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High and dry: Water issues in Chile and Perus mining industries

Introduction Situation in Chile

Figure 1 - Freshwater extraction in copper mining by region 2006 vs 2010 Figure 2 - Consumption of freshwater by process

2 2
4

Seeking efficiency

5
6

Diversification
Figure 3 - Freshwater extraction versus production in Chilean copper mining by region

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8

Policy and working together

Figure 4 - Total freshwater extraction in copper mining by usage, 2010

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11

Peru
Figure 5 - Water prices for mining in Peru

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15

Conclusion

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Water and Mining in Chile and Peru

March 2012

Introduction

here is no way around it: mines need water. In one of the most important centers of current and future copper production on the planet, this vital resource is not so easy to come by. The north of Chile and into Peru is a contiguous strip of earth with a similarly contiguous water and energy bottleneck. Despite sharing the shortage, mining companies operating in different parts of this region often have different reasons for feeling the threat from the lack of water. In northern Chile there is intense competition for water, but at the end of the day all of the big mines have water rights, meaning that, at least on paper, they are entitled to a certain volume of the liquid. But scarcity is acute and the day when rivers and aquifers, which are not well defined, could dry up is nigh. In Peru, certain areas are drier than others, like the southern coastal desert, while others have somewhat more abundant water. But water conflicts of a social nature plague miners in both cases, as communities and farmers are invariably concerned about quantity, quality and often just the concept of a mining company using their water. In both nations, climate change patterns threaten continually reduced supply as well. In other parts of Latin America, the most common water situation is of cyclical rainy seasons of excess water and dry seasons that can create scarcity, requiring special management to ensure a steady flow year-round. But in the copper belt of Chile and Peru which also hosts significant quantities of gold, silver, iron ore and other minerals but these generally require less water to process than copper issues surrounding water supply are front and center on miners risk radars and present major operational and economic considerations.

Situation in Chile
The northernmost regions of Chile are naturally arid, being largely covered by the Atacama desert, and are also home to the bulk of the countrys mining activity. Major growth in mining production in recent years coupled with further projected expansion mean that access to water is a critical challenge for the industry, particularly because miners are not the only ones who need it. Freshwater extraction for copper mining grew 10.7% in 2006-2010 from 11.2 cubic meters per second (m3/s) to 12.4 m3/s, according to Chilean copper commission Cochilco. The highest-consuming region is naturally region II, which produces 55% of Chiles fine copper and registered a rate of 5.41 m3/s

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in 2010. In second place was region VI with 1.84 m3/s, followed by region III (1.41 m3/s) and region I (1.38 m3/s). Copper concentrate-producing mines use a disproportionate amount of water, as flotation requires greater quantities of water than hydrometallurgical processes. While saround 60% of Chiles total copper output is in the form of concentrates, these account for more than 80% of the freshwater used in the copper production process. During the past decade, Chiles total copper production grew 14% from 4.74 million tonnes in 2001 to 5.42 million tonnes in 2010. For the next eight years, total mining sector investment is forecast at some US$65 billion-US$70 billion, and copper output could reach 7.4 million tonnes per year over the next six years. The industrys water needs will, of course, grow accordingly. So far, no mining project in Chile has been abandoned due to water issues. But the industry is constantly working on this because it knows that if it does not solve this bottleneck, it will be facing sooner rather than later the impossibility of continuing to develop new mining projects, says Joaqun Villarino, executive president of Chiles mining council. Apart from northern Chiles natural dryness, questionable management of resources and inadequate information regarding real supply and extraction rates have led to over-granting of water rights, meaning the freshwater draw in many areas is most likely unsustainable; water is taken more quickly than it can be naturally replaced, endangering the survival of surface water bodies and aquifers. Climate change patterns are also reducing the amount of water naturally available and extending the northern arid ecosystems further and further south. Overlying that is an increasing awareness throughout the whole community, but particularly at a local level, about the importance of water and the rights of individuals and groups to water. Communities are becoming more forceful in their approach to protecting their rights, which could lead to big problems for mining projects if not handled appropriately. The most serious conflicts between miners, communities and agriculture over water are occurring in region III, where mining has rapidly become the primary breadwinner and competes most intensely with agriculture. Region III is also host to Barrick Golds Pascua Lama gold-silver project, the subject of much community opposition related to its water use. But water scarcity in Chile in a sense refers more to the probability that supply will run out if action is not taken rather than actual inaccessibility for all users today. Mining companies have water rights and so do farmers. But both these industries are growing and the total quantities of water being drawn and available are not fully clear.
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Although miners might think they have a water right that says they can extract this amount of water per year, there are two risks to them. One, that might be challenged and taken away from them because of this greater community militancy or aggressiveness around water. And two, the water might in fact not be there in the future. It might not be there already, but also as climate change becomes more apparent, there might not be the water available. Thats the risk for them, says Ralph Burch, regional manager, water and environment, at consultancy Sinclair Knight Merz (SKM). Another very tangible risk already manifesting itself is the cost inflation associated with a deficit market. Cesco listed growing water costs among the key factors in a 29% average increase in operating costs among Chiles 12 largest copper miners in the first quarter of 2011 year-over-year, along with technical difficulties at operations and energy costs. Costs among the 11 biggest miners had grown 20% in 2010. The former head of Chiles water authority DGA, Rodrigo Weisner, said in 2010 that prices for water rights in the countrys north had increased from US$10,000 per liter-per-second to US$60,000 per liter-per-second in the last 10 years, noting that new freshwater rights are difficult to obtain.
Figure 1

