KGHM, Sumitomo face fine, licence withdrawal over environmental breaches in Chile

Chile's environmental watchdog has pressed charges against Sierra Gorda SCM, firm jointly owned by Poland's KGHM Polska Miedz and Japan's Sumitomo Metal Mining, saying it was found guilty of committing nine environmental infractions.

KGHM could face fines and have the licence for its Sierra Gorda mine revoked.

According to the Superintendence for the Environment (SMA), the "serious" to "mild" breaches include not implementing measures to control emissions, altering the natural habitat for native wildlife, and operating a tailings dam in an unauthorized fashion.

The regulator added the miner could face fines and have the licence for its Sierra Gorda mine — KGHM's largest foreign asset — revoked.

Sierra Gorda SCM firm was given ten days to present a compliance plan to the SMA or 15 days to present a legal defence.

KGHM, Europe's second-biggest copper producer, has been hit by persistently low commodity prices in the face of worries about Chinese demand.

Sierra Gorda mine is located in the richest copper basin in Chile – the Atacama desert in the Antofagasta region. (Image courtesy of KGHM)

This photo, dated March 2, 2016, shows some of the problems detected at Sierra Gorda. (Courtesy of SMA)

The fine would add pressure to KGHM, also the world's largest silver miner, which flagged last month a record $1 billion in write-downs on key foreign assets, including the Sierra Gorda mine in Chile, due to plunging metals prices.

KGHM gained control of Sierra Gorda in 2011 when it bought Canadian rival Quadra FNX for $2.07 billion (Cdn$2.87 billion), the largest ever foreign acquisition by a Polish company. The mine launched commercial production only last year.

In January Sierra Gorda's co-owner, Japan's Sumitomo , said it cut its profit forecast due to the investment loss at the mine.

According to Sumitomo, Sierra Gorda produced about 85,000 tonnes of copper concentrate in 2015 and aims to reach full utilization by the end of June.

The originally story was based on a Reuters report, which claimed the fine could be of up to $29 million. SMA clarified the confusion and said maximum fine would be about US$4 million.