By Bela Kogan
Chile’s mining industry, a cornerstone of the country’s economy, continues to play a crucial role in global mineral production while facing significant challenges in 2024. As the world pushes towards net-zero emissions by 2050, Chile’s vast mineral resources, particularly copper and lithium, position the country as a key player in the global energy transition. The ongoing London Metal Exchange (LME) Week and the recent seminar held at the Embassy of Chile in London serve as vital platforms for stakeholders in the mining sector to discuss current trends and challenges.
Seminar at the Embassy of Chile: Exploring Opportunities and Collaboration
The annual seminar, organized by the Anglo-Chilean Society and the Embassy of Chile in the UK, brought together key players in the mining industry, including Chile’s Minister of Mining, Aurora Williams, representatives from LME, Codelco (Chile’s state-owned copper mining company), foreign investors, and journalists.
Fiona Clouder, Chairperson of the Anglo-Chilean Society, opened the seminar by emphasizing the importance of mining not only for extracting resources but also for the associated infrastructure, financial and legal services, and the people involved in the industry. She highlighted the society’s role in promoting understanding between Chile and the UK while supporting those in need in Chile.
Minister Williams discussed Chile’s approach to mining investments and its policies on international collaboration, trade, and research. She underscored Chile’s commitment to supporting the transition to a low-carbon economy, stating, “Chile is not just a mining country, but a country of innovation and sustainability in mining.” The minister also mentioned the opportunities for investors to participate in upcoming lithium tenders by the end of the year.
UK-Chile Trade Relations and the CPTPP
Fiona Clouder and Ambassador Ximena Fuentes emphasized the strong economic partnership between the UK and Chile, driven by trade agreements, strategic investments, and a shared commitment to leveraging global trade frameworks to facilitate growth and protection in key sectors.
Post-Brexit, the UK signed its first trade agreement with Chile, underscoring the importance of their bilateral ties and strategic focus on trade facilitation. The UK’s application to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is a significant step in strengthening its presence in the Asia-Pacific region, with Chile’s endorsement of the UK’s accession to this trade bloc.
The CPTPP’s inclusion of investment protection provisions is expected to play a pivotal role in safeguarding and enhancing investments in key areas, such as minerals. The UK Export Finance agency and other measures aimed at fostering UK-Chile trade relations, including infrastructure projects, direct investments, and collaborations in sectors such as mining, were also discussed.
Economic Significance and Market Dynamics
Chile remains the world’s largest copper producer and a significant source of lithium. The mining sector contributes approximately 10-15% to Chile’s GDP and directly employs around 1 million people. However, the industry’s impact on employment extends far beyond direct jobs in mining, with an estimated 2.3 million people, or roughly 12% of Chile’s population, dependent on the mining industry for their livelihoods.
Erik Medel, Codelco’s Market Intelligence Analyst, provided insights into the copper market, noting a 16% increase in demand compared to the previous year. Despite falling short of expectations, Medel expressed optimism about the future, with Codelco seeking new partners and projecting copper prices to remain above $10,000 per tonne until 2028.
During the seminar, Alice Lim, Head of Corporate Sustainability at the London Metal Exchange (LME), provided an overview of recent developments, trading updates, and strategic initiatives at the LME. She reported that overall market activity has increased since 2014, with daily trading volumes rising 27% year-over-year. Significant growth was observed in specific contracts, such as lead (37%), nickel (recovering to pre-2021 levels), steel scrap (60%), and copper (16%).
Lim also outlined the LME’s key initiatives, which include efforts to enhance liquidity and modernize the market, expand global presence with new warehouses in Jeddah and potentially Hong Kong, and develop a new trading platform called LMEselect 10. Additionally, the LME is focusing on sustainability, with plans to integrate it into the physical metal market through responsible sourcing, the LMEpassport (a digital register for ESG certificates), and mandatory emissions reporting for aluminum producers starting next year.
The LME has also been working on sustainability-related pricing, particularly for green nickel, with over 300 tons of low-carbon nickel traded through their digital platform in collaboration with Metalshub since its launch.
Sustainability Initiatives and Environmental Challenges
In response to growing environmental concerns, the Chilean mining industry has made significant strides towards sustainability. Key initiatives include:
- Emissions Reduction: In December 2020, 13 large copper mining companies voluntarily committed to greenhouse gas reduction targets, aligning with Chile’s national goal of achieving carbon neutrality by 2050.
- Water Management: The ongoing water crisis in Chile has forced the industry to adopt innovative water management practices, such as investing in desalination plants, water recycling systems, and more efficient water use technologies.
- Dust Control: Companies are implementing technologies like dust suppression systems and continuous emission monitoring to manage dust emissions effectively, improving air quality and working conditions.
Chile’s strong academic presence in mining and geology, along with collaborations between Chilean and UK universities, fosters research and development in the mining sector, particularly in areas such as renewable energy integration and environmental management.
Challenges for Investors
Despite the attractive investment opportunities in Chile’s mining sector, investors must navigate potential challenges, such as political tensions and social unrest. Chile experienced significant social unrest in the recent past, with protests in 2019 triggered by discontent over inequality and high living costs. These events led to the freezing of electricity prices for consumers, negatively impacting energy companies.
Following the social unrest, important political changes occurred, including the election of President Gabriel Boric in 2021, who came to power with promises of environmental and social reforms. However, his support for some large mining projects has disappointed environmental movements.
These events have influenced the investment climate in the mining sector, with some investors expressing concerns about regulatory stability in the country. A recent legislative proposal to impose revenue limits on small and medium-sized distributed generation assets has also raised concerns among investors.
However, it is important to note that Chile remains an attractive destination for investments in Latin America due to its long history of a favorable business climate. The mining sector continues to play a key role in the country’s economy, and the government seeks to strike a balance between economic growth and environmental sustainability.
Future Outlook
As Chile’s mining industry moves forward, it faces the dual challenge of meeting growing global demand for minerals essential to energy transition while addressing environmental and social concerns. The success of the industry will depend on continued investment in sustainable technologies, effective management of water resources, balancing economic growth with environmental protection, maintaining political stability, and fostering innovation and collaboration among stakeholders.
In conclusion, Chile’s mining industry presents both opportunities and challenges for investors. The LME’s approach to market evolution and sustainability reflects the global focus on responsible mining practices and the integration of ESG factors into the industry. As highlighted by various stakeholders during the seminar at the Embassy of Chile and LME Week, Chile must balance innovation, sustainability, and responsible governance to maintain its position as a key player in the global mining industry while contributing to a more sustainable future. Investors should carefully assess the risks and opportunities, engaging with local communities and governments to ensure the long-term success of their investments in Chile’s mining sector.