Freshwater extraction in copper mining by region

2006 vs 2010

5,408

4,581

Liters per second

Total 2010: 12,439 l/s Total 2006: 11,171 l/s

2,100 1,838 1,190 1,381 1,217 1,406 839 439 926 1091 718 476

II 2006

III 2010

IV

VI

Metropolitan

Source: Cochilco

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Seeking efficiency
While overall consumption of water in Chiles mining industry has grown, so has efficiency in usage. Average consumption per tonne of ore processed in 2010 was 0.70 cubic meters for copper concentrate processes and 0.13 cubic meters for copper cathodes, versus 1.1 and 0.3 cubic meters, respectively, in 2000, according to Cochilco. The changes represent improvements of 36% in concentration and 57% in hydrometallurgy. I would say that this must be the only industry that has achieved such improvements in efficiency, says the mining councils Villarino, adding that the overall rate of recirculation of process water is now about 50%. But with growing ore processing volumes both because of greenfield and expansion projects and decreasing copper grades that require more and more ore to be processed on average to obtain a tonne of fine copper miners will have to continue with improvements and investments to raise efficiency levels. In hydrometallurgy, water losses mainly occur due to evaporation from the leach pads and must continually be replaced with freshwater. Strategies to reduce water losses include eliminating any filtrations, recirculating leach solutions and minimizing evaporation. At concentration operations, water is primarily lost because it ends up in a tailings pond, making it inherently more recoverable than water losses at an SX-EW operation. However at some operations the tailings dams are located at a significantly lower altitude than the flotation plant, requiring expensive pumping to recirculate water. In these cases, freshwater consumption per tonne is highest, notes Cochilco. While some operations have already high levels of efficiency, others recover almost no water for recycling back into processes, Cochilco says. Total concentrator water usage is 25.6 cubic meters per second and on average 33.3% of that comes from freshwater extractions. The least freshwater-consuming concentration operations consume in the order of 4.44 cubic meters per second, while the highest consumers average 68.2% freshwater. The lowest consumption rates tend to occur in medium- to large-scale operations and the highest in small- to medium-scale ones, mainly due to the operating cost structure of smaller concentrators and the difficulty of investing in recirculation equipment and technology. But operational water efficiency improvement must be an ongoing process for all mines. The first fundamental step for any mining operation is to have an

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integrated water management strategy that looks at water use as a whole, a step that most mines have taken with varying degrees of success, says SKMs Burch. Some miners are now taking the next step of creating water balance spreadsheets or computer models. The idea is to translate models into operations using IT solutions designed to support water-efficient decision-making on a daily basis. Meanwhile, miners are increasingly taking advantage of the latest water treatment technology to recover water they would previously have disposed of due to difficulty of treatment, such as acid mine drainage and tailings water. Wastewater treatment not only increases a mines water supply, but is also an important element of sustainability strategies, particularly for big mining. But clearly at the back of the mind is more security in the water outlook for their operations as well. Decreasing dependence on external water supplies is a key risk management strategy, says Burch.

