counts several influential environmentalists, and a key part of his policy platform is to develop better relations with indigenous communities and support a comprehensive renewable energy transition. Environmental groupings in congress will be reticent about providing political support to the government should it pursue, by way of Codelco, projects such as Llurimagua which may entail significant environmental fallout.
Doing so could dilute Boric’s support for the project. Thus, it is likely that Chile will limit its support to diplomatic gestures and supportive phraseology, the real defence of the project will be carried out independently by Codelco and for now, that suits Santiago just fine.