Along with the global squeeze affecting the mining industry, large companies operating in Chile face the additional challenge of finding a way to afford extra costs related to assuring water supply to carry on operations.
The problem, particularly critical in the country’s arid north, has driven miners to bringing seawater and putting it through a desalination process, considered the only viable alternative for solving the supply issue.
According to the latest report published by Chile’s Mining Council (in Spanish), based on data provided by Wood Mackenzie, CRU Group and McKinsey, the cost of desalination in the country has escalated to the point that it is now twice more expensive than in the United States.
The cost of removing all the salt from seawater in Chile is around US$5 per cubic metre, while in the US costs only $2.3 and $2.8 in Mexico.
This has brought the mining industry's energy operating costs in Chile as high as representing 14% of total production costs, which is equivalent to 27 cents per pound of metal, the highest level registered in the South American country since 2000.
What is more worrisome, warns the Council, is that electricity consumption by the copper sector has increased about 60% over the past 10 years and it is expected to continue to grow.
So far only BHP Billiton (ASX, NYSE: BHP) (LON:BLT) has an operating desalination plant (Planta Coloso), while Anglo American (LON: AAL) and Freeport McMoran (NYSE:FCX) are constructing one each: Manto Verde and Candelaria, respectively.
According to Mining Minister Hernán de Solminihac, resources companies operating in the country will need 68% more electricity by 2020.
Speaking at the ITF Energy fair held in April in Santiago, he added that in the copper sector alone electricity consumption increased by more than 60% in the last decade, forcing authorities to seek power alternatives, such as solar energy.
Another study published last November concluded that if Chile wants to reach the threshold of development in the coming 10 years, it will have to double its generating capacity.
Higher electricity consumption is the result of several factors, including greater production capacity, aging deposits, lower mineral concentration, increased ore hardness, and longer transport distances.
Between 2006 and 2012, mining accounted for 15.7% of the country’s gross domestic product and 64% of the nation's exports.
Image of Chile’s first solar energy-powered desalination plant, Courtesy of Fundación Chile.