Figure 2

Consumption of freshwater by process

Cubic meters / tonne of ore Process Concentration Hydrometallurgy 2000 1.1 (0.4-2.30) 0.3 (0.15-0.4) 2006 0.79 (0.3-2.1) 0.13 (0.08-0.25) 2009 0.72 (0.3-2.0) 0.13 (0.07-0.92) 2010 4 0.7 (0.3-2.9) 0.13 (0.06-0.8)

Sources: Clean Production Agreement for large-scale mining, 2002 Proust Consultores and DGA, 2008 Cochilco, 2010 4 Cochilco, 2011

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Diversification
Seawater is without a doubt the most widely referenced alternative to freshwater and will be a key element in northern Chiles water supply solution. While some consider seawater almost a panacea and mines in Chile have begun to use it, many industry players are also quick to point out its faults, a defense mechanism that is rather understandable considering the costs involved. Desalination technology is proven and widely used around the world, and the cost of desalinating is coming down as the efficiency of plants improves. But in Chile, the main cost of using desalinated water or direct seawater for a mining company is transporting the water to the mine. A 500-liter per second desalination plant using the dominant reverse osmosis technology consumes an average estimated 3.4KWh per cubic meter of desalinated water, representing about 80% of the total cost of the desalination process, according to figures from Cochilco. Chiles mines sit at about 180 kilometers inland and an average 3,000 meters above sea level, requiring a long pipeline, at least four pumping stations and average energy consumption of 14KWh per cubic meter, or about four times the energy required to desalinate the water, to deliver the water to its destination. In northern Chile, energy supply is equally important to water or even more critical, with scarcity and rising costs already impacting the mining industry. Villarino notes that much of the solution to the water problem depends on reliable, affordable power. In addition, desalination is not environmentally neutral. The water intake point can be harmful to marine life if not well planned, while the desal byproduct, a highly saline brine, must be returned to the ocean in a way that does not cause an imbalance at the point of discharge or elsewhere. Plants also require sites on the coast and although Chile has an exceptionally ample coastline they will almost always compete with tourism. All seawater supply projects to mines also have to consider the impact of the pipeline to the mine and its power supply. A much anticipated US$254 million, 1,000-liter per second desal project by the Spanish firm Aguas de Barcelona (Agbar) in region III, the first desalination project in Chile where a third party would sell freshwater to a diverse user base, had its EIS rejected in August 2011 by the environment ministry. The authority cited the proposed plant locations impact on the landscape and tourism and said that the power supply system was not adequately addressed in the EIS.

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Figure 3

Freshwater extraction versus production in Chilean copper mining by region

RM 4% Region I 11% RM 4% Region I 13%

Region VI 15%

Region VI 8% Region V 4%

Region V 9%

Region IV 7%

Freshwater extraction for copper mining by region 2010

Region IV 9%

Region II 43%

Region III 7%

Fine copper production by region 2010

Region II 55%

Region III 11% Source: Cochilco, 2011

And simply using saline seawater is not necessarily an option. Existing mines wishing to switch to or add seawater to their water supply in virtually all cases would be obligated to desalinate because of the cost or technical impossibility of adapting equipment and processes for use of raw seawater. In some cases, new mine projects could consider skipping the desalination step, like Antofagasta Minerals Esperanza, but often the nature of the ore and metallurgy will not allow it. Desalination has many virtues. But in order to utilize this resource, two things are needed. One, energy, and the other, management of the environmental impact of desalination It is not thinkable that all of the large scale mining in the country, we being the worlds biggest copper producer, could use desalination, says the mining council chief. However, a multi-partisan group of lawmakers has proposed just that. In November 2011 ten representatives of the lower house of congress submitted a bill, now under study by the mines and energy committee, to require all mining operations currently extracting more than 200 liters per second of freshwater to incorporate desalination and reduce their freshwater draw by 2016. Mines extracting 150 liters or more would be subject to the same requirement starting in 2020.

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Water and Mining in Chile and Peru

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The idea is to return water rights to the state and free up freshwater for human consumption and small scale agriculture, and the proponents of the initiative cite mining as a particularly profitable activity and the most intensive user of freshwater. While some kind of policy is clearly necessary, as we will discuss in the next section, the parameters of this particular proposal appear somewhat unrealistic. As a reference, the Collahuasi copper mine in region I, one of Chiles biggest, currently uses 1,070 liters per second of freshwater. The mine is planning a US$500 million desalination plant for its phase III expansion that would supply 1,500 liters per second in addition to its freshwater extraction. The desal system is at the prefeasibility stage and the preliminary expectation is that it will be ready to start operation by end-2017 to coincide with expansion startup. Meanwhile, seawater may be plentiful, but the expense and impact of using it, desalinated or not, means that mines that do plan to use it must be as efficient as possible to transport a minimum volume up to their mines. Desalinization has a big role to play, but it needs to be part of an overall solution; it shouldnt just be seen as a silver bullet. Its expensive to build and to operate, so it should only be considered as part of a solution that looks at integrated water management on site, having your operation run as efficiently as it can, minimizing reliance on external sources such as desal. But clearly desal has a role, in particular for some of the big operations, says Burch. A number of mine expansions and greenfield projects are already using or planning on seawater aside from Collahuasi and Esperanza, such as Minera Escondida and CAP. The mining industry is skeptical of proposals to bring freshwater from faraway places as a supposedly cheaper option than desalination. Chilean water authority DGA has looked at transporting water from the Argentine province of La Rioja, while two major projects are in the works to bring freshwater from southern Chile to the north. One involves transporting water by barge from a US$3.5 billion port to be built in region X and selling it to miners. The company in charge, Chilean firm Recurso Agua, says the cost of water would be higher than the average US$2.50US$3.00 for desalinated water delivered to a mine site, but that the system would be more reliable and faster to implement. Recurso Agua is in the process of acquiring water rights from the DGA and aims to start transport in 2013. A second project headed by Va Marina, the Chilean arm of French concessions and construction company Vinci, together with local technology transfer

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Water and Mining in Chile and Peru

March 2012

foundation Fundacin Chile, involves a 1,600-kilometer undersea pipeline from region VII to region I. Investment is slated at US$3.9 billion and transport capacity at 15 m3/s for agricultural, mining and human use. Studies estimate the cost of the piped water at US$0.49 per cubic meter. The company is working on obtaining water rights. Villarino asserts that the politics of sharing such a strategic resource between any two nations, or even between two different basins, make it an unattractive prospect, particularly for mining companies that need long term surety to make investment decisions. However, the executive director of Chiles national irrigation commission, Felipe Martin, said in a recent interview with BNamericas that the region VII pipeline project is highly feasible. What is clear is that water users in northern Chile will not be able to rely solely on freshwater and major diversification efforts are necessary in the short term.

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Policy and working together

If a long-term, integral solution to the water scarcity problem in northern Chile is to be found, the different sectors involved are going to have to work together. While the mining industry acknowledges that it has a responsibility to continue seeking greater efficiencies and diversification of sources, so do agriculture and sanitation. If the rest of the sectors that use water are more efficient, then this will be a lot more possible, says Villarino. Indeed, agriculture overall uses a much larger volume of water than mining operations and efforts to improve efficiency by farmers would provide the largest savings.

Figure 4

Total freshwater extraction in copper mining by usage, 2010

(In liters per second)

Other uses* 2,203

Hydrometallurgy 1,715

Total

Copper production processes

Copper production processes 10,236

Concentration 8,521

* Mining camp, services, other Note: 1,000 liters per second = 1 cubic meter per second

Source: Cochilco, 2011

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Water and Mining in Chile and Peru

March 2012

But investing in a water-saving irrigation system is not cost-effective for the average irrigated farmer because the water that farmers use today is relatively cheap, says the consultant Burch. In Australia, state governments are planning major programs to improve the efficiency of water use in irrigation in order to reduce the losses that have occurred historically, effectively creating access to more water and improving the reliability of the water allocations that already exist, says Burch. Chile has been sending delegations to Australia in recent months to study the lessons learned in water management there and how they might be applied in Chile. There does appear to be a desire on the part of the government to manage water in a more strategic sense at a national level. Ive yet to see a lot of hard evidence of that being promulgated, but its not something you can do overnight because there are so many issues involved, says Burch. Before any overarching water management policy can be made in Chile, more work is needed on identifying the surface and underground water available and how much is actually being consumed. Such a process, which must be continually ongoing, helps to provide all users with some certainty regarding

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Water and Mining in Chile and Peru

March 2012

current and future supply. At the moment we dont have that so there seems to be this rapidly growing industry in an environment in which there is no certainty about, or some lack of clarity about, the management processes in general, Burch says. All the more reason for cooperation at the user level. But so far, the different sectors have been hesitant to come to the table willing to take on some risk despite the fact than none will be able to continue expanding without a solution. Until now, each has defended its own interests because the issue had not become so critical, nor its criticality so imminent The level of criticality has been approaching faster than was expected and that is going to obligate [the parties] to sit down and talk, says Villarino. But even among mining companies, cooperation on projects like desalination is very complex, in part because they are competitors, but more importantly because each has its own agendas, processes, timelines and risk perceptions. As such, industry bodies like the mining council have an important role to play in encouraging and facilitating cooperation, because today the very real risk is that two nearby mines each build a desal plant and pipeline without ever talking to one another. Someone has to impose some order, says Villarino, noting that certain areas could be designated on the coast for desalination. While cooperation may be difficult, it is necessary if everyone is to have their long-term water needs met in in an affordable, sustainable fashion. Government, industry associations and companies and producers from all sectors must be involved with open minds to ensure an effective debate.

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March 2012

Peru
Peru has vast per capita water resources, but not in the areas where the bulk of the population and industry coexist. Seventy percent of the population lives in the arid or semiarid areas of the Pacific basin, which holds just 1.8% of Perus available water resources. The vast majority of the countrys freshwater is found in the scarcely populated Amazon region. As in Chile, agriculture accounts for the bulk of freshwater extraction (80%), while mining represents about 2%. Water scarcity in the regions where most mining and other activity occurs is causing major conflict, perhaps a natural situation in an environment of growing demand among competing users. But water conflict in Peru is exacerbated by poor water management and complex historical and political roots that have created the right conditions for conflict. Further complicating matters is the lack of mechanisms and institutional framework for conflict resolution with participation of communities and grass roots organizations. Peru suffers from a water crisis plagued by inefficient end-use, inefficient allocation of water, pollution, depletion of water resources and widespread water conflicts, said water management expert Julio Alegra in a paper. Growing water conflict is affecting mining development, but it must be noted that, as in Chile, explosive mining industry growth is also impacting water management. Mining may only account for 2% of the countrys freshwater draw, but the perception of its impact on water supply is much greater, due perhaps in part to the industrys long history as a major polluter in Peru. In Peru, water has always been a priority, in accordance with the culture. Water is part of their [communities] zone, their area, their very system. So for them, touching the water is going against their identity, because they feel they are part of their soil, says Rosa Retegui, CEO of Lima-based consultants Agua y Ambiente Per. The Minas Conga gold-copper project in Cajamarca is presently experiencing the most active of an extensive list of water-based mining-community conflicts in Peru. Construction at the US$4.8 billion project was halted in November 2011 after protests over perceived impacts on water supply for human and agricultural use became increasingly violent. The people dont want them to use their waters. There are a number of lakes that they [Conga] are going to use The problem is that there, at the base of the lakes, is the gold, says Retegui. The companys plan is to replace the four

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lakes at the project with four reservoirs that will store more than double the volume of water in the lakes and provide water to downstream users year-round. Three of the reservoirs would be exclusively for supplying other users. Despite intensive independent review of the EIS before its approval in October 2010, which theoretically would ensure that impact on water supply would be more positive than negative, and a prior public consultation period, communities do not trust the idea of their lakes being replaced by reservoirs. Independent consultants are now carrying out a US$300,000 review of water availability in Cajamarca, though the region president, Gregorio Santos who opposes the project, has said he will not recognize the results of the study. Minas Conga is run by Minera Yanacocha, which is owned by US-based Newmont
Figure 5

Water prices for mining in Peru

0.051 0.050 Soles per cubic meter 0.050 0.049 0.049 0.048 0.048 0.047 0.047 0.046 2009 2010 2011 2012

The price of water the government charges mining companies has risen some 5% in the last 2-3 years. The price charted here represents the charge for the areas with greatest water scarcity, such as Tacna, Moquegua, Ica and Chicama. Miners operating in less water-restricted zones pay up to 36% less.

Source: Autoridad Nacional del Agua

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Mining with 51.35%, Perus Ca. de Minas Buenaventura with 43.65% and the IFC with 5%. Other large projects, like Anglo Americans Quellaveco and Southern Coppers Ta Mara, are also in the midst of major delays due to water permits and conflict. The solution experts envision involves an elusive combination of an integrated strategic water management policy starting with comprehensive studies of water resources enhanced end-use efficiency and greater cooperation and participation among stakeholders. The use of seawater is also seen as an element that could alleviate scarcity in some areas. There are efforts in the works. President Ollanta Humala announced in November 2011 the creation of a committee within the ministry of energy and mines (MEM) that will oversee water issues in environmental impact studies. The committee will include members from MEMs EIS office, the national water authority (ANA), the agriculture ministry and environment ministry watchdog OEFA. Meanwhile, ANA has a project to modernize hydro resource management that is aimed at solving management deficiencies that are blocking the implementation of development projects. The project has financing from the Inter-American Development Bank and the World Bank and aims to improve usage efficiency basin by basin, eventually in all 159 basins. Of the total 80% of freshwater extraction that goes to irrigation, some 65% is lost through inefficiencies in the irrigation systems. Efforts by industry are also being made to treat and reuse wastewater that would otherwise be dumped, notes Retegui. But the level of conflict surrounding water use makes truly working together very difficult. What is being sought is integrated management, one, and two, that through that integrated management we can develop the environmental side, the economic side and the social side But the problem is that in many cases it is not being handled like that. This new government is looking for the way, but they have not achieved a completely open dialogue to be able to really work on it, Retegui says.

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Conclusion
Water supply and its costs are without a doubt a very serious risk for mining companies in Chile and Peru, particularly as production capacity is set to grow significantly in the coming decade. In both countries, experts are more or less clear on what needs to happen to defuse the situation, but saying is much easier than doing. In both places, greater end-use efficiency from all users would be a good start. Miners in Chile consider themselves the only ones to have made efforts in this direction and would like to see agriculture and water utilities find ways to be more efficient. In Peru, it is known that large quantities of water are lost through inefficient irrigation, and in both countries, it is farming that uses the greatest volumes of water, meaning efficiency measures in that sector have the greatest overall potential for savings. Among copper mining operations, which generally use more water than gold or other mines, the greatest consumption occurs in flotation, so copper concentrate mines have the greatest potential for water savings. Meanwhile, miners and other users must develop alternative water sources, like seawater, to ease the draw on often already over-burdened freshwater systems. This must be done in conjunction to increase the efficiency of investments and lessen the environmental impacts. But working together has been extremely difficult so far, as everyone has their own agenda and has been quick to play the blame game. Even a basic open dialogue has proved elusive in many cases due to the environment of conflict surrounding water supply. This is why good policy is needed. Both Peru and Chile lack solid, integrated water management plans for the long haul. Such policy might start with better information regarding the water resources available in a basin, valley or, better yet, at the national level to enable intelligent and broad-scope decision making. From there a management plan would consider all users needs and seek integrated, efficient solutions that commit both the state and the end users in investments and efforts to reduce consumption. This is perhaps the only way to ensure supply for everyone, today and in the future.

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BNamericas Mining Group

Editor Greta Bourke Bogot, Colombia Harvey Beltrn Lima, Peru Rafael Ponce de Len So Paulo, Brazil Frederico Barbosa Santiago, Chile Mark Helmantoler Vctor Henriquez Contact us today to receive a free 2-week trial subscription +56 (2) 941-0491 info@BNamericas.com www.BNamericas.com Sales Manager Daniel Bekker Designed by Alex Lpez

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